Küchenhelfer GmbH, a manufacturer of kitchen appliances, has set itself the goal of investing in digitization. The management wants to fight against the increasing competitive pressure and re-establish itself as a major market leader. Although the company has already taken the first steps towards digitization, such as its own website and internal digital processes, the management would like to change its business model and enter the market with a highly digitized food processor.
This food processor can automatically download cooking recipes from an online platform operated by Küchenhelfer GmbH. You can also upload recipes you have created to the online platform. With the help of sensors, the machine is also intended to revolutionize the “smart home” concept as an extension. The food processor connects to the refrigerator via WiFi and checks whether the fresh ingredients required for the recipes are available. If any are missing, they can be conveniently ordered and delivered online via an online grocery shop. Integration with intelligent storage cupboards and an interface to intelligent kitchen stoves are also planned.
Since go-to-market comes with the introduction of a new business model, marketing has to deal with pricing strategy for the time being. The machine is rented for a comparatively low monthly fee. However, the customer pays additional fees for using the online services (sharing recipes, networking with refrigerators, etc.). A new price model is also to be used for this, which contains both a variant based on the benefit intensity and a “flat rate” variant.
However, the management is now faced with the question of whether this food processor and the associated business model have any chance on the market at all. In addition to other issues, the management is particularly interested in how high the individual willingness to pay of customers will be in relation to the use of online services.
Table of contents
List of abbreviations
1 Introduction
1.1. Problem statement
1.2. Objective and demarcation
1.3. Course of work
2 Theoretical part
2.1 Online Services & Online Platforms
2.1.1 Characteristics of digital Goods & Platforms
2.1.2 Development of online services in relation to pricing
2.1.3 Cost-oriented pricing model vs. benefit-based pricing model
2.2 (Customer) benefit-based willingness to pay
2.2.1 Definition of willingness to pay
2.2.2 Customer Value Drivers: determinants of customer benefits
2.2.3 Procedure for determining willingness to pay
2.3 Clarification: Derivation of the research question
3 Methodological part
3.1. Data collection method
3.2. Operationalization
3.3. Conception questionnaire
4 Discussion
5 Conclusion & Outlook
6 Appendix:
Bibliography
List of abbreviations
e.g. - for instance
regarding. - concerning
or. - respectively
CRM - Customer Relationship Management
specifically. - That is
email - Electronic Mail
if necessary. - if necessary
Ltd - Limited Liability Company
Hrsg. - editor
i.d.R. - as a rule
IT - information technology
S. - side
SPSS - Statistical Package for the Social Sciences
u.a. - among other things
WIRELESS - Wireless Local Area Network
e.g. - For example
1 Introduction
1.1. Problem statement
Küchenhelfer GmbH, a manufacturer of kitchen machines, has set itself the goal of investing in digitization. In this way, the management wants to fight against the increasing competitive pressure and re-establish itself as a major market leader. Although the company has already taken the first steps towards digitization, such as its own website and internal digital processes, the management wants to change its business model and enter the market with a highly digitized food processor.
This food processor can automatically download cooking recipes from an online platform operated by Küchenhelfer GmbH. However, she can also upload created recipes to the online platform. With the help of sensors, the machine is also intended to revolutionize the "smart home" concept as an extension. The food processor networks with the refrigerator via WLAN and checks whether the necessary fresh ingredients are available for the cooking recipes. If these are missing, they can be conveniently ordered and delivered online via a food online shop. Integration with intelligent storage cabinets as well as an interface to intelligent kitchen stoves is also being planned.
Since the market launch goes hand in hand with the introduction of a new business model, marketing must first deal with the pricing strategy. The machine is rented for a comparatively cheap monthly amount. However, the customer pays additional fees for the use of the online services (exchange of recipes, networking with refrigerator, etc.). For this purpose, a new pricing model is to be used, which contains both a variant based on the benefit intensity and a "flat rate" variant.
