Download Chapter 13 Pricing Strategies

Chapter 13 Pricing Strategies
 Price competition is regularly offering products prices as low as possible and typically
accompanied by few services.
o Value pricing aims to improve a products value.
 Offers products with lower prices but the same benefits, and, at the
same time, seeks ways to slash expenses so profits don’t suffer. (ex:
Gillette M3 Power, Intel Xeon)
 Nonprice competition is when sellers maintain prices and attempt to improve their
market position by emphasizing other aspects of the marketing program.
o Best way to do this is to build strong brand equity for the firm’s product.
 Market-Entry Strategies
o Market skimming pricing is setting a relatively high initial price for a new
product. Suitable under the following condition:
 The new product has distinctive features strongly desired by customers.
 Demand is fairly inelastic.
 The new product is protected from competition through entry barriers.
 Ex: Flat screen TV, expensive hotels, LASIK surgery
o Market penetration pricing is when a relatively low initial price is
established for a new product. Suitable under the following conditions:
 A large market exists for the product.
 Demand is highly elastic.
 Economies of scale are possible.
 Fierce competition already exists in the market.
 Ex: Microsoft IE, Trend Micro Anti-virus
 Predatory pricing is driving competitors out of the marketplace by
“giving away” their product.
 Discounts and Allowances
o Quantity discounts are deductions from a seller’s list price intended to
encourage customers to buy in larger amounts or to buy most of what they
need from that seller.
 Noncumulative discounts are based on the size of an individual order
of on or more products (ex: $2 each or 3 for $5; golf balls)
 Cumulative discounts are based on the total volume purchased over a
specified period (ex: frequent flier miles)
o Trade discounts (functional) are reductions from a list price offered to buyers
in payment for marketing functions the buyer will perform. (ex: 40% and 10%)
 Retail = $400… retailer pays $240 to wholesaler… wholesaler pays $216
to the manufacturer… wholesaler is expected to pass on the 40% to the
retailer and keep the 10% to cover costs of wholesaling.
o Cash discounts are a deduction granted to buyers for paying their bills within
a specific time period. (ex: 3/10, n/30)
o Other discounts and allowances: coupon, mail-in-rebate
o Price customization is intended to establish various prices on the basis of
how much value is attached to a product by different people.
o Seasonal discount is given to a customer who places an order during the
slack season.
o Promotional allowance is a price reduction granted by a seller as payment
for promotional services performed by buyers.
o Price discrimination is a situation in which different customers pay different
prices for the same product. Can’t substantially hinder competition.
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Robinson-Patman Act intended to curb price discrimination by
large retailers.
Geographic Pricing Strategies
o Point-of-Production Pricing
FOB factory pricing is the only geographic pricing strategy in which
the seller does not pay any of the freight costs, only for loading the
freight aboard the carrier.
Uniform delivered pricing is when the same delivered price is quoted to all
buyers regardless of their locations.
Zone-delivered pricing divides a seller’s market into a limited number of
broad geographic zones and then sets a uniform delivered price for each zone.
Freight-absorption pricing is when the seller pays for some of the freight
charges in order to penetrate more distant markets.
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Special Pricing Strategies and Situations
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One-price strategy is when a seller charges the same price to all similar
customers who buy identical quantities of product.
Flexible-price strategy is when similar customers may pay different prices
when buying identical quantities of a product.
Flat-rate pricing is when a purchaser pays a stipulated price and then can
consume as much or little as they want of the product. (ex: AOL $19.95 access)
Single-price strategy is when all items in a store carry the same price (ex:
The Dollar Store)
Price lining involves selecting a limited number of prices at which a business
will sell related products (ex: shoes at only 3 different prices- up, mid, low)
Odd pricing sets prices at uneven amounts (ex: 49 cents, $19.95)
Leader pricing is when firms temporarily cut prices on a few items to attract
customers.
Loss leader is if the item (leader) is priced below the store’s cost.
High-low pricing is alternating between regular and “sale” prices on the
most visible products offered by a retail firm.
Resale price maintenance is when some manufacturers want to control the
prices at which middlemen resell their products.
Suggested list price is a price set by a manufacturer at a level that provides
retailers with their normal markups.
Price war may begin when one firm decreases its price in an effort to increase
its sales volume/market share.
Chapter 14 Channels of Distribution
 Distribution’s role in the marketing mix is getting the product to its target market.
