2. About me …
2006 – BSc in Marketing and Communication (Catholic University, Milan)
2008 – MSc in Management (Catholic University, Milan)
2010 – Ph.D candidate in Strategic Marketing (University of Bergamo)
2011 – Visiting researcher at the Department of Marketing of the Aalto University
School of Economics (Helsinki, Finland)
Forthcoming (next Fall): lecturer in Product and Brand Management (bechelor
level), Strategic Marketing and Company Performances (master level) and in the
MediaBiz Master program at the Aalto University School of Economics
(Helsinki, Finland)
RESEARCH INTERESTS: PROJECT MARKETING, B -TO-B
MARKETING
Giuseppe Pedeliento - May 25-26, 2011 2
3. Agenda
May 25th -> On line marketing mix: in depth anlysis of product and price
May 26th -> The e-books case study and instruction for the assignment
May 30th -> Discussion of the assignments
Giuseppe Pedeliento - May 25-26, 2011 3
5. A brief recap of the 4Ps
Marketing Mix (McCarthy, E.J., Basic Marketing, Irwin,
Homewood, 1960).
“The set of controllable tactical tools that the firm blends to
produce the response in wants in the target market”
(Armstrong and Kotler, 1996)
Giuseppe Pedeliento - May 25-26, 2011 5
6. A brief recap of the 4Ps
Product: goods and services that constitute the company’s
offering
Price: determines company’s profits and the product’
appeal toward the customers.
Place: how the product is moved from the producer to the
customers
Promotions: how the company let the consumers know
about their offering
Giuseppe Pedeliento - May 25-26, 2011 6
7. A brief recap of the 4Ps
… are a subset of the 7Ps (service marketing mix):
Product
Price
Place
Promotions
Physical evidence ALSO PARTICULARLY
RELEVANT IN THE WEB
Process CONTEXT
People
Giuseppe Pedeliento - May 25-26, 2011 7
8. What is a product?
“Anything that can be offered to a market for attention,
acquisition, use or consumption that might satisfy a want or
need. It includes physical objects, services, persons, places,
organizations and ideas” (Armstrong and Kotler, 1996)
Differences between product and
services are ever more blurred!!!
Giuseppe Pedeliento - May 25-26, 2011 8
9. Product’s relevant decisions
Variety
Quality
Design
Features
Brand name
Product Packaging
Size
Add value services
Warranties
Return
……..
Giuseppe Pedeliento - May 25-26, 2011 9
10. How the web affect product
management and development
(Lehman & Winter, 2005)
Data explosion
Increased emphasis of brands
Changes in the balance of market power
Increased importance of multichannel
integration
Increased global competition
Giuseppe Pedeliento - May 25-26, 2011 10
11. Introduction
Research before Product Fulfillment
buying the Purchase
product
Online Online Home delivery
Offline Offline Customer collects
Online
Giuseppe Pedeliento - May 25-26, 2011 11
12. Product categories
Products can be classified depending on who the final
purchaser is.
Consumer products (B2C): destined for the final
consumer for personal, family and household use.
Industrial products (B2B): satisfy goals and needs of
organizations.
Giuseppe Pedeliento - May 25-26, 2011 12
13. Product categories
Products can be classified depending on the buying
processes:
Convenience products
Shopping products
Specialty products
Unsought products
Giuseppe Pedeliento - May 25-26, 2011 13
14. Convenience products
Low price goods/services that consumers usually buy
frequently, immediately and with a minimum buying effort
Giuseppe Pedeliento - May 25-26, 2011 14
15. Shopping products
Less frequently purchased, considerable time and efforts to
gather information and compare alternatives
Giuseppe Pedeliento - May 25-26, 2011 15
16. Specialty products
Products with unique characteristics for which a significant
group of buyers is willing to make a special purchase effort.
Buyers know what they want and will not accept a
substitute. Do not compare alternatives and will pay a
premium price if necessary
Giuseppe Pedeliento - May 25-26, 2011 16
17. Unsought products
Unsought products: products that
the consumer knows or not and does
not normally think of buying (e.g new
products). But also products to which
consumers are unaware, products that
people do not necessary think of
purchasing. Sometimes are purchased
as a result of a marketer’s actions or of a
particular event (e.g. rain).