However, the management is now faced with the question of whether this food processor and the associated business model has any opportunities on the market at all. Among other questions, the management is particularly interested in how high the individual willingness of customers to pay will be with regard to the use of online services.
1.2. Objective and demarcation
For the analysis of willingness to pay, the management commissioned the marketing department to carry out an empirical study. The corresponding information is collected with the help of an online questionnaire for a quantitative customer survey. Since cost-based pricing is not possible due to low variable costs, the decision was made to use a (customer) benefit-based pricing model. Based on this, the survey aims to determine both the customer benefit and the maximum price the customer is willing to pay for a particular service. With regard to the results of the survey, the objectives of the pricing can be derived.
Since the offer of Küchenhelfer GmbH in a first step only includes the use of the online platform for recipe exchange, this is also the focus of the survey. The further online services and the planned smart home concept will only be integrated in a later development phase.
The present work deals exclusively with the theoretically sound conception of a questionnaire and the development of a research design. Results from the study are not presented here.
1.3. Course of work
The work is divided into a theoretical and a methodological part. In the theory part, a literature search is carried out as a basis for the preparation of the questionnaire. The author first deals with the definition and characteristics of online services and online platforms as well as their development in terms of pricing. Readers will then receive an overview of the business models of digital goods and a comparison of cost- and benefit-oriented pricing models. In the last section of the theory part, the (customer-)benefit-based willingness to pay is defined and its determinants are explained in more detail. For this purpose, the experience for determining the individual willingness to pay is also presented and discussed. As a transition to the method part, the research question is derived and clarified.
The methodological part discusses the conduct of the survey. A research design including the choice of the examination method, target group description and sample size is created. On the basis of the literature search, an operationalization of the construct "(customer) groove-based willingness to pay" is then carried out. The resulting structure tree serves as an aid for the conception of the questionnaire. The exact structure and types of questions are presented.
Finally, the conduct of the survey is critically questioned and discussed with regard to its quality criteria. Recommendations for the evaluation and use of the results for the management of Küchenhelfer GmbH as well as a conclusion on the practical relevance of the survey round off the work.
2 Theoretical part
2.1 Online Services & Online Platforms
2.1.1 Characteristics of digital Goods & Platforms
"Digital goods are intangible means of satisfying needs that consist of binary data and can be developed, distributed or applied with the help of information systems." (Clement & Schreiber, 2013, p. 43).
Apart from immateriality, digital goods have other peculiarities that clearly distinguish them from physical goods. An important feature is that they are easily reproducible and therefore have no capacity limits. Reproducibility is made possible by the fact that the digital goods consist of bits and bytes. So if they are passed on, then they are not diminished, but doubled. Since there is no loss of value due to use, they are also indestructible. Another crucial feature is that they are easier to change, right up to and including personalization. With little effort, the products can be expanded or varied. However, this presupposes that various complementary goods are available. As positive as the characteristics of digital goods seem to be, they still have certain risks. One problem is the issue of data protection and IT security. Providers must also be aware of the risk of endangering the integrity of software products, e.g. by computer viruses, and plan precautions accordingly (Clement & Schreiber, 2013, pp. 48–49; Krcmar, 2015, p. 16).
From an economic point of view, digital goods have a special feature. While the marginal cost per unit produced for material goods decreases, they tend towards zero for the reproduction of digitized products. For the creation or distribution, there are initially high fixed costs, these are then extremely low when reproduced due to the above-mentioned properties. Therefore, cost-oriented pricing makes little sense. However, competitive pricing is also discouraged, as the price war can lead to marginal costs and is therefore no longer lucrative. In general, the pricing of digital goods is more complex because the value is subjective. In addition, in contrast to material goods, digital goods can only be perceived in two senses: Seeing and hearing. Providers must replace this deficit with other factors (Clement & Schreiber, 2013, pp. 48–51; Krcmar, 2015, p. 16).
