3 Pricing decisions 23 Flashcards
What is Price ?
The money charged for a product or service
What are the 7 main influences on pricing?
Costs, Elasticity of demand, Product of demand, Market share, Marketing objectives, Positioning, Competitors
Benefits of basing price on costs:
Easy to calculate
Price increases can be just be justified when cost rises
Managers can be confident each product is being sold at profit
Drawbacks of basing price on costs:
Ignores price elasticity of demand
Mat not take account of competition
Profit is lost if price is set below the that customers are prepared to pay
Business has less incentive to control costs
2 main pricing strategies
Price skimming and Penetration pricing
Price Skimming
Involves setting high price to maximize profit
Product sold to different market segments at different times
e.j: Electronics items(Apple)
STARTS HIGH AND THEN GOES LOW
Penetration Pricing
Involves offering a product at a low introductory price
Aims to: Gain market share quickly
Build customer usage and loyalty
Build sales of higher-priced related (hook & bait)
Price can be increased once target market share is reached
STARTS LOW AND THEN GOES UP
What is distribution?
One of the four traditional element pf the marketing mix which involves the ways in which a product reaches the end consumer
What does a distribution channel do ?
It moves a product through the stages from production to final consumption
What are the 4 main kinds of distribution channel intermediary?
Retailers, Wholesalers, Distributors, Agents
Retailers…
The final step in the chain - deals directly with the consumer Focused on consumer markets ADVANTAGES Choose the final price Handle the final transaction Often with a broad geographical coverage They hold the stock
Wholesalers…
Buy in large quantities from producers
Break into smaller quantities to sell to retailers
ADVANTAGES
Reduce the producers transport cost
Retailers can order in smaller amounts from wholesalers
Distributors…
Distribute products and serve as a local sales point
Examples - building supplies, electrical components, industrial clothing
Different from agents in that a distributor holds stock
Agents…
Specialist type of distributor
Does not hold stock
Tend to operate in tertiary sector (services) e.g: Travel, Insurance, Publishing
Benefit of multichannel distribution
- Allows more target market segments to be reached
- Customers increasingly expect products to be available vio more Tham 1 channel
- Enables higher revenues EG: retail no stock customer can buy online
