Slide21_2010Fall_MGMT324 - MGMT 324 Marketing Management...

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MGMT 324 Marketing Management Sangwoo Shin Fall 2010 Nov 17, 2010
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Topics for Today Understanding 4 P s P roduct P rice P romotion P lace ± 3C based pricing ± Price discrimination ² Direct price discrimination ² Semi-direct price discrimination ² Indirect price discrimination ² Versioning
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Indirect P rice Discrimination Recap When you can not distinguish among individuals, but you know customer types Then you must offer the same deal to everybody and try to induce self-selection Usually, products of different “qualities” are offered at different “prices” ( Versioning ) and let consumers choose whatever they want ( Self-selection )
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Guess What? Five clues Three chairs Three beds Three porridges A girl with golden hair Three bears
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Indirect P rice Discrimination: Versioning What is versioning? Offering two or more versions of the product at different prices Different versions are usually perceived as having different “qualities” Why versioning? Profit maximization by price discrimination To induce self selection Classic Example: Book Hardcover Sold @ $54.81 Paperback Sold @ $34.60
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Versioning: How to Price Discriminate Whether to offer another version and How to price depend on Segment-specific perceived benefit of each version Marginal cost of each version Competition Segment size Basic Setting Two versions: Low-quality (L) and High-quality (H) A monopolist has to decide on selling either 1) L only, 2) H only, or 3) Both L and H Two segments ( A and B ) with 100 consumers each Marginal Cost of L (MC L ) = Marginal Cost of H (MC H ) = 0 Consumers in each segment all behave exactly same. They purchase L, H or neither.
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Versioning: How to Price Discriminate Case 1 Perceived Benefit ($) Version 50 40 60 L H Segment A Segment B 100 Offering L only ± P L =40 ± Sell L to both A and B ± Profit=40×(100+100)=8,000 Offering H only ± P H =60 ± Sell H to both A and B ± Profit=60×(100+100)=12,000 ± Rule of thumb: Sell each version to the segment with higher valuation That is, sell L to segment A and sell H to segment B ± Set P L = $50 to sell L to A and set P H = $100 to sell H to B ± Profit=50×100+100×100=15,000
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Versioning: How to Price Discriminate Case 2 Perceived Benefit ($) Version 50 40 60 L H Segment A Segment B 100 Offering L only ± P L =40 ± Sell L to both A and B ± Profit=40×(100+100)=8,000 Offering H only
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Slide21_2010Fall_MGMT324 - MGMT 324 Marketing Management...

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