As part of digital value creation, digitalizable products (e.g. software) and services (e.g. consulting) generate additional added value and novel services (Clement & Schreiber, 2013, p. 43). It should be noted that IT services or online services are nevertheless subject to the characteristics of a classic service. Here, too, production and consumption take place simultaneously ("Uno-actu principle") (Häussermann & Siebel, 2011, p. 62). This higher level of customer contact leads to a higher immediate need for services. Online services try to overcome the challenges of transportability, storage and standardization. Therefore, more and more IT service providers link their material products, such as.B hardware, with intangible services, such as maintenance, support or their own software, and thus offer high-quality solutions for their customers. (Harmon, Demirkan, Hefley & Auseklis, 2009, pp. 1–2).
Online platforms represent a new business model in Austria. Online platforms enable interaction between two or more user groups, each of which derives economic benefits from it (Demary, 2016, p. 4). Characteristic of these digital markets is that they have a high scalability and reach. Additional computing capacity can be flexibly adapted. In addition, digital technologies can reduce transaction costs in terms of platforms. However, a crucial feature is the strong network effects1, which makes an interaction of the actors possible in the first place. These positive network effects influence market dynamics and ultimately also decide whether the platform dominates the competition and thus has success in the "winner-takes-all market" (by Engelhardt, Wangler & Wischmann, 2017, pp. 11–15).
2.1.2 Development of online services in relation to pricing
In the past, price management still consisted of price negotiations (goods against goods or goods against money). It was not until the end of the 18th century that these were replaced by rigid prices and fixed conditions. In today's world, it is no longer costs and competition that influence the right price, but other influencing factors such as.B willingness to pay, performance perception or customer benefit. Also the time of the purchase or price psychological aspects are added. This ensures individual pricing (Hofer & Weiber, 2017, p. 63).
Today, information technology has a major impact on pricing strategy. Due to the increased availability of information and the improved reach, many potential customers can be addressed. It also creates the possibility of product bundling. The extended interactivity also leads to electronic transactions and customer interactions. Various forums in which buyers and sellers exchange ideas, rating platforms and search engines support the establishment of auctions and bundling pricing strategies (Harmon et al., 2009, p. 6). Social networks and platforms themselves deliver content and are in turn selected by customers. Pricing strategies must adapt to changing forms of communication and easy reproducibility. Lock-in effects, price differentiations and the already mentioned product or price bundling are used for this purpose. (Clement & Schreiber, 2013, pp. 43–44). Lock-in effects are generated during the enforcement of standards and mean that users are bound to a digital asset, a so-called system integration. Users can often only get away from it through high transaction costs (Leimeister, 2015, p. 347).
Although many methods still refer to the principle of "Homo Oeconomicus"2 Pricing is becoming increasingly complex. The traditional pricing model is being replaced by new pricing models. The customer hardly pays in advance (such as e.g. license fees), but more and more often only the actual use. However, the "pay-per-use" pricing model, which brings more benefit to the provider than to the customer, is already outdated. Other providers lure with free entry-level variants, but with limited functionalities. The extensions of the basic version are then subject to a fee. The free provision of the product or service has the advantage of fast distribution, especially for newcomers. "Follow the Free Pricing" serves to retain customers and attract attention – especially in a time of increasing sensory overload and information diversity. What has also proven itself are the monthly basic fees. They are considered the standard for web-based solutions (Clement & Schreiber, 2013, p. 43; Harmon et al., 2009, p. 7; Hofer & Weiber, 2017, pp. 64–65).
The key to success is that companies realize how much prices depend on customer requirements. Buyers evaluate the services and choose the products or services that maximize their perceived benefits, i.e. with a good price-performance ratio. The objective of an undertaking should be to generate longer-term profits by creating added value.Forbis and Mehta 1981; quoted from Harmon et al., 2009, p. 2).
2.1.3 Cost-oriented pricing model vs. benefit-based pricing model
In the previous sections, it was already mentioned that a benefit-based pricing model should be used for digital goods. For this, however, it is necessary to understand to what extent this pricing model differs from the classic cost-based pricing model. Figure 1 illustrates the different approaches to pricing.
