Priceline Chapter 10

Chapter 10

Pricing Products: Pricing Considerations and Approaches

Individual Assignment 

1. Read the opening vignette to the chapter. Think about the answers to the following questions:
1. What appears to be Priceline’s primary strategies?
2. How are these strategies different from those of competitors (if at all)? Consider travel agencies and even hotels themselves as competitors.
3. What is Priceline doing right? Doing wrong?
4. How has Priceline used pricing and the Internet to its advantage?
5. What do you think is the future of such services?

Share your findings with the class.

Think-Pair-Share

1. Consider the following questions, formulate an answer, pair with the student on your right, share your thoughts with one another, and respond to questions from the instructor:
1. What is price?
2. Why can it be confusing?
3. How do companies create pricing objectives?
4. What are the primary pricing objectives?
5. What factors, both internal and external, affect pricing decisions?
6. What is target costing?
7. What is nonprice competition?
8. What is a cost? What are the different types of costs?
9. What is an experience curve?
10. Characterize the pricing in the four different types of markets mentioned in the chapter.
11. Why is pricing perception by the consumer so very important?
12. What is price elasticity of demand?
13. What is cost-plus pricing?
14. What is the advantage of break-even pricing?
15. What is value-added?
16. What is EDLP?
17. What are the primary methods of competition-based pricing?

Outside Example

The financial services industry, particularly in the area of brokerages and equity trading, has been revolutionized by the Internet. In the past, brokerage firms provided a high level of service to investors, providing insight and analysis, as well as choosing stocks and when and how to trade them. Most stockbrokers had pretty much total control over their clients’ portfolios.

But then along came the Internet, and almost immediately discount brokerages sprouted. At almost the same time the Internet boom started, there were a lot of new companies going public, and thus a lot more stocks to buy and sell. The ability of investors to turn a quick profit had never been so easy, with IPOs soaring as much as 300 percent on the initial day of trading during the late 1990s.

These two forces combined to make companies like E*Trade a huge success. Full-service brokers found themselves on the sidelines, with their pricing strategies badly out of date. Because they provided so much advice and research, they typically would charge rates as high as $50 per trade, with minimum trade sizes of 100 or even 1,000 shares. E*Trade said no, that’s crazy. Let’s charge just $8 a trade, and let our clients trade even one share, if that’s what makes them happy.

A combination of the low price to trade and the number of IPOs available created a new phenomenon—day trading. This new practice was employed by millions of people who discovered, at least in the short term, they could make more money by trading stocks than they could at their full-time jobs.

Practices such as this made the new Internet brokerages a smash hit. And they are still there, even though trade prices have risen somewhat.

1. What might have led to the success of E*Trade?
2. What might have been E*Trade’s marketing objectives when it set its pricing levels for stock trades?
3. Do you think E*Trade foresaw the demand for low-cost equity trades, or do you think they “made the market” but allowing for inexpensive trades?
4. What type of general pricing approach is E*Trade using? Have others followed?