Wednesday, March 24, 2010

MBA: Pricing Strategy

Pricing Strategy: Price is a highly visible decision variable for organizations: customers and rivals can see changes and anticipate responses. Please analyze your company's pricing policies. Consider your company's pricing techniques as an external business analyst would.

How does your organization determine the prices charged for its products?

On a very high level, we determine prices for sponsors and advertisers in a couple ways.

Marketing derives a value of each user. This is done with a complicated formula that takes into account ads clicked, subscriptions bought, fantasy games played and many other things. With this value, it then calculates how many visits these users make a month and use that as a number to sell to sponsors.

For more general products, ESPN calculates a CPM or click per million to use for allowing ads on the site. This CPM represents how much money the advertisers give to ESPN for each “click” of the ad impression.

To what extent does it use multi-part pricing, bundling, price discrimination, time-of-use pricing, and other strategies?

Well, ESPN bundles the subscription to Insider and ESPN the magazine. It allows lowers the subscription fee during the holiday season. Finally, there are special promotions, like coupons that will sign up and Insider for a lower price or fee.

How do your company's pricing policies compare with best practice methods for selecting prices?

I think it’s pretty standard. As seen from the answer above, we try to use bundling, time-of-use, multi-part and price discrimination.

One thing that I would like to investigate is if we could charge a higher price for things like Insider and The Magazine during times leading up to certain events (Super Bowl, NFL Draft, College Football Season, etc). Right now, we tend to lower prices during this periods because they are usually accompanied by free trials.

That said, at least for the Internet, charging a subscription fee is very hard as very few users will actually pay for it, and I think the goal is to get as many “Insiders” as possible and not worry too much about making a profit on signups.
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