Efficient Pricing of Geomarketing Internet Services Essay

AbstractGeo food selling tuition is discipline which enables the habitr to bestow better and faster decisions well-nigh marketing and sales activities. The main special(a)ction of development ar geographic, demographic, and statistic entropy. These in degreeation ar normally collected and keep by several institutions and come in a variety of salmagundis and formats. The final exam integrators acquire selective information facilitys, sort, mature across and organize them, and offer in advance defined analyses. In this constitution we focus on geomarketing swear outs offered on the net income where normally no physiologic intimately is exchanged. The subject of trade is geomarketing education the exploiter is able to extract from the informationsets. The main issue is how to set a P beto good charge for geomarketing information. The situation is P beto competent when the sum of users and divine service suppliers additional is maximized. We investigate nonli near set st gaitgies and their efficiency to serve mass markets and attract users with antithetical unbiddenness to invent.Nonlinear de vergeine is used in a broader sense to include the place of sell the same information crop on various vertical markets at charges that ar non in proportion to the exits in bargon(a) greet. The market research for the GISMO project (Krek et al. 2000) showed that the US market differs substantially from the European. It has characteristics of a commodity market, where suppliers offer very similar or competent products at similar wrongs. This is feasible further if the prices for raw datasets, which represent the main breastwork to enter the market, are outset or zero. Competition among service suppliers drives prices shoot and enables them to successfully serve a mass market. The European approach is mostly putd by the last prices of datasets and restrictions on the replicaright forced by the National Mapping Agencies. This prevents further production and creation of information products and serves only a narrow group of users with high automaticness to pay. We list the most most-valuable circumstances for Pareto efficient nonlinear price of geoinformation services.1 Introduction Price is a very all important(p) element of trade. It tail assembly only be discussed in relation to what is offered, how such(prenominal) value the potential user attaches to the product and how much he is willing to pay for it. A geomarketing service in this paper serves as an example for a geoinformation service in general where a Geoinformation product is traded. A Geoinformation product is defined as a detail piece of geoinformation which provides an reception to a forkicular users question. The provider of a geoinformation service has to select the medium of delivery and the price for the service.We decoct on geomarketing services provided online through the Internet. The service is mostly done automatically, and not by a human. Usually no physical good is exchanged. conclave information close to the product, placing the order, and earnings is done over electronic network. In the sections 5 and 6 we analyze different price strategies for geographic information and their Pareto efficiency. The s ituation is called to be Pareto efficient when the users and service providers surplus is maximized. We review fringy monetary value and nonlinear price and explain in which cases they conform to the Pareto efficiency. Setting a price equal to fringy price is not scotchally viable since such a price does not filmdom fixed hail. Some examples of nonlinear price, such as measure discounts, term- saturation commitments, and list of price options satisfy the Pareto efficiency indispensableness if original conditions are satisfied.We conclude with the list of the most important conditions for the Pareto efficient pricing of geomarketing service. They can be applied to geoinformation service s in general. 2 Geomarketing Services A geomarketing service is a service of providing geomarketing information to the user. Geomarketing information is information which enables the user to take better and faster decisions about marketing and sales activities. This information can be delivered to the user in a different form, format and through different media. Geomarketing information is collected from interior comp whatsoevers data, which are combine with external demographic, statistic and geographic data. A geoinformation that satisfies a particular information need in a particularised decision making situation is called a Geoinformation product.2.1 Geomarketing Data Geomarketing data consists of inherent fraternitys data and external data. Internal data (the rate of sale, circulating(prenominal) customers profiles, etc.) is collected and maintained by the company itself. External data comes in a variety of formats and forms, as a collection of human activitys, reports, maps, etc., and is ga in that locationd by different institutions. Demographic and statistic data is collected and maintained by Statistical Offices and aggregated to a certain extent. Geographic data is provided in Europe mostly by National Mapping Agencies, in ground forces by the US Geological Survey (USGS). Because of this broad variety of data, their twist, satiate and formats, they cannot be easily integrated and are not straightforward available by a non-technical user. 2.2. Geomarketing Information a Product The source of geomarketing information is geomarketing data. Specialized companies collect the data from different sources, combine them, sort and filter them.For example, the statistical and demographic data exact spatial dimension, which is usually given up by the street name and house number. This data has to be geocoded in order to link the attributes (purchasing power, age, educational structure, etc.) with geographic data. The providers identify dimensions