5th Unit - Pricing and Distributions -Marketing Management As per VTU syllabus

1. PRICING DECISIONS
&
MARKETING CHANNELS

2. 5TH UNIT SYLLABUS
 Pricing decisions: Significance of pricing,
factor influencing pricing (Internal factor and
External factor), objectives, Pricing Strategies-
Value based, Cost based, Market based,
Competitor based, Pricing Procedure.
 Marketing Channels: Meaning, Purpose,
Factors Affecting Channel Choice, Channel
Design, channel Management Decision,
Channel Conflict, Designing a physical
Distribution System, Network Marketing,

3.  Price: the exchange value of a good or
service

4. FACTORS AFFECTING PRICING DECISIONS

5. Objective Purpose Example
Profitability Objectives Profit Maximization
Target Return
Low introductory interest rates on
credit cards with high standard rates
after 6 months.
Market Share Objectives Sales Maximization
Market Share
Dell’s low-priced PCs increase market
share and sales of services
Value Objectives Value Pricing Per-song charges for music downloads
Prestige Objectives Lifestyle
Image
High-priced luxury autos such as
BMW and watches by Piaget
Not For Profit Objectives Cost Recovery
Market Incentives
Market Suppression
High prices for tobacco and alcohol to
reduce consumption
PRICING OBJECTIVES

6. PROFITABILITY OBJECTIVE
 Marginal analysis - Method of analysing the
relationship among costs, sales price, and
increased sales volume
 Profit maximization - Point at which the
additional revenue gained by increasing the
price of a product equals the increase in total
costs
 Target-return objectives - Short-run or long-
run pricing objectives of achieving a specified
return on either sales or investment

7. VOLUME OBJECTIVE
 Belief that increased sales volume is more
important in the long run than immediate
profits
 Can maximize sales through pricing and
nonprice factors such as service and quality
 Market-share objective - The goal of
controlling a portion of the market for a firm’s
product

8. VALUE OBJECTIVE
 Emphasizes benefits derived from a product
in comparison to the price and quality levels
of competing offerings
 Works best for relatively low-priced goods
and services
 Challenge is convincing customers that low-
priced brands offer quality comparable to that
of a higher-priced product

9.  Prestige Objective:-
 Develop and maintain an image of quality and
exclusiveness that appeals to status-conscious
consumers
 Example: Tag Heuer watches
 Pricing Objectives of Not-for-Profit
Organizations
 Pricing strategy helps them achieve specific goals
 Profit maximization
 Cost recovery
 Market incentives
 Market suppression

10. PRICING STRATEGIES
 Premium pricing
 Uses a high price, but gives a good
product/service exchange e.g. Concorde, The
Ritz Hotel
 Penetration pricing
 offers low price to gain market share - then
increases price
 e.g. France Telecom - to attract new corporate
clients (or Telewest cable)
 Economy pricing
 placed at ‘no frills’, low price
 e.g. Soups, spaghetti, beans - ‘economy’ brands

11. PRICING STRATEGIES
 Price skimming
 where prices are high - usually during introduction
 e.g new albums or films on release
 ultimately prices will reduce to the ‘parity’
 Psychological pricing
 to get a customer to respond on an emotional, rather than
rational basis
 .e.g 99p not £1.01 ‘price point perspective
 Product line pricing
 rationale of a product range
 e.g. MARS 32p, Four-pack 99p, Bite-size £1.29
 Pricing variations
 ‘off-peak’ pricing, early booking discounts,etc
 e.g Grundig offers a ‘cash back’ incentive for expensive goods

12. PRICING STRATEGIES
 Optional product-pricing
 e.g. optional extras - BMW famously under-equipped
 Captive product pricing
 products that complement others
 e.g Gillette razors (low price) and blades (high price)
 Product-bundle pricing
 sellers combine several products at the same price
 e.g software, books, CDs.
 Promotional pricing
 BOGOF e.g. toothpaste, soups, etc

13.  Geographical pricing
 different prices for customers in different parts of
the world
 e.g.Include shipping costs, or place on PLC
 Value pricing
 usually during difficult economic conditions
 e.g. Value menus at McDonalds

