Although online pricing partially uses traditional methods inherent in the real market, it has its own characteristics in the electronic market. The traditional physical products pricing model relying marginal cost is not always applicable to information products, as they have virtually zero marginal cost. The assignment of the development costs of the first copies of the electronic product to fixed costs is forcing the company to build pricing payment of fees for the use of all the subsequent copies. Availability of information on the market makes the price information open to both consumers and competitors. Individual offer of goods and services in accordance with the specific needs of customers enables individual pricing. A variation of lease or license-based fee on the electronic market is one of the most profitable pricing monetisation models in the web. According to HTP Digital, a savvy digital marketing Manchester agency specialising in promotion and strategy development, switching to subscription-based licensing helped to press for up to 24% increase in revenue in 7 huge businesses. The company sells the right to use a product created by it once, (e.g. online database) and the price of such product in this case is not based on the marginal costs or the overall cost of its creation, but depends on the total number of subscribers, although each of them may use the product in different ways.
The aspects influencing pricing models
The decrease in the prices of goods on the Internet can be influenced by various factors. Sales agents (e.g. a digital platform) enable customers to know and compare the prices of many sellers. Knowing this, sellers tend not to fall out of the price range of the market. Duty free zones reduce differences in prices (especially this fact is true for the US, where in different states different tax rates are utilised).
Venture capital funds may be interested in the long-term success and are willing to take losses in the initial phase.
Reducing costs through self-service when placing an order (order placed consumers automatically); limited availability using the system EDI (Electronic Data Interchange), allowing to carry out JIT-delivery (Just-In-Time – just in time); reducing overhead Trade Organisation (equipment and operation of retail outlets); availability of cheaper customer service compared to the organisation of call center; lack of physical delivery in the case of the sale of digital products.
In addition to the factors reducing prices on the electronic market, there are factors contributing to their increase.
Costs of the distribution channel in the electronic market are similar to the costs of firms involved in trade directories. Most sellers tend to cover their costs by customers’ funds, but inform them about it only when an order for goods is placed. Thus, there can be a need in paying fees to companies that provide on their websites a link to the website of the company. These payments may constitute 7-15% of sales; of course, the expenses for marketing and advertising can be substantial.