If your prices are not perfect you will not get anywhere even if you have the greatest product/service in the world. Internet firms employ three primary pricing strategies- POPS, CAPS AND VAPS. If they are properly implemented, they can just help the firms gaining an advantage over the rest.
(POPS ) PHYSICAL OBJECT PRICING STRATEGY, works well by selling a physical item and that which is shipped to your customers. Amazon.com and Wall-Mart falls under this category. These firms start at the base level to determine the price by finding out how much it costs to produce and to deliver one additional unit. ( It is the marginal cost).
Let’s take the example of Wall-Mart. They sell microwave-oven. To sell an additional unit how much would it cost them? To need to figure this out they would have to find out the cost at which they buy from their suppliers, cost at which they put it in the store n the cost at which they execute their transaction. So to determine the final price a firm needs to add to the marginal cost.
This is the operating profit margin:
To find out the percentage they need to compare it with similar other firms. Amazon has a 6% profit. Competing retailers should aim at the same operating margin preferably a lower one would do the trick. A firm developing an efficient business process could minimize their cost and help them keep their prices low while still retaining their attractive margin.
(CAPS) COST OF ACQUISITION PRICING STRATEGY. POPS works well if your primary cost is the cost of the actual cost of good s that you are delivering. But firms that are selling product/service where the cost is marketing based, associated with the number of visitors to your sight it may benefit by utilizing CAPS to determine their final price. CAPS usually answers two key questions.
1. What will cost it to get people to visit a site?
2. What is the percentage of the site visitors that would make the final purchase?
The answer of the first question should be divided by the answer of the second question to give the firm its cost per acquisition. Therefore the operating profit margin can be added on this to determine the final price.
For example a retailer may find that on an average it costs 0.10$ for a visitor who visits the site and there may be 1% visitors that make the purchase. So from here we simply derive the cost per acquisition. And we find out what should be the final price. The key here is to minimize the cost per acquisition.
(VAPS) VALUE ADDED PRICING STRATEGY. For businesses in which the marginal cost is zero for example in the sale of digital products like e-books and online courses. VAPS work best while creating a business model in which you can charge different price to different clients.
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