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Pricing and Distribution
MKTG 201
Semester 1, 2010
Sandy Bennett
Pricing--Overview
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Definitions
Pricing objectives and constraints
Pricing approaches and methods
New product pricing
Pricing and the PLC
Marketing Mix
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Product
Price
Place
Promotion
Definitions
________ is the money or other considerations
(including other goods and services)
exchanged for the ownership or use of a good
or service.
________ is a conscious, explicit management
activity.
Why do firms need a pricing
strategy?
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Price is the easiest marketing mix element to
change
Price affects ________
Pricing is the only element of marketing that
actually brings in ________, rather than
incurring costs.
Price is a critical factor in the profit equation
Pricing objectives
The key to successful marketing lies in the
creation of a mutually beneficial
exchange of value between one party and
another
For the _______: benefit = satisfaction derived
from the consumption or ownership of the
product (benefit > price)
For the ________: benefit = primarily the
revenue derived from purchases (benefit
>cost)
Pricing objectives cont…
Pricing objectives tend to focus on various
combinations of the following:
• Profitability
• Long-term prosperity
• Market share
• Positioning
Price constraints
Price Ceiling (Max Price)
List Price
Price Floor (Min Price)
Price constraints cont…
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Consumer Demand
Costs ________ and ________
Competitors
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Prices
Intensity of competition
Barriers to entry
Legal constraints
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Which industry in NZ has just had tighter
pricing constraints imposed?
Is there an industry in NZ which you
think should have tighter price
constraints imposed?
Price Elasticity
• Elastic demand: a _______ change in price
leads to a big change in demand
• Luxuries e.g.
• Inelastic demand: a _______ change in price
leads to a small change in demand
• Necessities e.g.
Pricing approaches
Demand
Cost
Profit
Competition
DEMAND ORIENTED
Pricing method
Prestige pricing
Price lining
Demand backward
pricing
Odd-even pricing
Target pricing
Bundle pricing
Yield management
pricing
COST ORIENTED
Pricing method
Standard Markup
Cost-plus pricing
Experience curve
pricing
Break even analysis
PROFT ORIENTED
Pricing method
Target profit pricing
Target return on
sales
Target return-oninvestment pricing
COMPETITION ORIENTED
Pricing method
Customary pricing
Going rate pricing
(above, at or below)
Loss leader pricing
Definition
Break-Even Analysis
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Used to evaluate whether the firm will be able to cover
costs (break even) at a particular price
Indicates the break-even point, i.e., sales (units or
dollars) needed to break even
Total Revenue
1,200
1,000
800
600
400
200
Target Profit ($200,000)
Total Cost
Fixed Cost
10
20
30
40
50
Terminology
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∏ = Profit
P = price
Q= quantity
FC = fixed costs
VC = variable costs = uvc x Q = unit variable
costs x quantity
• TR = total revenue = P x Q = price x quantity
Break even pricing/Target
profit pricing
∏ = TR – TC
Profit = Total Revenue – Total Costs
Profit = (P x Q) – [FC + (VC x Q)]
• To calculate the ____________, profit equals
zero
• For ______________, you put in the target
figure for profit e.g. $1 million
Price-adjustment Strategies
_______ discounts encourage sales
_______ discounts smooth out demand
_______ discounts encourage early payment
_______ discounts motivate intermediaries
New Product Pricing
Skimming pricing (Demand oriented)
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Selling to the top of the market at a high price before aiming at
more price sensitive customers (maximize profits from each layer
of the target market)
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Advantages:
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Disadvantages:
New Product Pricing
Penetration Pricing (Demand oriented)
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Price low to capture large market share
• Advantages
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Disadvantages:
Pricing and the PLC
• INTRODUCTION
• GROWTH
• MATURITY
• DECLINE
Pricing—Looking back
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•
•
•
•
Definitions
Pricing objectives and constraints
Pricing approaches and methods
New product pricing
Pricing and the PLC
Distribution--Overview
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Marketing channels and intermediaries
Types of distribution
Distribution intensity
Distribution and the PLC
Marketing Mix
Product
Price
Place
Promotion
Marketing channels
– Marketing ___________ are
individuals or organisations that act
in the distribution chain between the
producer and the end user (e.g.
industrial buyers, wholesalers,
agents and brokers and retailers).
– The _______________involves a
group of individuals and
organisations directing products
from producers to end users.
Marketing channels
Elliot et al 2010
Consumer product
marketing channels
Elliot et al 2010
Business-to-business product
marketing channels
Elliot et al 2010
Why use Intermediaries?
Advantages
1. Reduces investment costs
2. Spreads risk
3. Allows manufacturers to specialize
4. Increases ________ for producers &
consumers
5. Coordinates _______ and ________
6. Makes widespread distribution possible
Why use Intermediaries?
Disadvantages
1. _________ are shared /reduced
2. Reduces control (over the consumption
experience)
Marketing Channel Functions
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3.
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6.
7.
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Information
Promotion
Contact
Matching
Negotiation
Physical Distribution
Financing
Risk Taking
Information and Promotion
Information: gathering and distributing marketing research and
intelligence information about the actors and forces in the
marketing environment needed for planning and aiding
exchange.
Promotion: developing and spreading persuasive
communications about an offer
Contact and Matching
Contact: finding and communicating with prospective buyers
Matching: shaping and fitting the offer to the buyer’s needs,
including such activities as manufacturing, grading, assembling and
packaging
Negotiation and Physical Distribution
Negotiation: reaching an agreement on price and other terms of
the offer so that ownership or possession can be transferred
Physical Distribution: transporting and storing goods
Financing and Risk Taking
Financing: acquiring and using funds to cover the costs of the
channel work
Risk taking: assuming the risks of carrying out the channel work
Number of channel levels
Marketing channels may be described by the
number of channel levels involved (________) Each
layer of intermediaries that performs some work in
bringing the product and its ownership closer to
the final consumer is a channel level.
Channel levels
_______ marketing
C1: has NO intermediaries. Consists of a manufacturer
selling directly to consumers. Example:
________marketing
C2: one intermediary. Example:
C3: two intermediaries. Example:
C4: three intermediaries. Example:
Dual Distribution
Using more than one distribution channel at the
same time.
Seller
(Producer
Intermediary(ies)
Buyer
(Consumer)
Channel Behaviour
Horizontal conflict: between firms at the same
level of the channel. Example:
Vertical conflict: between different levels of
the same channel. Example:
Channels in the service sector
The concept of marketing channels is not limited
to the distribution of physical goods. Producers
of services and experiences also have to make
their output available to target populations.
Example:
Distribution intensity
• The market coverage decision takes into
account the nature of the product and its target
market. Generally, marketers will choose from:
– ___________ distribution which
distributes products via every suitable
intermediary
– ___________ distribution which
distributes products through a single
intermediary for any given geographic region
– ___________ distribution which
distributes products through intermediaries
chosen for some specific reason.
e
Distribution intensity
Low
High
Exclusive
Selective
Intensive
One or a few
dealers within a
given area
Several dealers
within a given
area
Large number of
dealers within a
given area
Linking Product Class & Distribution
Product class
Critical factors
Distribution
intensity
Convenience
Availability/
Convenience
Intensive
Shopping
Choice/
Selection
Selective
Specialty
Specialized
Info & Service
Exclusive
Adapted from a slide by Karen Fernandez (2008)
Distribution and the PLC
• INTRODUCTION
• GROWTH
• MATURITY
• DECLINE
Distribution—Looking back
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Marketing channels and intermediaries
Types of distribution
Distribution intensity
Distribution and the PLC