4 Alternative pricing structure or policies
Different types of pricing may be possible on the Internet, particularly for digital, down-
loadable products. Software and music have traditionally been sold for a continuous
right to use. The Internet offers new options such as payment per use, rental at a fixed
cost per month or a lease arrangement. Bundling options may also be more possible. The
use of applications service providers (ASPs) to deliver service such as web site traffic
monitoring also gives new methods of volume pricing. Web analytics companies such as
Indextools (www.indextools.com) and Webtrends (www.webtrendslive.com) charge in
price bands based on the number of visitors to the purchaser’s site.
Further pricing options which could be varied online include:
basic price
discounts
add-ons and extra products and services
guarantees and warranties
refund policies
order cancellation terms.The placeelement of the marketing mix refers to how the product is distributed to cus-
tomers. Typically, for offline channels, the aim of Place is to maximise the reach of
distribution to achieve widespread availability of products while minimising the costs of
inventory, transport and storage. In an online context, thanks to ease of navigating from
one site to another through the humble hyperlink, the scope of ‘Place’ is less clear since
Place also relates to Promotion and Partnerships. Take the example of a retailer of mobile
phones. For this retailer to reach its potential audience to sell and distribute its product,Place
Healthcare company GlaxoSmithKline (GSK) started using online reverse auctions in 2000 to drive down
the price of its supplies. For example, it bought supplies of a basic solvent for a price 15 per cent lower
than the day’s spot price in the commodity market, and Queree (2000) reported that on other purchases
of highly specified solvents and chemicals, SmithKline Beecham (prior to formation of GSK) regularly
beat its own historic pricing by between 7 and 25 per cent. She says:
FreeMarkets, the company that manages the SmithKline Beecham auctions, quotes examples of
savings achieved by other clients in these virtual marketplaces: 42 per cent on orders for printed
circuit boards, 41 per cent on labels, 24 per cent on commercial machinings and so on.
The reverse auction process starts with a particularly detailed Request for Proposals (RFP) from which
suppliers ask to take part, and then selected suppliers are invited to take part in the auction. Once the
bidding starts, the participants see every bid, but not the names of the bidders. In the final stages of the
auction, each last bid extends the bidding time by one more minute. One auction scheduled for 2 hours
ran for 4 hours and 20 minutes and attracted more than 700 bids!Mini Case Study 5.2
GlaxoSmithKline reduces prices through reverse
auctionsPlace
Place
The element of the
marketing mix that
involves distributing
products to customers
in line with demand
and minimising cost of
inventory, transport
and storage.