Giuseppe Pedeliento - May 25-26, 2011 17
18. Product attributes and web marketing
AUGMENTED PRODUCT
implications
ACTUAL PRODUCT
CORE PRODUCT Installation
Packaging
Delivery Brand After-
name Core benefits Features sale
service
Quality Styling
Credit
Warranty
How to provide additional on line value?
Giuseppe Pedeliento - May 25-26, 2011 18
19. Relevant product attributes
Why Italian consumers purchaise online?
Quickness of purchasing and delivery process
Low prices compared with offline
Broader choices compared with offline
Exclusivity of the online offering
Other
I don’t know
Source: Casaleggio Associati, 2011
Giuseppe Pedeliento - May 25-26, 2011 19
20. Product categories and web marketing
implications
Are all the products marketable on line?
YES! Of Course!
Two sources of problems:
1. Distribution: products and services that cannot be delivered
online
2. Consumer behavior: e.g. product and services that are perceived
as risky by customers
Giuseppe Pedeliento - May 25-26, 2011 20
21. Product categories and web marketing
implications
Physical products: can be purchased online but necessarily
delivered offline.
Giuseppe Pedeliento - May 25-26, 2011 21
22. Product categories and web marketing
implications
Services: can be paid on line and delivered both online (e.g.
shares and bonds virtually exchanged in the trading on line
market) and offline (e.g. flight tickets) .
Giuseppe Pedeliento - May 25-26, 2011 22
23. Product categories and web marketing
implications
Digital products: products that are digital by composition (e.g.
antivirus software) and/or products that can be presented in
digital format (e.g. newspapers) and/or products that are
information (e.g. academic papers)
Giuseppe Pedeliento - May 25-26, 2011 23
24. Does everything could be acquired online?
Internet Perceived
usage importance
Search for informations
67% 75%
61%
Brands’ comparison 70%
Purchasing
28% 57%
decision
Choice of
35% the 51%
reseller FOR
Source: TNS – Google (2007)
HOW
On line purchasing= 0% LONG?
Giuseppe Pedeliento - May 25-26, 2011 24
25. What products are most likely to succeed
in the e-commerce?
http://www.youtube.com/watch?v=wbnYpynvpnA
Giuseppe Pedeliento - May 25-26, 2011 25
26. The hard to find (niche) product
Blackwell's Rare Books Mission: “buys and sells rare and collectable
books in all fields, especially modern first editions, private press and
antiquarian books”
Main advantage: rare products
easily accessible and
purchasable all over the world
Giuseppe Pedeliento - May 25-26, 2011 26
27. The hard to find (niche) product
How does the web add value?
Rare products easily accessible and purchasable all
over the world;
Increase in information availability (also through
networking and social communities);
Transaparency of the marketplace;
Reduction in search costs;
Bigger set of possible choices;
Giuseppe Pedeliento - May 25-26, 2011 27
28. The hard to find (niche) product and the
“long tale” The biggest part of the market!
THE BUSINESS IS HERE!
Giuseppe Pedeliento - May 25-26, 2011 28
29. The hard to find (niche) product and the
“long tale”
Consider the book’s market.
Amazon.com and other internet retailers sell nearly all of
the more than 3 million books in print.
…a typical brick and mortar stores on average has a stock
between 40,000 and 100,000 unique titles.
One might argue that consumers don’t really care about the
remaining 2.9 million book titles … However…we analyzed
Amazon’s sales patterns and found that 30-40 % of sales are
in books that wouldn’t normally be found in a brick-and-
mortar store.
Source: Erik Brynjolfsson, Yu “Jeffrey” Hu, Michael D. Smith 2006.
Giuseppe Pedeliento - May 25-26, 2011 29
30. The hard to find (niche) product and the
“long tale”
How does the web add value?
