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Pricing and Distributions -Marketing Management
This document discusses pricing decisions and marketing channels. It covers factors that influence pricing like internal and external factors. It also discusses pricing objectives like profitability, market share, value, prestige, and not-for-profit objectives. Various pricing strategies are outlined like premium pricing, penetration pricing, product line pricing, and geographical pricing. The document also discusses marketing channel functions, intensity of distribution, and channel management topics like formulating channel strategy, designing channel structure, selecting and motivating channel members, and coordinating with the marketing mix.
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Pricing and Distributions -Marketing Management
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- 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: theexchange value of a good or service
- 4. FACTORS AFFECTING PRICINGDECISIONS
- 5. Objective Purpose Example ProfitabilityObjectives 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 Marginalanalysis - 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 Beliefthat 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 Emphasizesbenefits 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 Premiumpricing 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 Priceskimming 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 Optionalproduct-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-returnpricing (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-pluspricing - 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
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- 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
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- 23. MARKETING CHANNEL MANAGEMENT Formulating channelstrategy 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 Formulatingchannel 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 Formulatingchannel 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 Formulatingchannel 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 Formulatingchannel 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 Formulatingchannel 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 Formulatingchannel 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 Formulatingchannel 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 Formulatingchannel 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 Formulatingchannel 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