14. Markup pricing (cost-plus)
Target-return pricing (breakeven analysis)
Perceived-value pricing
Going-rate pricing (customary)
Auction-type pricing

15. PRICE DETERMINATION FACTORS
 Demand - The amounts of a firm’s product that
consumers will purchase at different prices during a
specified time period
 Supply - The amounts of a good or service that will be
offered for sale at different prices during a specified
period
 Pure competition - Market structure with so many buyers
and sellers that no single participant can significantly
influence price
 Monopolistic competition - Diverse parties exchange
heterogeneous, relatively well-differentiated products,
giving marketers some control over prices
 Oligopoly - Relatively few sellers; each has large
influence on price
 Monopoly - Only one seller of a product exists and for
which there are no close substitutes

16. PRICING METHODS
 Cost-plus pricing - Uses a base-cost figure per unit and
adds a markup to cover unassigned costs and to provide a
profit
 Allows businesses with low costs to set prices lower than those of
competitors’ and still make a profit
 Full-cost pricing
 Uses all relevant variable costs in setting a product’s
price
 Allocates the fixed costs not directly attributed to the
production of the priced item
 No consideration of competition or demand for the item
 Any method for allocating overhead is arbitrary and may
be unrealistic

17.  Incremental-cost pricing - Attempts to use
only costs directly attributable to a specific
output in setting prices
 Breakeven Analysis: - Pricing technique used
to determine the number of products that must be
sold at a specified price to generate enough
revenue to cover total cost

18. TEN WAYS TO ‘INCREASE’ PRICES WITHOUT
INCREASING PRICE
 Revise the discount structure
 Change the minimum order size
 Charge for delivery and special services
 Invoice for repairs on serviced equipment
 Charge for engineering, installation
 Charge for overtime on rushed orders
 Collect interest on overdue accounts
 Produce less of the lower margin models in the line
 Write penalty clauses into contracts
 Change the physical characteristics of the product

19. PRICE ADJUSTMENT STRATEGIES

20. DISTRIBUTION CHANNEL FUNCTIONS
 Information: consumer behaviour information
 Promotion: messaging
 Negotiation: price and other terms
(how is this done online?
 Physical distribution: think e-tickets?
 Prospecting: finding, communicating, and
tracking prospective buyers

22. INTENSITY OF DISTRIBUTION

23. MARKETING CHANNEL MANAGEMENT
Formulating
channel strategy
Design channel
structure
Select channel
members
Motivate channel
members
Coordinate with
marketing mix
Evaluate member
performance
 Realize only the place ‘P’
provides protection from
imitation
 Distribution strategies can
provide sustainable
competitive advantage

24. MARKETING CHANNEL MANAGEMENT
Formulating channel
strategy
Design channel
structure
Select channel
members
Motivate channel
members
Coordinate with
marketing mix
Evaluate member
performance
Set distribution objectives
Specify tasks to be
performed by the channel
Consider alternative
structures
Choose optimal structure

25. MARKETING CHANNEL MANAGEMENT
Formulating channel
strategy
Design channel
structure
Select channel
members
Motivate channel
members
Coordinate with
marketing mix
Evaluate member
performance
 Optimal structure identified
by considering:
 Market variables
 Product variables
 Company variables
 Intermediary variables
 Behavioral variables
 External environment
variables

26. MARKETING CHANNEL MANAGEMENT
Formulating channel
strategy
Design channel
structure
Select channel
members
Motivate channel
members
Coordinate with
marketing mix
Evaluate member
performance
 Develop selection criteria
Prospectiv
e channel
member
Management
succession
Sales
Performance
Market
Coverage
Reputation
Product
Lines
Sales
Strength
Credit and
Financial
Condition
Size
Attitude
Management
Ability

27. MARKETING CHANNEL MANAGEMENT
Formulating channel
strategy
Design channel
structure
Select channel
members
Motivate channel
members
Coordinate with
marketing mix
Evaluate member
performance
 Find prospective channel
members
 Evaluate prospective
channel members
 Convert prospectives into
actual channel members

