Chapter 8: Pricing and Distribution Management

Question 1

Defining Price

Answer 1

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.

Question 2

Characteristics of price

Answer 2

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)

Question 3

price challenges

Answer 3

high or low price 
(high- don't meet demand 
low- not good quality)
perceived value based pricing 
(psychological aspects)
Pricing competition

Question 4

common mistakes of pricing strategy

Answer 4

・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)

Question 5

Drivers of pricing decisions: Internal factors
(5 of organisational Objects)
(Marketing Mix)
(Costs)

Answer 5

survival 
current maximum profit
maximum market share
maximum market skimming
product quality leadership

coordination
target costing

fixed costs
variable costs
total costs

Question 6

Drivers of Pricing Decisions: External Factors

Answer 6

Competitors:

Pure competition
monopolistic competition
oligopoly
pure monopoly

Customers/ consumers:
upper threshold
lower threshold

legal/ regulatory
fair competition
price fixing

Question 7

nature of market/ demand

1. when price drops, the quantity changes significantly.
2. when price drops, the quantity does not change much.

Answer 7

1. elastic demand curve
2. inelastic demand curve
   ( necessary thing ex. medicines, tobacco)

Question 8

Formulating six pricing strategies

Answer 8

1. Selecting the pricing objective
2. Determining demand
3. Estimating costs
4. Analysing competitor’s costs, prices and offers.
5. Selecting a pricing method
6. Selecting the final price

Question 9

3 Methods for setting the price

Answer 9

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

Question 10

managing price changes

Answer 10

Prices: rarely static
・competitive pressures
・market opportunities
・affect profit margins

Question 11

The reasons for initiating price cuts

Answer 11

market dominance
Defence
Value for money
excess stock
waste reduction

Question 12

responses for price cuts

Answer 12

・ignoring the decrease
 risky/ brand equity
・undercutting the competitor
game on
・deflecting the cut
 raise perceived quality
improve quality and increase price

Question 13

defining marketing channels

Answer 13

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.

Question 14

marketing channels

Answer 14

single links/ intermediaries
building relationships
structure of channels varies
neglected P
Affects other Ps

Question 15

benefits for using the rationale for using intermediaries

Answer 15

cost efficient

Question 16

different types of distributors

Answer 16

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.

Question 17

value added services through distribution

Answer 17

Facilitating Value
・financing
・training
・information
・After sales

transactional Value
・risk
・marketing
・administration

logistical Value
・assortment
・storage
・sorting
・bulk breaking
・transportation

Question 18

Intensive Distribution Characteristics

Answer 18

・maximum number of outlets
・maximum availability
・convenience products
・high number of potential purchasers
・high purchase frequency
・low level of planning for purchases
・low price

Question 19

selective distribution characteristics

Answer 19

・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

Question 20

Exclusive distribution characteristics

Answer 20

・few outlets
・close retailer/ consumer relationship
・specialty products
・low number of potential purchasers
・low purchase frequency
・high level of planning for purchases
・high price

Question 21

competition in channels

Answer 21

horizontal/ vertical/ multichannel / channel system

Question 22

five main sources

Answer 22

coercive power
reward power
legitimate power
expert power
referent power