o f data that are valuable for a certain group of users, package them and offer them as a Geoinformation product. A Geoinformation product is a specific piece of geoinformation which provides an answer to a particular users question. The answer to the question can come in many different forms as a selected dataset, combine of datasets, a report, a map, etc. To make the geomarketing service feasible, some in advance designed steps and analyses are offered to the user. The most common are customer profile, site selection, and market penetration.3 Internet as a Medium of Delivery The Internet changes the way transactions are done. user and seller can enter an electronic relationship without personal contact. The vendee can place an order any condemnation (from the seat at home, late in the evening) and can take as much time as he wants or needs to take the decision about the purchase. Searching for the right product over e-network, he can get comparable information about similar prod ucts from other companies, their characteristics and prices. Cooperation with potential and current users of geoinformation services is important. In the Internet world, the gap between service-consumers and services-providers blurs. Consumers become convoluted in the actual production process, their ideas, knowledge, information become part of the product specification process (Tapscott 1996). In a geomarketing service, usually no physical good is exchanged. The user gets o the result of nly the analysis, the answer to his question.Even more(prenominal) advanced geomarketing services offer the possibility of uploading the data of the user on the providers server and combining these data with the collection of the data on the server. A service offered via Internet take aims slight administration, paper work, and less human resources, which reduces transaction costs. Direct connection to the computer accounting governance can provide systematic and efficient registration of the transactions. Security and safeguard mechanisms enable the service provider to follow and control transactions. Selecting a meet pricing policy in order to attract widespread use of the service is of great importance. In the next sections, we review marginal cost and nonlinear pricing, and analyze their Pareto efficiency. 4 Pareto Efficiency The situation is Pareto efficient if there is no way to make both the user and the service provider better off. The sum of the users and providers surplus is maximized.It can be a understood lso as maximizing the difference between economic benefits and costs which appear on the users as well as on the providers side. The economic benefits are the benefits of using the product on the product has to him with his willingness to pay for the marginal unit of the product. If he expects high benefits, he will be willing to pay a high price for the product. Cost incurred on the provider side is mostly high fixed cost of designing and creating the Geo information product and enabling the service, and low marginal cost of providing an incremental unit of the product. The users cost is the price he pays for the product, the transaction cost and the cost associated with acquiring the information about the product. 5 Marginal Cost price and Pareto Efficiency Marginal cost pricing is pricing where the price equals the marginal cost.The cost of an economic good is an important determinant of how much the manufacturer will be willing to produce. The concept of marginal or extra cost is crucial for the situation on the market of economic goods. It has an important role in appraising how efficient or inefficient any particular price and production pattern is (Samuelson 1967). This observation is valuable for the trite economic good where the issue forth cost of producing the product depends on the quantity produced. The cost structure a Geoinformation product substantially differs from the cost structure of the standard economic good. The total cost of producing the product is mostly a high fixed cost of collecting the data and designing the product, and is not recoverable if the production is halted (sunk cost).The marginal cost of producing t e atomic number 42 and each additional copy of the product is h very low or zero, mostly the cost of disseminating the product. The share of the marginal cost in the total cost of production is negligible. Marginal cost pricing of a Geoinformation product would check to the marginal cost pricing evasion call for very low or zero price. price at marginal cost may or may not be efficient it depends on how the consumers total willingness to pay relates to the total cost of providing the good (Varian 1999). At the start-off stage of the production, the datasets have low value to most users and they have low willingness to pay for them. The high cost of producing the datasets cannot be recovered. M arginal cost pricing does not imply efficiency because it does not cover t he total costs of producing a Geoinformation product. 6 Nonlinear Pricing and Pareto Efficiency Pricing is nonlinear when it is not strictly proportional to the quantity purchased.Different prices are charged to different groups of buyers or the same product. Nonlinear pricing is too used in a f broader sense to include the practice of selling the same product on different markets at prices that are not in proportion to the differences in marginal cost. Good examples are phone rates, frequent flyer programs, and electricity (Wilson 1993). The first notion about charging different users differently for the same product was called price secernment (Pigou 1920) and marvelous among three different forms of discrimination. 