28. MARKETING CHANNEL MANAGEMENT
Formulating channel
strategy
Design channel
structure
Select channel
members
Motivate
channel members
Coordinate with
marketing mix
Evaluate member
performance
 Learn about the needs and
problems of channel
members
 Advisory committees
 Offer support
 Informal support
 Strategic alliances,
partnerships
 Provide ongoing leadership
 Continuing focus

29. MARKETING CHANNEL MANAGEMENT
Formulating channel
strategy
Design channel
structure
Select channel
members
Motivate channel
members
Coordinate
with marketing mix
Evaluate member
performance
 Product and Channel
 Retailers (a channel
member) play an important
role in product positioning
 Display fixtures
 Personal selling

30. MARKETING CHANNEL MANAGEMENT
Formulating channel
strategy
Design channel
structure
Select channel
members
Motivate channel
members
Coordinate
with marketing mix
Evaluate member
performance
 Pricing and Channel
 Relevant to channel
members:
 Profit margins available to
channel members
 Pricing policies
 Incentives

31. MARKETING CHANNEL MANAGEMENT
Formulating channel
strategy
Design channel
structure
Select channel
members
Motivate channel
members
Coordinate
with marketing mix
Evaluate member
performance
 Promotion and Channel
 Promotions interface with
channel members
 Point-of-purchase displays
 Inventory levels
 Sales person training

32. MARKETING CHANNEL MANAGEMENT
Formulating channel
strategy
Design channel
structure
Select channel
members
Motivate channel
members
Coordinate with
marketing mix
Evaluate
member performance
 Assessment of success of
channel members in
implementing strategies
 Requires good information
flows between members
 Point-of-sale systems, EDI

33. MARKETING CHANNEL LOGISTICS / PHYSICAL DISTRIBUTION
 Logistics make products available to
customers
 Also called physical distribution (PD)
 Supply chain management (SCM) are
logistical systems that facilitate close
cooperation among firms in a channel

34. MARKETING CHANNEL LOGISTICS / PHYSICAL DISTRIBUTION
 Total Cost Approach and Systems Concept
Management
views logistics as
a system of
interrelated
components
Management
tries to reduce
cost of using the
components
as a whole
Transportation
Materials Handling
Order Processing
Inventory Control
Warehousing
Packaging
Systems
Concept
Total Cost
Approach

35. MARKETING CHANNEL LOGISTICS / PHYSICAL DISTRIBUTION
 Almost all
products
must be
moved
 Generally
one of the
highest
percentage
costs
 Use in-
house
transport or
common
carriers?
 What rates
are
available?
 What are
competitors
doing?
Transportation
Materials Handling
Order Processing
Inventory Control
Warehousing
Packaging

36. MARKETING CHANNEL LOGISTICS / PHYSICAL DISTRIBUTION
 Growing
use of
cross-
docking
 How to
minimize
distances
 What
equipment
should be
used?
 How to use
labor
efficiently
Transportation
Materials Handling
Order Processing
Inventory Control
Warehousing
Packaging

37. MARKETING CHANNEL LOGISTICS / PHYSICAL DISTRIBUTION
 Order
cycle time
(time
between
order and
delivery)
 How to
reduce
errors in
order
processing
 How to
develop
standards
for different
product
types
Transportation
Materials Handling
Order Processing
Inventory Control
Warehousing
Packaging

38. MARKETING CHANNEL LOGISTICS / PHYSICAL DISTRIBUTION
 Economic
order
quantity
(EOQ) is
the lowest
total cost
(inventory
carry cost
+ ordering
costs)
 How to
balance
inventory
levels with
order sizes
Transportation
Materials Handling
Order Processing
Inventory Control
Warehousing
Packaging

39. MARKETING CHANNEL LOGISTICS / PHYSICAL DISTRIBUTION
 Growth of
single item
shipments
 Where to
locate a
warehouse
 Number of
warehousin
g units and
size of units
 Ownership
question
Transportation
Materials Handling
Order Processing
Inventory Control
Warehousing
Packaging

40. MARKETING CHANNEL LOGISTICS / PHYSICAL DISTRIBUTION
 Effective
packaging
can help
control
inventory
carry costs
and help
logistics
efficiency
 What type of
package is
required
(sturdiness,
etc.)
Transportation
Materials Handling
Order Processing
Inventory Control
Warehousing
Packaging