 Middleman is a business firm the renders services related directly to the sale/purchase
of a product as it flows from producer to consumer.
o Merchant middlemen take title to the products they help market. Two
groups are wholesalers and retailers.
o Agent middlemen never own the products, but they do arrange for transfer
of title (ex: real estate brokers, travel agents)
 Disintermediation is a process where middlemen are eliminated.
 Distribution channel consists of the set of people and firms involved in the transfer of
title to a product as it moves from producer to consumer/business.
 Designing Distribution Channels
o First, specify the role of distribution.
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o Next, select the type of channel.
o Then, determine intensity of distribution.
o Last, choose specific channel members.
Direct distribution has no middlemen involved. Only producer and final customer.
Indirect distribution has at least one middleman.
Major Channels of Distribution
Distribution of consumer goods
 Producer to consumer
 Producer to retailer to consumer
 Producer to wholesaler to retailer to consumer
 Producer to agent to retailer to consumer
 Producer to agent to wholesaler to retailer to consumer
o Distribution of business goods
 Producer to user
 Producer to industrial distributor to user
 Producer to industrial distributor to reseller to user
 Producer to agent to user
 Producer to agent to industrial distributor to user
o Distribution of services
 Producer to consumer
 Producer to agent to consumer
Multiple distribution channels is used to reach different types of markets when selling:
the same product to both consumers and businesses (ex: sporting goods and insurance)
and relatively unrelated products (ex: company selling rubber and plastic)
Multiple distribution channels are used to reach different segments within a market
when: the size of the buyer varies greatly and geographic concentration differs across
parts of the market.
Vertical Marketing System is a tightly coordinated distribution channel designed
specifically to improve operating efficiency and marketing effectiveness.
o Corporate vertical marketing is when a firm at one level of a channel
owns firms at the next level or the entire channel (ex: Nike owns shoe outlets)
o Contractual vertical marketing is when independent producers,
wholesalers, and retailers operate under contract specifying how they will
improve effectiveness and efficiency of distribution
o Administered vertical marketing coordinates distribution through the
market/economic power of on channel member or the willing cooperation of
channel members (ex: Rolex in watches, Kraft in food products)
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Factors Affecting Choice of Channels
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Market considerations
 Type of market
 Number of potential customers
 Geographic concentration of the market
 Order size
Product considerations
 Unit value- low unit value usually are distributed with middlemen
 Perishability
 Technical nature- have presale and post sale service to sell it
Middlemen considerations
 Services provided by middlemen
 Availability of desired middlemen
 Producers’ and middleman’s policies
Company considerations
 Desire for channel control
 Services provided by seller
 Ability of management
 Financial resources
Distribution Intensity – how many middlemen will be used at the wholesale and
retail levels in a particular territory.
o Intensive distribution is when a producer sells its product through every
available outlet in a market where a consumer could look (ex: Haagen Dasz
ice cream and Iams dog food)
o Selective distribution is when a producer sells its product through multiple,
but not all possible wholesalers and retailers in a market where a consumer
could possibly look.
o Exclusive distribution is when a supplier agrees to sell its product only to a
single wholesaling middleman/retailer in a given market (ex: Lamborghini)
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Conflict and Control in Channels
Goal is to decrease conflict and increase control within a channel
Chargeback is a penalty that a retailer/wholesaler assesses to a vendor for violating
an agreed upon distribution policy or procedure.
o Horizontal conflict occurs among firms on the same level of distributing (ex:
Toys R Us vs. Wal-Mart). Form of business competition.
 Scrambled merchandising is a primary source of horizontal conflict
that happens when middlemen diversify by adding non-traditional
product lines.
o Vertical conflict occurs between producer and wholesaler or retailer.
 To bypass wholesalers, a producer can: sell directly to consumers or sell
to retailers.
 To avoid being bypassed, wholesalers need to improve competitive
positions by: improving internal performance, providing management
assistance to customers, forming a voluntary chain, or develop
middlemen’s brands.
 Manufacturers can control retailers by: building strong consumer brand
loyalty, establish 1+ forms of vertical marketing, refuse to sell to
uncooperative retailers, and arrange alternative retailers.
 Retailers can control things by: developing store loyalty, improve
computerize information systems, and form a retailer cooperative
(small retailers band together to form a wholesale warehouse)
o Channel power is the ability to influence the behavior of another channel
member. There are various sources of power:
 Expertise – knowledge about the product or customers
 Rewards – financial benefits to cooperative channel members
 Sanctions – penalizing uncooperative firms
o Channels can act as partnerships
Legal considerations in managing channels
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Exclusive dealing is when a manufacturer prohibits its dealers from carrying
products offered by its competitors. (can be illegal)
Tying contracts is when a supplier sells a product to a middleman only if they
agree to buy another product. (can be illegal)
Refusal to deal
Exclusive-territory policy is when a producer requires each middleman to
sell only to customers within an assigned territory.