6.1 Price Discrimination Pigou (Pigou 1920) first used the term price discrimination and he described the following forms of nonlinear pricing First-degree price discrimination The first-degree price discrimination is sometimes known as perfect price discrimination . The producer sells different units of output at different prices and these prices may differ from buyer to buyer. The buyer pays the maximum price that he is willing to pay, irrespective of the cost of production and supply.Usually it is difficult to determine what is the maximum price someone is willing to pay for the product. Second-degree price discrimination The producer sells different units of output at different prices, but any individual who buys t e h same amount of the good pays the same price. Second-degree price discrimination is much more common in practice. Good examples of this discrimination are volume discounts and coupons. Third-degree price discrimination The producer sells the output to different people at different prices, but each unit of output sold to a given person sells at the same price.Customers are divided into more groups, which have different want curves and different price elasticity. The highest price is charged to the groups with the lowest e lasticity. Examples of this discrimination are student discounts. 6.2 Two-part Tariff Two-part tariff is an example of a nonlinear pricing and consists of two parts. The first part of the tariff usually comes in the form of a membership, an one-year or periodical license and is supposed to cover fixed cost. The second part of the tariff is related to the usage (number of reports transferred, number of bits, layers, etc.) and covers the incremental cost. This pricing scheme is often used in telecommunication. Users are charged for the connection to the network and additionally for the usage. Two-part tariff pricing scheme can be very naturally applied to a geomarketing service. The first part of the tariff represents a membership fee, an annual or monthly licence for access to the data, reports and maps the second part is an additional fee usually based on the volume transferred. Price P for a geoinformation service is then P = p0 + p v.q where p0 pv q fixed fee (annual, monthly, m embership, etc.) price set for a volume transferred quantity transferred.The revenue collected from the first part of the tariff (p0 ) is supposed to cover the fixed cost of producing the first copy of the Geoinformation product. The price of u sage (pv ) should cover the incremental cost and the cost of transaction. The combination of the membership and usage constructed for the predicted demand is set so that the companys total cost is recovered. How high the fixed fee and the price of usage s hould be is animportant question. Availability of the raw data at low price will change the nature of the market. The price for both parts of the tariff (p0 and pv ) will form according to the sense of equilibrium rules of supply and demand. 6.3 Pareto Efficiency of the Two-part Tariff Two-part tariff can disadvantage a certain segment of the users. Imagine a geomarketing service company offer geographic data over the Internet.For the simplicity of reasoning, imagine there embody two segme nts of users those who use data on a regular fundament and have a high willingness to pay (governmental institutions, ministries, utilities, etc.), and those who seldom need data (students, individuals, small and medium companies, etc.) and have low willingness to pay. In this case, a high fixed fee excludes the users with low willingness to pay, free-and-easy users who need only a small volume of the data and are not willing to pay an annual membership fee or a license. The necessary condition for Pareto efficiency is not satisfied. 6.4 Quantity Discounts Quantity discounts are a form of a nonlinear price where the provider charges a lower price for a higher volume purchased.The opportunity of selling high volumes at a low price is often neglected in geoinformation business. change magnitude revenue from the higher volume at lower price enables the provider to improve the service and reduce prices for all users. The quantity discounts are usually designed in order to stimulate s ales, but can baffle the tutelage and accounting system. Pareto efficiency of quantity discounts depends on the volume-price categories offered by the service provider. This pricing strategy might disadvantage users with low willingness to pay, not macrocosm able to pay nor interested in purchasing higher volumes.6.5 Term-Volume Commitments match to this strategy the user agrees with the service provider to pay a certain amount of money for the service in advance. The payment is set according to the predicted demand for the service. This kind of agreement usually involves some discounts, because the whole payment is done at once and at the beginning of the period. Short-term contracts involve lower reduction in price than longer contracts. This strategy reduces billing and accounting cost and is often used by Internet providers. For example, a one-year-term commitment to spend $2000/month obtains a discount of 18% (Gong and Srinagesh 1998), for the 5 -year contracts the Internet providers use up to 60% discount. Term-volume commitments satisfy the Pareto efficiency emergency if the user can choose among different schemes and are designed indiscriminately.6.6 advert of Price Options Different pricing options can be combined and offered as a list of price options. In geomarketing services, the two-part tariff is often combined with an additional pricing option, the uniform pricing scheme. Under the uniform pricing scheme, the user pays the price (p2 ), which is proportional to the data transferred. Usually the tariff per volume purchased (p2 ) is higher in the uniform pricing scheme than the price (p1 ) proposed in the two-part tariff scheme, but the user need not pay an annual membership fee or license. The user profits if he is an occasional user, who needs a small volume of data. The sum he is willing to pay in this case is lower than the annual membership or license fee plus the cost of the data transferred.