Pricing Strategies And Customer Loyalty Programmes In The Liberalised Book Market

PRICING STRATEGIES AND CUSTOMER LOYALTY PROGRAMMES IN THE LIBERALISED BOOK MARKET Bachelor Thesis Presented to the Faculty of Business In fulfilment Of the Requirements for the Degree Bachelor of Science in Business Administration (International Management) By Oliver Jones August 2009 Supervisor Prof Pieter Perrett


Pricing Strategies and Customer Loyalty Programmes Abstract With the liberalisation in 2007 of the Swiss book market, booksellers were able to set their own prices This thesis provides information about the approaches used in the book market relating to pricing strategies and customer loyalty programmes, and offers a brief overview of eBooks A qualitative approach was used for the data collection, and face-to-face interviews were used as well as telephone interviews The methodology used was based on the current market conditions, and the findings are presented anonymously The sample consists of booksellers, wholesalers, publishers and authors in the German-speaking regions of Switzerland The findings indicate that, regarding pricing strategies, the recommended retail price is most often used as a starting point Customer loyalty programmes take various forms, ranging from customer loyalty cards to organised events for a target audience In Switzerland, eBooks remain a niche market and the overall sales volume is marginal owing to the low level of demand In conclusion, the Swiss book market has remained fairly stable since its liberalisation, but a minority of actors are experimenting with pricing strategies and customer loyalty programmes The major hurdle at the moment is insecurity about the potential reintroduction of the fixed book price 

  

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Pricing Strategies and Customer Loyalty Programmes

Declaration of Authenticity I the undersigned declare that all material presented in this paper is my own work or fully and specifically acknowledged wherever adapted from other sources I understand that if at any time it is shown that I have significantly misrepresented material presented here, any degree or credits awarded to me on the basis of that material may be revoked I declare that all statements and information contained herein are true, correct and accurate to the best of my knowledge and belief Name Date Signature 

  

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Acknowledgements I would like to take the opportunity to thank all the people who have supported me with their knowledge and advice during my Bachelor thesis I would like to thank Mr Sven Michal from the State Secretariat for Economic Affairs SECO for providing me with the opportunity to write my thesis on a topic currently at the top of the political agenda In addition, he has been very supportive and encouraging throughout my research period I also want to thank my supervisor, Prof Pieter Perrett, for his guidance throughout the research period and for his enthusiasm regarding the thesis topic He has always been accessible and provided valuable advice Prof Dr Oliver Bendel, Prof Ralf Wölfle and the many interviewees deserve special thanks; without their valuable contribution and practical insights into the book market, this thesis would not have been possible Finally, my deepest gratitude goes to my family, who supported me during this research-intensive period and provided me with an enriching environment 

  

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Pricing Strategies and Customer Loyalty Programmes

Figure 3: Value Decoder Model Source: (Mohammed, 2005) Other approaches regarding value-based pricing may also be taken Value pricing encourages the customer to perceive that the price charged for the product or service is lower than the perceived quality (Balster, 2002) Probably the best known type of value pricing is the “every day low pricing” (EDLP) strategy as used by the US retailer Wal-Mart It is an aggressive strategy that uses comparisons with other competitors Furthermore, value pricing can also take the form of high–low pricing, in which the store uses normal prices but runs regular promotions for the products (Brunn, 2006) 2.1.2.5.3 Competition Pricing Going-rate pricing involves charging the most widespread price in the market It is a simple strategy to use, because no sophisticated calculations are needed, 

  

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and it leads to so-called price peace There is a distinction between native and sophisticated going-rate pricing; native means that the price is at the same level as that of competitors without taking into consideration costs and demand Sophisticated going-rate pricing sets the price in a defined segment in which the company is able to consider to a certain degree conditions of demand and costs (Van Looy et al., 2003) 2.1.3 Price-Adjustment Strategies In this section, various concepts for adjusting price are described One of the most common ways of adjusting price is the use of discounts Discounts are immediate reductions in price for a given period of time, and various forms of discounts are available Cash discounts offer a certain amount of money off if, for example, the bill is paid within a certain period of time Quantity discounts are available if the customer buys a larger quantity of the product, and seasonal discounts provide a reduction in the price if the item is bought off peak Allowances provide the retailer with money for promotion, and participation in an advertising and sales support programme leads to an additional reduction in the list price (Armstrong & Kotler, 2006) Segment pricing involves charging different prices for different groups of customers; this is possible primarily because of the different price elasticity of demand (Baker, 2000) One example of this is the pricing technique used by the Stadttheater Bern in Switzerland, which provides several categories of prices for the same play (Bern, 2009) 

  

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Psychological pricing takes customers’ emotions, feelings and value perceptions into consideration Many products, such as jewellery, will sell better if the price is high, and odd–even pricing is often used This method involves pricing a product at, for example, CHF 299, which is perceived as being in the area of CHF 200 rather than CHF 300 (Brassington & Pettitt, 2006) Promotional pricing uses two methods: an actual change in the product and a change in the quantity of the product or its composition Table lists various promotional-pricing strategies.
Table 1: Promotional Pricing Approach Description Bundling Several products of different types sold together at one total price Several units of the same product sold at one total price Discounted price for a certain time or on a given amount of stock Discounted price for the launch of a new product Price changes for featured items Pricing variations on the basis of the time of year Key items, competitively priced Price promise guarantees Multiple-unit Sale Introductory offer Special event Seasonal Leader line Matching Source: (Sullivan & Adcock, 2002) Bundling can have a positive impact on sales if the customer is able to choose which product he or she would like to bundle rather than being required to choose between fixed bundles (Hitt & Chen, 2005) Geographical pricing indicates that the price for a product varies between different regions The reasons for this include relative location, market factors, the macro-environment and retailers’ pricing policy The cost of delivering the 

  

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product and the level of local competition play an important role in geographical pricing (Bhatia, 2008) International pricing involves a careful analysis of the foreign market and the cost structures in a country In addition to shipping costs and production costs, governmental regulations and the level of inflation are also key factors (Doole & Lowe, 2008) Pricing strategies need to be carefully planned to avoid parallel imports that could hurt the company and would weaken its partners abroad (Mühlbacher et al., 2006) 2.1.4 Pricing for the Book Market As bookshops tend to use the various strategies and approaches mentioned above, this section provides an insight into the pricing strategies undertaken by publishers The pie charts given in Figs and show possible cost structures for novels and scientific books The examples on the next page is related to the German book market, therefore the VAT is given by 7%, in Switzerland the VAT is 2.4% 

  

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Figure 4: Cost Structure of Novels Source: (Wulf, 2005) Figure 5: Cost Structure of Scientific Books Source: (Wulf, 2005) 

  

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... advice during my Bachelor thesis I would like to thank Mr Sven Michal from the State Secretariat for Economic Affairs SECO for providing me with the opportunity to write my thesis on a topic... the research period and for his enthusiasm regarding the thesis topic He has always been accessible and provided valuable advice Prof Dr Oliver Bendel, Prof Ralf Wölfle and the many interviewees... liberalisation in 2007 of the Swiss book market, booksellers were able to set their own prices This thesis provides information about the approaches used in the book market relating to pricing strategies