Chapter 15 Retailing
 Retailing consists of the sale, and all activities directly related to the sale, of goods
and services to ultimate consumers for personal, non-business use.
 Ways for retail success:
o Serving a segment of consumers whose desires can be met by a small firm.
o Offering highly distinctive and exclusive merchandise.
o Trying different forms of promotion to determine the best way to reach the
store’s target market in a cost-effective way.
o Forming a contractual vertical marketing system to gain some of the
advantages of large stores.
 Retailers who operate physical stores must consider 4 physical facility aspects: location,
size, design, and layout.
 Shopping center consists of a planned grouping of retail stores that lease space in a
structure that I typically owned by a single organization.
 Two classifications for retailers: form of ownership and marketing strategies.
 Retailers classified by form of ownership
o Corporate chain is an organization of two or more centrally owned and
centrally managed stores that generally handle the same lines of production.
 Technically 2+ stores constitutes a chain
 A corporate chain has central ownership
 Because of centralized management, individual units have little
autonomy.
o Independent retailer is a company with a single store that is not affiliated
with a contractual vertical marketing system.
o Contractual vertical marketing systems are independently owned firms
joined together under a contract specifying how they’ll operate. 3 types:
 Retailer cooperative is formed by a small group of retailers to
operate a wholesale warehouse.
 Voluntary chain is sponsored by a wholesaler that enters into
contract with interested retailers.
 Franchising involves a continuing relationship in which a parent
company provides management assistance and the right to its
trademark in return for payments.
 Retailers classified by marketing strategies
o Department store seeks a differential advantage by providing a
combination of distinctive, appealing merchandise and numerous customer
services. (ex: Macy’s, JCPenney, Sears)
o Discount retailing involves comparatively low prices as a major selling point
combined with reduced costs of doing business. (ex: Wal-Mart, Target)
o Limited-line stores typically sell clothing, backed goods, and furniture and
seek to maintain full prices.
 Specialty stores – ex: athletic shoe stores, meat markets, dress shops
 Off-price retailers – ex: Payless, factory outlets
 Category-killer stores – ex: Borders, Best Buy, Home Depot
o Supermarket retailing features several related product lines, high self
service, centralized checkout, and competitive prices.
o Convenience stores ex: 7-Eleven
o Warehouse Clubs ex: Sam’s Club and Costco
 Nonstore Retailing
Direct selling is personal contact between a sales person and consumer away
from a store. (door-to-door and party plan)
o Telemarketing is selling over the phone.
o Automatic Vending is a sale by machine with no personal contact with seller.
o Online retailing is when an ultimate consumer uses the internet to buy a
product.
o Direct marketing is using advertising to contact consumers who, in turn, buy
products without visiting a store. (direct mail, catalog retailing, and TV)
Retail owners must try to anticipate changes in retail institutions.
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Chapter 17 Integrated Marketing Communication
 Promotion is intended to make a product more attractive to prospective buyers.
 Three essential promotional roles: informing, persuading, and reminding target
audiences. First task is to inform.
 Promotion methods
o Personal selling is direct presentation of a product to a potential customer
representing the company selling it.
o Advertising is nonpersonal communication paid for by a company to clearly
identify its ideas, organization, or products.
o Sales promotion is sponsor-funded, demand-stimulating activity designed to
supplement advertising and facilitate person selling.
o Public relations encompasses a wide variety of communication efforts to
contribute to generally favorable attitudes and opinions towards and
organization and its product(s)
 Integrated marketing communication is a strategic business process used to plan,
develop, execute, and evaluate coordinated, measurable, persuasive communications
with an organization’s internal and external audiences.
 Communication is the verbal or nonverbal transmission of information between
someone wanting to express an idea and expected to get that idea.
 Promotion mix is an organization’s combination of personal selling, advertising, sales
promotion, and public relations. An effective mix involves strategic decisions about 5
factors: target audience, objective of promotion, nature of product, stage of life cycle,
and amount of money available for promotion.
 Promotional Budget Methods
o Percentage of sales – related to company income, as a % of past or anticipated
sales. (most common method)
o All available funds – a new company introducing a new product frequently
plows all available funds into its promotional program.
o Following competition – match promotional efforts of your competition or in
proportion to market share.
o Task or objective – determine the task the promotional program must
accomplish then decide what it will cost. (best method)