The company can exploit the extreme differences in
customers’ preferences
Online merchant have greatly increased the set of choices
available to consumers
Costs of production and distribution fall
Traditional retailer can only stock the hits, because shelf
space is expensive
Online retailers can stock virtually everything
Easy customer’s access to cultural contents
Giuseppe Pedeliento - May 25-26, 2011 30
32. Brand strategy
Online brand
Brand online
Global vs local branding
Old (Internet as a part of the
Overall branding strategy)
Offline brand
Online brand
New (a different brand for the
Online presence)
A brand is a name, sign, symbol, or a
combination of these, intended to identify the Pure online brand
goods or services of the seller and to
differentiate them from those of competitors
Giuseppe Pedeliento - May 25-26, 2011 32
33. Pure online brand – 5 steps process
Deciding on brand objectives and message
Developing a brand design
Creating the web site using the brand
Launching and promoting the brand
Building the brand experience
Giuseppe Pedeliento - May 25-26, 2011 33
34. Monitoring the brand
The brand is a company’s asset. Thus it must be continuously and routinely
monitored and measured by means of marketing research (quali and
quantitative)
Brand
loyalty
Brand An high brand equity allows to:
reduce marketing costs (especially
Brand awareness advertising);
equity attract new customers;
Perceived makes the demand for company’s
quality products rigid; brand extension ….
Brand
associations
Giuseppe Pedeliento - May 25-26, 2011 34
35. Is the brand important in the internet
arena?
What does differentiate the company vis a vis with competitors?
Brand credibility
Product range
Customer loyalty
Price strategy
Delivery’s time and costs
Additional services
Other
No differentiation
Source: Casaleggio Associati, 2011
Giuseppe Pedeliento - May 25-26, 2011 35
37. New product development
The marketing perspective (Kotler, 1967)
Idea generation N
P
D
Concept testing
L
i
f
Market analysis e
C
y
Product development & testing c
l
e
Market test
Commercialisation and diffusion
Giuseppe Pedeliento - May 25-26, 2011 37
38. New product development
The technology perspective (Avgerou, 1996)
Problem identification
Requirements
determination
Feasibility study
Systems analysis
Systems design
Programming
Implementation and
testing
Maintenance
Giuseppe Pedeliento - May 25-26, 2011 38
39. 1. IDEA GENERATION: Is the idea worth NO
considering?
YES
2.IDEA SCANNING: Is the product idea NO
compatible with comany’s strategy and resources?
YES
3.CONCEPT DEVELOP. & TESTING: Can we find a NO
concept that consumers like?
YES
4.MKTING STRATEGY DEVELOP: Can we find a NO
viable marketing strategy?
DROP
YES
5.BUSINESS ANALYSIS: Will this product meet NO
our profit goals?
YES
6.PRODUCT DEVELOPMENT: Does the product NO
meet commercial trends?
YES
YES
NO Send the idea back to prod NO
7.MARKET TESTING: Have product sales met
dev.?
expectations?
YES YES NO
Modify the product or mkting
8.COMMERCIALIZATION: Are product’s actual NO NO
Giuseppe Pedeliento - May 25-26, 2011 strategy? 39
sales satisfying?
40. New product development online
Internet impacts on new product development in terms of
efficiency and speed of the process
It allows:
1. Interactions with consumers to provide ideas, feedback
and testing on new product concepts
2. A real time platform for collaboration for all supply side
participants in the design, delivery and promotion of
new products
3. A tool to make the market adoption process faster
4. A tool to gather information in real time
Giuseppe Pedeliento - May 25-26, 2011 40
41. The role of online brand community on
NPD
Mulino Bianco takes care of its customers’ needs and desires.
Thanks to new communication channels that facilitate the interactions and relationships
with our clients we have decided to develop our growth with them.
For this reason we have decided to launch the project “Il Mulino che vorrei” : we want to
receive consumer’s idea regarding new product, evaluate all these idea with them and –
if are feasible and compatible with our mission, values and resources – realize them.
All the idea proposed are considered by our teams. We ask to the community just to vote
all those product idea that they consider interesting .
Giuseppe Pedeliento - May 25-26, 2011 41
42. Internet exposes brands to consumer’s
threats
Source: Krishnamurthy and Kucuk, 2009
Giuseppe Pedeliento - May 25-26, 2011 42
43. The role of reseller web site on (new)
product’s sales, firm’ brand and
customers
http://www.amazon.com/Apple-touch-Generation-
NEWEST-
MODEL/dp/B001FA1O0O/ref=sr_1_1?s=electronic
s&ie=UTF8&qid=1305730066&sr=1-1
Giuseppe Pedeliento - May 25-26, 2011 43
45. Influences on pricing strategies
Within the marketing mix price is the variable that most often makes or breaks the deal
Internal factors External factors
1. Marketing objectives 4. Nature of the market
PRICING demand
2. Marketing-mix strategy DECISIONS 5. Competition
6. Other environmental
3. Costs factors
Giuseppe Pedeliento - May 25-26, 2011 45
46. Price marketing objectives
Survival
Profit maximization
Market share maintenance
Product quality leadership
Prevent competitors from entering the market
Targeting
Positioning and repositioning
Giuseppe Pedeliento - May 25-26, 2011 46
48. Costs
Costs determine the lower price the
company can charge
What kinds of costs?
