Week 6 - Pricing Flashcards
Pricing Strategy vs Distribution
- Pricing and distribution are distinct, yet complementary, elements of marketing.
- Strategically, they are difficult to separate.
- A premium-priced watch cannot be normally sold at a discount jeweller.
- A tractor producer that wants a specific mark-up is going to find it difficult to control margin if it sells through intermediaries.
What is price? What are the two common approaches to pricing online?
The price variable of the marketing mix refers to a company’s pricing policies, which are used to determine pricing models and to set prices for products and services.
Two common approaches for pricing online:
- Start-up companies tend to use low prices to gain a customer base.
- Existing companies transfer their existing prices to the web
Key Elements to Pricing
- Value: Customers place prices within the context the context of perceived value
- Variable: Prices can be changed in a number of ways apart from the absolute level, such as by time form or terms of payment.
- Variety: Prices can be set at different levels across multiple products and services to achieve different objectives.
- Visible/Invisible: Prices may be open and visible or hidden and confusing to customers.
- Virtual: A price change is arguably the easiest and quickest decision to make. The decision to raise or lower a price can be made quite straightforwardly.
Key Issues in Pricing Strategy
- Consumer Expectations and Perceptions - What makes consumers more sensitive to prices?
- Pricing objectives
- The firm’s cost structure
- Competition and industry structure
- Number and type of competitors
- Degree of regulation on prices
- Stage of the Product Life Cycle (PLC) - How does this affect pricing decisions?
- Promotion and Distribution
Pricing Policy
1- Selecting the pricing objective
2 - Determining demand
3- Estimating costs
4- Analysing competitors’ costs, prices and offers.
5 - Selecting a pricing method
6 - Selecting final price
Examples of Pricing Objectives
- Increase sales revenue or market share
- Volume-oriented
- Cash flow
- Maximise profits or magins
- Differentiate from /matching competitors
- Keep the customer satisfied
- Enhance the image of your product
Price Skimming
When a company charges the highest initial price that customers will pay for and then lower it over time.
Price Penetration
Offering a lower price initially to attract more customers to a new product of service.
- When the product isn’t very new
- When ease of imitation is high
- When awareness and acceptance are likely to be low.
- When trial is highly correlated with repeat purchases.
Situations that decrease price sensitivity
- Lack of substitutes
- Real or perceived necessities
- Complimentary Products
- Perceived product benefits
- Situational influences
- Product differentiation
- Limited distribution
Pricing Strategies
- Cost-Based Pricing
- Value- based pricing
- Competition based pricing
- Promotional pricing
- Psychological pricing
- Dynamic pricing
- Discriminatory pricing
What is distribution?
A group of individuals and organisations, each with its own objectives, working together to direct the flow of products from producers to consumers.
Channel Members are connected by a variety of flows
- Physical flow
- Payment flow
- Flow of ownership
- Information flow
- Promotion flow
Trends in distribution and marketing channels
- Growth of electronic commerce (e-commerce)
- Shifting power in the channel : Over the last 20 years, power has shifted from producers to retailers e.g. retailer brands
- Outsourcing functions: e.g. Many retailers outside transport to specialised firms
- Growth of direct and non-store retailing: Emergence of eBay, Amazon, etc…
- Increase of dual distribution channels
Types of Distribution Channels for Consumer Goods
- Exclusive distribution: When a firm chooses to use a single vendor to serve the market. E.g. luxury products, such as Gucci sell only at certain stores.
- Selective distribution: When the distribution is given to a limited number of outlets serving a given region. E.g. Bodyshop.
- Intensive distribution: A manufacturer aims to have their products as widely available as possible. E.g. Cocacola.
What is a franchise?
A franchise organisation is the most common type of contractual
relationship, which exists between a manufacturer, wholesaler or service organisation and independent businesspeople (franchisees) who buy the right to own and operate one or more units in the franchise system.
