Pricing And Distribution


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  • Product - A tangible object or an intangible service that is mass produced or manufactured on a large scale with a specific volume of units. Intangible products are often service based like the tourism industry & the hotel industry or codes-based products like cellphone load and credits. Typical examples of a mass produced tangible object are the motor car and the disposable razor . A less obvious but ubiquitous mass produced service is a computer operating system . Price – The price is the amount a customer pays for the product. It is determined by a number of factors including market share, competition, material costs, product identity and the customer's perceived value of the product. The business may increase or decrease the price of product if other stores have the same product. Place – Place represents the location where a product can be purchased. It is often referred to as the distribution channel. It can include any physical store as well as virtual stores on the Internet. Promotion represents all of the communications that a marketer may use in the marketplace. Promotion has four distinct elements - advertising , public relations , word of mouth and point of sale . A certain amount of crossover occurs when promotion uses the four principal elements together, which is common in film promotion. Advertising covers any communication that is paid for, from cinema commercials, radio and Internet adverts through print media and billboards. Public relations are where the communication is not directly paid for and includes press releases, sponsorship deals, exhibitions, conferences, seminars or trade fairs and events. Word of mouth is any apparently informal communication about the product by ordinary individuals, satisfied customers or people specifically engaged to create word of mouth momentum. Sales staff often plays an important role in word of mouth and Public Relations (see Product above).
  • Porters generic strategies.
  • Premium: Focus groups. Sell dreams/lifestyle. Premium pricing is the practice of keeping the price of a product or service artificially high in order to encourage favorable perceptions among buyers, based solely on the price. [1] The practice is intended to exploit the (not necessarily justifiable) tendency for buyers to assume that expensive items enjoy an exceptional reputation or represent exceptional quality and distinction. Gucci ‘selling dreams’
  • Penetration: PS3 sold at less than cost in 2006. It can result in fast diffusion and adoption. This can achieve high market penetration rates quickly. This can take the competition by surprise, not giving them time to react. It can create goodwill among the early adopters segment . This can create more trade through word of mouth . It creates cost control and cost reduction pressures from the start, leading to greater efficiency. It discourages the entry of competitors. Low prices act as a barrier to entry (see: porter 5 forces analysis ). It can create high stock turnover throughout the distribution channel . This can create critically important enthusiasm and support in the channel. It can be based on marginal cost pricing , which is economically efficient.
  • Value: After the week was over, and I had broken the fast with a curry and a decent beer, I wondered what I had learnt from the whole experience. It’s certainly not a healthy diet, and my body didn’t seem that happy by the end of it, no sir. And I wouldn’t advise vegetarians to do this, as it would be... nigh-on impossible. But it was damn cheap. For a week, I lived like a king. A king of tramps, but still, a king. I will and still do buy Tesco Value products, but only certain tried and tested ones, and only when I'm desperate. And before you ask whether they sell Tesco Value condoms, I didn’t look.
  • Price skimming: Early adopters Skimming encourages the entry of competitors . When other firms see the high margins available in the industry, they will quickly enter. Skimming results in a slow rate of diffusion and adoption. This results in a high level of untapped demand. This gives competitors time to either imitate the product or leap frog it with a new innovation. If competitors do this, the window of opportunity will have been lost. The manufacturer could develop negative publicity if they lower the price too fast and without significant product changes. Some early purchasers will feel they have been ripped-off. They will feel it would have been better to wait and purchase the product at a much lower price. This negative sentiment will be transferred to the brand and the company as a whole. High margins may make the firm inefficient. There will be less incentive to keep costs under control. Inefficient practices will become established making it difficult to compete on value or price.
  • Psychological pricing Psychological pricing or price ending is a marketing practice based on the theory that certain prices have a psychological impact. The retail prices are often expressed as "odd prices": a little less than a round number, e.g. $19.99 or £6.95 (but not necessarily mathematically odd , it could also be $2.98 or $3.90 [1] ). The theory is this drives demand greater than would be expected if consumers were perfectly rational . Psychological pricing is one cause of price points .
  • Captive product: Freebie marketing, also known as the razor and blades business model, [1] is the concept of either giving away a salable item for nothing or charging an extremely low price to generate a continual market for another, generally disposable, item. [1] The concept was pioneered by King C. Gillette , [1] inventor of the disposable safety razor and founder of Gillette Safety Razor Company (today known as Global Gillette , a division of Procter and Gamble ). It is a similar concept to loss leader marketing. The freebie marketing model may be threatened if the price of the high margin consumables in question falls due to competition. For the freebie market to be successful the company must have an effective monopoly on the corresponding goods. (Market dumping to destroy a smaller competitor is not covered here) This can make the practice illegal.