Variable costs: depend on the output.
Variable costs are the sum of
marginal costs over all units
produced
Marginal costs: is the production’
cost of a single item
Fixed costs: are independent by the
production’ volume
Giuseppe Pedeliento - May 25-26, 2011 48
49. Price elasticity of demand
Demand: is the amount of a good consumers will purchase
as a function of prices.
So demand depends (first of all) on price!
Price elasticity = % change in quantity demanded
% change in price
Inelastic Demand -> Price Quantity = Revenues
Elastic Demand -> Price Quantity Revenues
Giuseppe Pedeliento - May 25-26, 2011 49
50. Understanding elasticity – some tips
Demand is more elastic for …
Categories characterized by intense competition (the
lesser the competition, the higher the rigidity of demand)
Smaller share brands (the higher the brand share, the
higher the rigidity of demand)
Brands with low level of loyalty (the higher the loyalty,
the higher the rigidity of demand)
…..
Giuseppe Pedeliento - May 25-26, 2011 50
51. Cost comparison between on & off line
Offline Online
Consumers
still Product Costs Higher Lower
consider
transaction Search Costs Higher Lower
on the web
more risky Risk Costs Lower Higher
than offline
The supply Distribution Costs Lower Higher
chain is
hard to
organize!
Giuseppe Pedeliento - May 25-26, 2011 51
52. How to set up the price: brief
overview
Cost oriented approach
Competition based approach
Value based approach
Giuseppe Pedeliento - May 25-26, 2011 52
53. Cost oriented approach
Is the most common pricing method (approx. 60% of firms). It
consists in marking up average total unit cost by some constant
Benefits
Easy
Tangible (plenty of data available)
Justifiable
Problem
It’s product and not brand oriented
It’s strictly correlated with (production/selling) volume
Giuseppe Pedeliento - May 25-26, 2011 53
54. Competition based approach
Is less common than the former and it consists in setting up the
price on the basis of competitor’s price strategy
Benefits
It’s more strategic oriented
Tangible (when the firm has a good marketing intelligence)
Justifiable
Problem
It require a deep understanding of the market and of
competitors
It’s risky when the firm’s competitiveness is over (but also
under) estimated
It could not works in the long term
Its difficult when competitors have very similar products
It’s hard to use for convenience product
Giuseppe Pedeliento - May 25-26, 2011 54
55. A typical competition based schema
Important:
Feedbacks must be taken into account
Complicated in presence of low concentration
Giuseppe Pedeliento - May 25-26, 2011 55
56. Value based approach
Is based on the concept of value in use. The price is set up on the
basis of customer’s perceived value and not on any other factor
Benefits
It’s more target oriented
Allow to overcome (in part) the elasticity of the demand
Is the best way to set up the price when the product is boundled
with add value services
Problem
It require a deep understanding of customers
Value and perceptions are difficulty measurable
It’s hard to use for convenience product
Instable concept; varies markedly across individuals, because of
different tastes, knowledge, importance of performance
differentials to the user (e.g. computer), ability to pay, …
Giuseppe Pedeliento - May 25-26, 2011 56
57. Sources of Customer Value
1. Economic: the economic benefit
a customer derives from using a
product
E
2. Functional: those aspects of a
product that provide functional or
utilitarian benefits to customers F P
3. Psychological: the image of the
product, including how the
product “feels” and whether that
feeling matches the image the
customer wants to project (e.g.
hedonistic products/consumption)
Giuseppe Pedeliento - May 25-26, 2011 57
58. Value based approach
Long term objective: maximize customer lifetime value
(CLV)
To maximize CLV, prices should be customized according
to consumers’ perceived value
The issue is:
What is the actual
V = Σt (Rt - Ct) / (1+ i)t value of a
Net Value = V - A customer whose
Where
lifetime value is
R = Revenue estimated in T
C = Cost to Serve years?
