Chapter 8: Pricing and Distribution Management Flashcards
Defining Price
The amount of money charged for a product/ service, or the sum of the values that consumers exchange for the benefits of having or using the product. service.
Characteristics of price
generates revenues (profit level depends on pricing) flexible P (positioning) Market versus customer perspectives
(price is the part of positioning)
(price is the key of buying or not buying)
price challenges
high or low price (high- don't meet demand low- not good quality) perceived value based pricing (psychological aspects) Pricing competition
common mistakes of pricing strategy
・cost- oriented not value- oriented (easy to decide price based on cost) ・not responding to market changes ・ignoring the marketing mix (positioning) ・failure to vary price (affluent place →higher price / range of products are different)
Drivers of pricing decisions: Internal factors
(5 of organisational Objects)
(Marketing Mix)
(Costs)
survival current maximum profit maximum market share maximum market skimming product quality leadership
coordination
target costing
fixed costs
variable costs
total costs
Drivers of Pricing Decisions: External Factors
Competitors:
Pure competition
monopolistic competition
oligopoly
pure monopoly
Customers/ consumers:
upper threshold
lower threshold
legal/ regulatory
fair competition
price fixing
nature of market/ demand
- when price drops, the quantity changes significantly.
- when price drops, the quantity does not change much.
- elastic demand curve
- inelastic demand curve
( necessary thing ex. medicines, tobacco)
Formulating six pricing strategies
- Selecting the pricing objective
- Determining demand
- Estimating costs
- Analysing competitor’s costs, prices and offers.
- Selecting a pricing method
- Selecting the final price
3 Methods for setting the price
1. Cost based method mark-up pricing, target- return pricing 2.Demand based method perceived value pricing, value pricing, other psychological methods 3. Competition based method going-rate pricing, auction pricing
managing price changes
Prices: rarely static
・competitive pressures
・market opportunities
・affect profit margins
The reasons for initiating price cuts
market dominance Defence Value for money excess stock waste reduction
responses for price cuts
・ignoring the decrease risky/ brand equity ・undercutting the competitor game on ・deflecting the cut raise perceived quality improve quality and increase price
defining marketing channels
A marketing channel system is the particular set of interdependent organisations involved in the process of making a product or service available for use or consumption.
marketing channels
single links/ intermediaries building relationships structure of channels varies neglected P Affects other Ps
benefits for using the rationale for using intermediaries
cost efficient
different types of distributors
wholesalers
(intermediaries that buy products in bulk, usually from manufactures, and resell them to trade customers usually small retailers)
Retailers
(Intermediaries that sell directly to the consumer and may either purchase direct from the manufacturer or deal with a wholesaler. They come in many different formats, sizes and locations)
Distributors and dealers
add value through services associated with stocking or selling inventory, credit and after sales service.
Franchisees
hold contracts to supply and market a product/ service to the blueprint of the franchisee.
Agents and brokers
have legal authority to act on behalf of the manufacturer without taking legal title to the goods or handling the products directly.
value added services through distribution
Facilitating Value ・financing ・training ・information ・After sales
transactional Value
・risk
・marketing
・administration
logistical Value ・assortment ・storage ・sorting ・bulk breaking ・transportation
Intensive Distribution Characteristics
・maximum number of outlets ・maximum availability ・convenience products ・high number of potential purchasers ・high purchase frequency ・low level of planning for purchases ・low price
selective distribution characteristics
・number of outlets varies ・specialist retailer knowledge ・shopping products ・medium number of potential purchasers ・Occasional purchase frequency ・medium level of planning for purchases ・medium price
Exclusive distribution characteristics
・few outlets ・close retailer/ consumer relationship ・specialty products ・low number of potential purchasers ・low purchase frequency ・high level of planning for purchases ・high price
competition in channels
horizontal/ vertical/ multichannel / channel system
five main sources
coercive power reward power legitimate power expert power referent power