  • BOGOFF As with so many retailing innovations, the buy-one-get-one-free offer was imported from the USA during the economic downturn of the 1970s when food inflation was running at more than twice the current level. However, bogofs – as industry insiders always call them – really took off during the early 1990s recession and then once again in late 1990s when Wal-Mart entered the UK by buying Asda. The world's biggest retailer has always had a strategy of "every day low prices" – and shunned multi-buy promotions. It argued that both its suppliers and customers preferred the certainty of a permanently low price. Tesco, Sainsbury's, Morrisons and the others – fearful that a rejuvenated Asda would sweep all before it – reacted by offering customers a raft of deals, loyalty cards and budget discount lines. Many of the loyal cards and tactics no longer exist, but the bogof has remained a core part of supermarkets' strategy. Tesco is to introduce buy-one-get-one-free-later deals to help shoppers cut down on food waste. Under the offers, consumers will be able to postpone getting their free second promotional product until a later shopping trip. This would avoid perishable items sitting in the fridge or fruit bowl and then being thrown away if they are not eaten on time.
  • Routes to market – traditional and e-procurement Intermediaries – conventional approach. Technology push or market pull Maximising value creation through managing the supply chain
  • Intermediaries: sales force, distributors, dealers, retailers Personal selling (pharma), telesales (mobile), direct marketing (takeaway) ‘ Cut out the middle man’ – internet (DELL) Countermediation - Retailing: service business (add value). Concentrated. Online rivals.
  • Intermediaries: Manufacturers Wholesalers Distributors Retailers Distribution channels may not be restricted to physical products alone. They may be just as important for moving a service from producer to consumer in certain sectors, since both direct and indirect channels may be used. Hotels, for example, may sell their services (typically rooms) directly or through travel agents, tour operators, airlines, tourist boards, centralized reservation systems, etc. There have also been some innovations in the distribution of services. For example, there has been an increase in franchising and in rental services - the latter offering anything from televisions through tools. There has also been some evidence of service integration, with services linking together, particularly in the travel and tourism sectors. For example, links now exist between airlines, hotels and car rental services. In addition, there has been a significant increase in retail outlets for the service sector. Outlets such as estate agencies and building society offices are crowding out traditional grocers from major shopping areas.
  • Push strategy: With a push-based supply chain, products are pushed through the channel, from the production side up to the retailer. The manufacturer sets production at a level in accord with historical ordering patterns from retailers . It takes longer for a push-based supply chain to respond to changes in demand, which can result in overstocking or bottlenecks and delays (the bullwhip effect ), unacceptable service levels and product obsolescence. In a pull-based supply chain, procurement, production and distribution are demand-driven so that they are coordinated with actual customer orders, rather than forecast demand. A supply chain is almost always a combination of both push and pull, where the interface between the push-based stages and the pull-based stages is known as the push–pull boundary. [5] An example of this would be Dell 's build to order supply chain. Inventory levels of individual components are determined by forecasting general demand, but final assembly is in response to a specific customer request. The push-pull boundary would then be at the beginning of the assembly line .
  • A value chain can be applied to the supply chain as a whole. Helps in assessing the individual value contributions. Helpful in deciding when to vertically integrate and when to disaggregate activities according to whether the overall benefits and value can be enhanced by integration or specialisation. How effective is the cooperation of chain members to collectively remove costs and deliver a stronger value proposition relative to a competing supply chain? The strength of the supply chain can be the competitive force even though the brand name owned by the lead firm is most recognisable, success depends on all members of the chain. Outsourcing (make and buy)?
  • Pricing And Distribution

    1. 1. Pricing & Distribution Richard Berry Head of Creative Design
    2. 2. Marketing Mix <ul><li>Product </li></ul><ul><li>Price </li></ul><ul><li>Place (distribution) </li></ul><ul><li>Promotion </li></ul>
    3. 3. Value <ul><li>Marketing is a set of activities concerned with creating value for shareholders and other stakeholders by creating and capturing exceptional value for customers </li></ul><ul><li>Can be ‘real’ or ‘perceived’ </li></ul>
    4. 4. Pricing strategies <ul><li>Premium </li></ul><ul><li>Penetration </li></ul><ul><li>Economy </li></ul><ul><li>Skimming </li></ul><ul><li>Captive product </li></ul><ul><li>Promotional </li></ul>
    5. 12. Distribution <ul><li>Routes to market </li></ul><ul><li>Intermediaries </li></ul><ul><li>Push and pull </li></ul><ul><li>Managing the supply chain </li></ul>
    6. 13. Routes to market <ul><li>Intermediaries </li></ul><ul><li>Sales </li></ul><ul><li>Disintermediation </li></ul><ul><li>Retailing </li></ul>
    7. 14. Intermediaries <ul><li>Manufacturers </li></ul><ul><li>Wholesalers </li></ul><ul><li>Distributors </li></ul><ul><li>Retailers </li></ul>
    8. 16. Value chain