Abbildung in dieser Leseprobe nicht enthalten
Figure Comparison of cost-based and benefit-based pricing models (Own presentation, based on Harmon et al., 2009, p. 1)
With the cost-oriented model, the price arises from an internal company perspective. A profit margin is added to the unit costs. Information about the customer is neglected. Cost-based pricing is typically short-term, tactical in nature and puts the interests of the provider above those of customers.Dutta, Bergen, Levy, Ritson and Zbaracki 2002; quoted from Harmon et al., 2009, p. 1). The flat rate is an example of a cost-based approach. Users pay a fixed amount for the unlimited use of the online services (Harmon et al., 2009, p. 2).
Benefit-based (or demand-oriented) pricing focuses on the customer's perception of the benefits of the respective service. The focus is on the customer. The main goal is to create long-term benefits for customers by developing a customer relationship and thus indirectly achieve the financial and strategic goals of the company (Harmon et al., 2009, p. 1).
2.2 (Customer) benefit-based willingness to pay
2.2.1 Definition of willingness to pay
"The (maximum) willingness to pay of a demander is understood to mean the maximum price that a demander is willing to pay for a certain quantity and quality of a service. This amount corresponds to the perceived value that the service has for the demander and thus represents the monetary equivalent of the benefit that the service provides to the demander as a whole.' (Kalish and Nelson 1991; quoted from Adler, 2005, p. 124). The definition of Customer Perceived Value is quite different in the literature. That term is often separated into 'value-in-exchange' (performance in the context of an exchange) and 'value-in-use' (by using the service).Vargo and Lusch 2004; quoted from Rouhi, 2012, p. 43).
Rouhi (2012) has developed the following definition in summary in his work:
"Customer Perceived Value is the combined customer perception of the effort and benefits of the relationship with the provider compared to its competitors." (p. 44). It serves as a "precursor to customer satisfaction, which provides information about the fulfillment of customer needs." (p. 39).
The higher the need for a service or a product, the higher the perceived benefit, which in turn leads to an increase in the maximum willingness to pay (Reifkogel, 2005, p. 13). The willingness to pay is also known under the term maximum price, reservation price or prohibitive price (Kalish and Nelson 1991; quoted from Sattler & Nitschke, 2003, p. 364).
The customer benefit-based pricing strategy is specific to the market segment, as the perception of benefits differs between customer groups. Therefore, companies need to determine the benefits that customers perceive during the service. This assessment includes the identification of customer benefit drivers, price sensitivity, the type of decision-making and other price-relevant characteristics (Harmon et al., 2009, p. 7). "Incorporating feedback data on customer preferences and perceived benefits closes part of the gap between customers' accessible, available characteristics and 'real' customer needs." (Haedrich & Müller, 2015, p. 50).
2.2.2 Customer Value Drivers: determinants of customer benefits
In the following, the four customer value drivers based on theoretical approaches as well as the scientific work of Rouhi (2012) and Harmon et al. (2009) Explains.
2.2.2.1 Functional benefits
That benefit is characterised by the characteristics of a service and is therefore strongly cognitively driven.Sirdeshmukh, Singh and Sabol 2002; quoted from Rouhi, 2012, p. 153). The exchange theory is suitable for explanation, which states that customers only enter into or maintain a business relationship with a balanced relationship between expenses or costs (inputs) and results or benefits (outputs) of a service (Raab, Unger & Unger, 2010, p. 332).
loud bird (2006) the functional benefits can be subdivided into price setting, quality, service and tangible environment (p. 92). the Price setting results from the evaluation of the price of an offered product. The decision on the purchase is therefore dependent on the price judgment. But other situational factors also play a role in the decision, such as.B the customer's financial situation or the pressure of need. In an assessment of the prize worthiness, in addition to the prize, the quality of the product. This is then an evaluation of the price-performance ratio. However, many customers tend to insecur from a high price to a high quality due to the uncertainty surrounding product quality. (Olbrich & Battenfeld, 2014, pp. 103–106). The assessment of quality is subject to the subjective assessment of the performance of a product. This also includes the service (Rouhi, 2012, p. 154). Under the tangible environment is the physical environment of a product is meant. These include, among other things, the premises or the appearance of the staff (Boslau, 2009, p. 68).