T = Lifetime of the Customer
A = Acquisition Cost
Giuseppe Pedeliento - May 25-26, 2011 58
59. Impact of perceived customer value
Price sensitivity: the higher the perceived value the
lesser price sensitivity
Satisfaction: the higher the perceived value the higher
the satisfaction
Complaints and compliments: the higher the
perceived value the lesser (higher) are complaints
(compliments)
Word-of-mouth: the higher the perceived value the
higher the likelihood of positive wom (ewom)
Giuseppe Pedeliento - May 25-26, 2011 59
60. Having the right price
Dolan R. J. (1995) How do you know when the price is right,
Harvard Business Review, 73 (5), 174 – 183
Eight steps to better pricing:
1. Assess the value your customers place on a product/service
2. Look for variation in the way customers value the product
3. Assess customer’ price sensitivity
4. Identify an optimal pricing structure
5. Consider competitor’s reactions
6. Monitor prices realized at the transaction level
7. Assess customer’s emotional response
8. Analyze whether the returns are worth cost to serve
Giuseppe Pedeliento - May 25-26, 2011 60
61. Upward and downward price pressure
Web related costs
Upward Downward
Distribution (depending on the Transaction costs of ordering
product category) processing (e.g. e-tickets or b2b
exchanges)
Affiliate marketing: commissions to Online customer service
be paid to the affiliate for the link
(e.g. 15%)
Site development and maintenance Online direct mail (e.g. no printing
costs (depending on the complexity expenses)
of the site and the need for frequent
updates)
Search engine marketing costs (paid Other costs (e.g. inventory)
listings)
Giuseppe Pedeliento - May 25-26, 2011 61
62. Skimming vs penetration pricing
strategy
Skimming strategy: the marketer sets a relatively high price for a
product or service at first, then lowers the price over time. It allows
the firm to recover its sunk costs quickly before competition steps in
and lowers the market price.
Penetration strategy: the marketer sets a relatively low price for a
product or service at first, then higher the price over time. It allows
the firm to gain a (temporary) price competitive advantage.
Giuseppe Pedeliento - May 25-26, 2011 62
63. Skimming vs penetration pricing strategy
Skimming strategy: Penetration strategy:
Suitable when: Suitable when:
Strong relationship between price and Initiating mass market entry
perceived quality Building and keeping market share
Demonstrating strong competitive Discouraging competitors
advantages Establishing a standard
Positioning at the high end Facing high price elasticity
Little chance for competition
Costs are not strongly related to volume Not suitable when:
Trying to recover the investment fast Strong relationship between price
and perceived quality
Not suitable when: Demonstrating strong competitive
Economies of scale matter advantage
Costs are related to volume
Competitors are catching up quickly
Giuseppe Pedeliento - May 25-26, 2011 63
64. Skimming vs penetration pricing strategy
A skimming strategy is much more viable online rather than offline because of the
advantageous cost structure, smaller marketing investment (Wom, social network,
…), bigger market (without physical barriers), no or less inventory costs, …
1GB 79 € 2GB 149 € 30 GB 289 €
Giuseppe Pedeliento - May 25-26, 2011 64
65. Psychological pricing strategy
Pricing approach that considers the
psychology of prices and not simply the
economics. So it is strongly based on
perceived value
Customers use the price to judge the quality
(e.g. perfume or restaurants)
Even small differences in price can suggest
product differences (e.g. 199€: 100€
range instead of 200 € range )
Giuseppe Pedeliento - May 25-26, 2011 65
66. Differential pricing strategy
When the seller charges different prices for the same
product/service to buyers in different locations, different segments
or by purchase quantity.
Sometimes different prices are not based on significant differences
in costs:
customer-segment pricing (e.g. adults, children, students
museums admission)
product-form pricing (e.g. gift packages)
location/channel pricing (online/offline)
Giuseppe Pedeliento - May 25-26, 2011 66
68. Price lining strategy
Is the technique of categorizing goods and services according to price.
Customers can clearly identify which products are superior considering the
price.
Giuseppe Pedeliento - May 25-26, 2011 68
69. Price on the web
Seems to be important …
Low prices compared with offline
Source: Casaleggio Associati, 2011
Giuseppe Pedeliento - May 25-26, 2011 69