BMGT 205: Assignment #4 Pricing

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Last week, Amazon announced a 25% increase in their Amazon Prime membership – from its current level of $79 to $99.  This is an example, a very visible one, of the importance of the P in the marketing mix equation (Price, Product, Place, Promotion).

Amazon Prime provides a lot of value – providing customers with free 2 day shipping, free streaming video, and free books on the Kindle lending library.   A key variable in a company’s ability to raise prices is the perceived value customers place on the product or service.  If the perceived value is higher than the cost, companies have a better ability of getting paid for the value they provide.  An overview of the price increase can be found here.

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An example of a customer who will be willing to pay for this value on twitter:

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Why this Amazon price increase is important is it really showcases a company’s ability to get paid for value if it is perceived highly by their customers.  Think about if if some other companies raised their prices by 25%:

  • A Gallon of Gas would be around $5.00
  • A Ford Focus would increase by around $5,000
  • A pair of $49 jeans would be $62

Would you be so quick to pay for these type of price increases?  Probably not – and the fact that Amazon can add 25% is pretty significant.  Some think it will work with minimal customer attrition.  Some don’t.

So for assignment #4 – I want each of you to be more aware of the P part of the pricing equation.  A few questions we will discuss in class next week:

1. Do you think that the Amazon Prime Price increase will be accepted by customers?  If so, why?

2. If not, and there is widespread attrition, do you think Amazon will back down and lower the price?  Why?

3. Think of your favorite retailer.  Give an example of how that retailer provides value to their customers.

4. What pricing strategy does your favorite retailer use (Chapter 15?)  Why do you think it is effective?

5. As a consumer – do you prefer everyday values and every low prices – or the thrill of getting a deal?

6. What part of the marketing mix are more important to you than price at your favorite retailer?

As always – post your thoughts in the comment section and we will discuss next class.