Pricing and Distribution

Pricing and Distribution

MKTG 201Semester 1, 2010Sandy Bennett

Pricing--Overview

• Definitions• Pricing objectives and constraints• Pricing approaches and methods• New product pricing• Pricing and the PLC

Marketing Mix

• Product• Price• Place• Promotion

Definitions

________ is the money or other considerations (including other goods and services) exchanged for the ownership or use of a good or service.

________ is a conscious, explicit management activity.

Why do firms need a pricing strategy?

• Price is the easiest marketing mix element to change

• Price affects ________• Pricing is the only element of marketing that

actually brings in ________, rather than incurring costs.

• Price is a critical factor in the profit equation

Pricing objectives

The key to successful marketing lies in the creation of a mutually beneficial exchange of value between one party and another

For the _______: benefit = satisfaction derived from the consumption or ownership of the product (benefit > price)

For the ________: benefit = primarily the revenue derived from purchases (benefit >cost)

Pricing objectives cont…

Pricing objectives tend to focus on various combinations of the following:

• Profitability• Long-term prosperity• Market share• Positioning

Price constraints

Price Ceiling (Max Price)

List Price

Price Floor (Min Price)

Price constraints cont…• Consumer Demand• Costs ________ and ________• Competitors

– Prices– Intensity of competition– Barriers to entry

• Legal constraints– Which industry in NZ has just had tighter

pricing constraints imposed?– Is there an industry in NZ which you think

should have tighter price constraints imposed?

Price Elasticity

• Elastic demand: a _______ change in price leads to a big change in demand

• Luxuries e.g.

• Inelastic demand: a _______ change in price leads to a small change in demand

• Necessities e.g.

Pricing approaches

Demand

Cost

Profit

Competition

DEMAND ORIENTEDPricing method Prestige pricing

Price lining

Demand backward pricing

Odd-even pricing

Target pricing

Bundle pricing

Yield management pricing

COST ORIENTED

Pricing method

Standard Markup

Cost-plus pricing

Experience curve pricing

Break even analysis

PROFT ORIENTED

Pricing method

Target profit pricing

Target return on sales

Target return-on-investment pricing

COMPETITION ORIENTED

Pricing method Definition

Customary pricing

Going rate pricing (above, at or below)

Loss leader pricing

Break-Even Analysis• Used to evaluate whether the firm will be able to cover

costs (break even) at a particular price• Indicates the break-even point, i.e., sales (units or dollars)

needed to break even

200400600800

1,0001,200

10 20 30 40 50

Total Revenue

Total Cost

Fixed Cost

Target Profit ($200,000)

Terminology

• ∏ = Profit • P = price• Q= quantity• FC = fixed costs• VC = variable costs = uvc x Q = unit variable

costs x quantity• TR = total revenue = P x Q = price x quantity

Break even pricing/Target profit pricing

∏ = TR – TC Profit = Total Revenue – Total Costs

Profit = (P x Q) – [FC + (VC x Q)]

• To calculate the ____________, profit equals zero

• For ______________, you put in the target figure for profit e.g. $1 million

Price-adjustment Strategies

_______ discounts encourage sales

_______ discounts smooth out demand

_______ discounts encourage early payment

_______ discounts motivate intermediaries

New Product Pricing

Skimming pricing (Demand oriented)• Selling to the top of the market at a high price before aiming at

more price sensitive customers (maximize profits from each layer of the target market)

• Advantages:

• Disadvantages:

New Product Pricing

Penetration Pricing (Demand oriented)• Price low to capture large market share

• Advantages

• Disadvantages:

Pricing and the PLC

• INTRODUCTION

• GROWTH

• MATURITY

• DECLINE

Pricing—Looking back

• Definitions• Pricing objectives and constraints• Pricing approaches and methods• New product pricing• Pricing and the PLC

Distribution--Overview

• Marketing channels and intermediaries• Types of distribution• Distribution intensity• Distribution and the PLC

Marketing Mix

ProductPricePlacePromotion

Marketing channels

– Marketing ___________ are individuals or organisations that act in the distribution chain between the producer and the end user (e.g. industrial buyers, wholesalers, agents and brokers and retailers).

– The _______________involves a group of individuals and organisations directing products from producers to end users.

Marketing channels

Elliot et al 2010

Consumer product marketing channels

Elliot et al 2010

Business-to-business product marketing channels

Elliot et al 2010

Why use Intermediaries?

Advantages

1. Reduces investment costs

2. Spreads risk

3. Allows manufacturers to specialize

4. Increases ________ for producers & consumers

5. Coordinates _______ and ________

6. Makes widespread distribution possible

Why use Intermediaries?

Disadvantages

1. _________ are shared /reduced

2. Reduces control (over the consumption experience)

Marketing Channel Functions

1. Information2. Promotion3. Contact4. Matching5. Negotiation6. Physical Distribution7. Financing8. Risk Taking

Information and Promotion

Information: gathering and distributing marketing research and

intelligence information about the actors and forces in the

marketing environment needed for planning and aiding

exchange.

Promotion: developing and spreading persuasive

communications about an offer

Contact and Matching

Contact: finding and communicating with prospective buyers

Matching: shaping and fitting the offer to the buyer’s needs,

including such activities as manufacturing, grading, assembling

and packaging

Negotiation and Physical Distribution

Negotiation: reaching an agreement on price and other terms of

the offer so that ownership or possession can be transferred

Physical Distribution: transporting and storing goods

Financing and Risk Taking

Financing: acquiring and using funds to cover the costs of the

channel work

Risk taking: assuming the risks of carrying out the channel work

Number of channel levels

Marketing channels may be described by the

number of channel levels involved (________) Each

layer of intermediaries that performs some work in

bringing the product and its ownership closer to

the final consumer is a channel level.

Channel levels

_______ marketingC1: has NO intermediaries. Consists of a manufacturer selling directly to consumers. Example:

________marketingC2: one intermediary. Example:

C3: two intermediaries. Example:C4: three intermediaries. Example:

Dual DistributionUsing more than one distribution channel at thesame time.

Seller (Producer Intermediary(ies)

Buyer(Consumer)

Channel Behaviour

Horizontal conflict: between firms at the same level of the channel. Example:

Vertical conflict: between different levels of the same channel. Example:

Channels in the service sector

The concept of marketing channels is not limitedto the distribution of physical goods. Producersof services and experiences also have to maketheir output available to target populations. Example:

Distribution intensity

• The market coverage decision takes into account the nature of the product and its target market. Generally, marketers will choose from:– ___________ distribution which distributes

products via every suitable intermediary– ___________ distribution which distributes

products through a single intermediary for any given geographic region

– ___________ distribution which distributes products through intermediaries chosen for some specific reason.

Distribution intensity

Low High

e

Exclusive

One or a few dealers within a given area

Selective

Several dealers within a given area

Intensive

Large number of dealers within a given area

Linking Product Class & Distribution

Product class Critical factors Distribution intensity

Convenience Availability/Convenience

Intensive

Shopping Choice/Selection

Selective

Specialty SpecializedInfo & Service

Exclusive

Adapted from a slide by Karen Fernandez (2008)

Distribution and the PLC

• INTRODUCTION

• GROWTH

• MATURITY

• DECLINE

Distribution—Looking back

• Marketing channels and intermediaries• Types of distribution• Distribution intensity• Distribution and the PLC