Pricing and Distribution MKTG 201 Semester 1, 2010 Sandy Bennett
Pricing--Overview • Definitions • Pricing objectives and constraints • Pricing approaches and methods • New product pricing • Pricing and the PLC
Marketing Mix • 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? • 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 Ceiling (Max Price) Price constraints List Price Price Floor (Min Price)
Price constraints cont… • Consumer Demand • Costs ________ and ________ • Competitors • Prices • Intensity of competition • Barriers to entry • Legal constraints • 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
Total Revenue 1,200 1,000 Target Profit ($200,000) 800 Total Cost 600 400 Fixed Cost 200 10 20 30 40 50 Break-Even Analysis • 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
Terminology • ∏ = 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) • 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) • Advantages: • Disadvantages:
New Product Pricing Penetration Pricing (Demand oriented) • Price low to capture large market share • Advantages • Disadvantages:
Pricing and the PLC • INTRODUCTION • GROWTH • MATURITY • DECLINE
Pricing—Looking back • Definitions • Pricing objectives and constraints • Pricing approaches and methods • New product pricing • Pricing and the PLC
Distribution--Overview • 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 theproducer 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 • Reduces investment costs • Spreads risk 3. Allows manufacturers to specialize 4. Increases ________ for producers & consumers 5. Coordinates_______ and ________ 6. Makes widespread distribution possible
Why use Intermediaries? Disadvantages • _________are shared /reduced 2. Reduces control (over the consumption experience)
Marketing Channel Functions 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 numberof 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 Buyer (Consumer) Intermediary(ies)
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 One or a few dealers within a given area Selective Several dealers within a given area Intensive Large number of dealers within a given area
Linking Product Class & Distribution Adapted from a slide by Karen Fernandez (2008)
Distribution and the PLC • INTRODUCTION • GROWTH • MATURITY • DECLINE
Distribution—Looking back • Marketing channels and intermediaries • Types of distribution • Distribution intensity • Distribution and the PLC