However, the performance or functional benefit can also be defined as follows (Peschke, 2017, pp. 13–14):
- Technical product benefits: physical characteristics, quality, flexibility in use, technical regulations, environmental compatibility
- Commercial product benefits: further conditions for maximizing benefits
- Operational product benefits: Ease of use, service, delivery or provision, maintenance
2.2.2.2 Relationship Benefits
Relationship benefits assess the interaction between provider and customer. Here, in particular, the resulting trust in the provider plays a major role. This affective benefit is therefore very important for areas with consulting-intensive services. The extent to which the relationship benefits are decisive in the mass market or in the case of goods that require little explanation has not yet been investigated. (Rouhi, 2012, pp. 155–156). Not to be neglected, however, is the effect of various special treatments or advantages, which are e.g. caused by bonus programs (Liu and Yang 2009; quoted from Rouhi, 2012, p. 156).
The relationship benefits can be explained, among other things, by risk theory. During a transaction, there is a certain amount of uncertainty on the part of customers. The expected risk can be reduced by customers choosing products or services with which they were previously satisfied. Or to put it another way: Customers choose the product where the greatest trust is there. This develops loyalty to the company or the brand (Neumann, 2006, p. 58). This theoretical approach therefore also has an influence on the brand benefits mentioned in the next section.
2.2.2.3 Brand Benefits
Brand equity is understood to mean the influence of awareness but also the sympathy and positive associations associated with a brand. (Vogel, 2006, p. 102). Especially in the case of complex goods, the risk of buying is increased and can be reduced by a positive brand image (Bydgoszcz 2004; quoted from Rouhi, 2012, p. 69).
With regard to the brand, at best, an emotional learning effect arises. If customers associate a positive experience with the company, then they also react positively to the stimuli, i.e. a similar behavior is evoked according to conditioning. This "inertia" leads to customers having their effort (see 2.2.2.4 below) can reduce (Rouhi, 2012, p. 68).
2.2.2.4 Economic benefits or expenses
The effort describes how customers perceive their monetary and non-monetary costs of the transaction. This includes, in particular, the time and effort involved in the transaction, i.e. from finding or installation to payment processing (Berry, Seiders and Gresham 2000; quoted from Rouhi, 2012, p. 157). The goal of a company should therefore be to reduce the transaction costs for buyers or to increase the transaction benefit (Adler, 2005, p. 125).
For transaction-centric digital platforms, the following services are therefore relevant for a successful merger of customers: Low search and information costs. This is made possible by providing and processing information about potential transaction partners accordingly. Differentiated search functions are also important (by Engelhardt et al., 2017, p. 21).
2.2.3 Procedure for determining willingness to pay
Sattler and Nitschke (2003) have created the following overview of the possible approaches for determining willingness to pay:
Abbildung in dieser Leseprobe nicht enthalten
Figure Instruments for the empirical determination of willingness to pay
(Own presentation, based on Sattler & Nitschke, 2003, p. 365 ) loud Skiera and Revenstorff (1999) no statement about the actual amount of willingness to pay is possible on the basis of purchase data (p. 224). Prices are too low in variance and disproportionately high data collection costs are incurred (Sattler & Nitschke, 2003, p. 367).
[...]
1 "Effect in which the benefit of a good increases with increasing number of users (usually) (positive network effects)." (Simon, Clausen & Tacke, 2018).
2 The "Homo Oeconomicus" always decides rationally and chooses the optimal variant (Hofer & Weiber, 2017, p. 64).
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