Download Marketing Chapters 9-10 Lecture Presentation - MyBC

Marketing Channels
Bluefield College
October 26, 2010
External Factors Affecting Pricing
Decisions
 The market and demand:
– Analyzing the price-demand relationship:
• Different prices result in different levels of
demand, as shown by the demand curve.
– Price elasticity of demand:
• Refers to how responsive changes in demand will
be to a change in price.
• Small demand change = inelastic demand.
• Large demand change = elastic demand.
Market-Skimming Pricing
Setting a high price for a new product to “skim”
revenues layer-by-layer from those willing to pay
the high price.
 Company makes fewer, but more profitable
sales.
 When to use a market-skimming strategy:
– Product’s quality and image must support
its higher price.
– Costs of low volume cannot be so high they cancel out
the benefit of higher price.
– Competitors should not be able to enter market easily
and undercut price.
Market-Penetration Pricing
Setting a low initial price in order to “penetrate”
the market quickly and deeply.
 Can attract a large number of buyers quickly and
win a large market share.
 When to use a market-penetration pricing
strategy:
– Market is highly price sensitive so a low price produces
more growth.
– Costs fall as sales volume increases.
– Competition must be kept out of the market or the
effects will be only temporary.
Product Mix Pricing
Price Adjustments
Price Adjustment Strategies
 Discounts:
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Cash
Quantity
Functional
Seasonal
 Allowances:
– Trade-in
– Promotional
 Types of segmented pricing:
– Customer-segment: different customers pay different prices for the same
good.
– Product-form: different versions are priced differently but not according
to cost.
– Location pricing: different prices are charged for each location even
when the cost of offering the good is the same.
– Time pricing: price is varied according to time of year, season, month,
day, or hour.
Price Adjustment Strategies
 Psychological pricing:
– Considers the psychology of prices and not simply the economics;
the price is used to say something about product.
• Price can often influence perceptions of quality.
• Reference prices are important.
 Promotional pricing:
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Discounts (loss leaders).
Special-event pricing.
Cash rebates .
Low-interest financing.
Longer warranties.
Free maintenance.
Price Adjustment Strategies
 Geographical pricing:
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FOB-origin pricing.
Uniform-delivered pricing.
Zone pricing.
Basing-point pricing.
Freight-absorption pricing.
 Dynamic pricing:
– Adjusting prices continually to meet the
characteristics and needs of individual
customers and situations.
Price Adjustment Strategies
 Factors influence international pricing:
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Economic conditions.
Competitive situations.
Laws and regulations.
Development of the wholesaling and retailing
system.
– Consumer perceptions and preferences.
– Different marketing objectives.
– Costs.
Price Changes
 Price cuts may be initiated due to:
– Excess capacity.
– Falling demand in face of strong competitive price or a
weakened economy.
– Attempt to dominate market through lower costs.
 Price increases can greatly improve profits and
may be initiated due to:
– Cost inflation.
– Overdemand.
 Marketers should avoid the practice (or
appearance) of price gouging.
Responding to Competitor Price
Changes
Public Policy and Pricing
 Pricing within channel levels:
– Price fixing.
– Predatory pricing.
 Pricing across channel levels:
– Price discrimination.
– Retail price maintenance.
– Deceptive pricing.
Supply Chains
 Producing and making products available
to buyers requires building relationships
with “upstream” and “downstream” supply
chain partners.
– Upstream: Firms that supply the raw
materials, components, parts, and other
elements necessary to create a good.
– Downstream: Marketing channel partners
that link the firm to the customer.
Marketing Channels
A set of interdependent organizations that help
make a product or service available for use or
consumption by the consumer or business users.
Marketing Channels
Nature Marketing Channels
 Number of channel levels:
– The number of intermediary levels indicates
the length of a channel.
• Direct marketing channels
– Have no intermediary levels between the manufacturer
and the customer.
• Indirect marketing channels
– Contains one or more intermediaries.
– All channel institutions are connected by
several types of flows.
Channel Behavior and Organization
 The channel will be most effective when:
– Each member is assigned tasks it can do best.
– All members cooperate to attain overall
channel goals.
 Otherwise, channel conflict can occur:
– Horizontal conflict occurs among firms at the
same level of the channel (e.g., retailer to
retailer).
– Vertical conflict occurs between different
levels of the same channel (e.g., wholesaler to
retailer).
 Some conflict can be healthy competition.
Conventional Channels and
Vertical Marketing Systems
Channel Behavior and Organization
 Franchise organizations are a common
form of contractual vertical marketing
system in which a franchisor links several
stages in the product-distribution process.
 Types of franchise organizations:
– Manufacturer-sponsored retailer franchise.
– Manufacturer-sponsored wholesaler franchise.
– Service-firm sponsored retailer franchise.
Channel Behavior and Organization
 Horizontal marketing systems:
– Two or more companies at one level join
together to follow a new marketing
opportunity.
 Multichannel distribution system:
– Occurs when a single firm sets up two or more
marketing channels to reach one or more
customer segments.
– Also called hybrid marketing channel system.
– Offers many advantages.
Multichannel Distribution System
Channel Behavior and Organization
 Changing channel organization:
– Disintermediation occurs when product and service
producers cut out traditional intermediaries or
displace resellers with radical new types of
intermediaries.
– Disintermediation presents both problems and
opportunities for both producers and resellers.
• Resellers and intermediaries must innovate to survive.
• Producers must seek additional direct channels to remain
competitive, though channel conflict often results.
Marketing Logistics
Planning, implementing, and controlling the physical
flow of materials, final goods, and related information
from points of origin to points of consumption to meet
customer requirements at a profit.
Marketing Logistics and Supply
Chain Management
 Greater emphasis has been placed on logistics
recently because:
– Firms can gain a competitive advantage when
logistics result in better service or lower prices.
– Improved logistics can lower costs.
– Increased product variety has created a need for
improved logistics management.
– Improvements in information technology have
created the means for major gains in distribution
efficiency.
– Logistics effect the environment as well as the
firm’s environmental sustainability efforts.
Marketing Logistics and Supply
Chain Management
 Goals of the logistics system:
– Deliver a targeted level of customer service at
the least cost.
 Major logistics functions:
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Warehousing.
Inventory management.
Transportation.
Logistics information management.