Chapter 11
Pricing, Distributing, and Promoting Products
Chapter Overview
A firm’s pricing decisions reflect the pricing objectives set by management. Some firms pursue the goal of maximizing profits, while others aim to maximize market share. Additional considerations include survival in a competitive market, social and ethical concerns, and image. Important price-setting approaches include cost-oriented pricing and breakeven analysis. For new products, pricing strategies include price skimming and penetration pricing, while tactics include price lining, psychological pricing, and discounting. E-commerce has reintroduced dynamic pricing to the U.S. marketplace, allowing sellers to alter prices on a consumer-by-consumer
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Channel 6: Direct Distribution of Business Products b. Channel 7: Wholesale Distribution of Industrial Products c. Channel 8: Wholesale Distribution to Business Retailers IV. Wholesaling A. Merchant Wholesalers B. The Advent of the E-Intermediary 1. Syndicated Sellers 2. Shopping Agents 3. Business-to-Business Brokers
V. Retailing A. Types of Retail Outlets 1. Product Line Retailers 2. Bargain Retailers B. Nonstore and Electronic Retailing 1. The Boom in Electronic Retailing a. Internet-Based Stores b. Electronic Catalogs c. Electronic Storefronts and Cybermalls d. Interactive and Video Marketing
VI. Physical Distribution A. Warehousing Operations B. Transportation Operations—Transportation Modes C. Physical Distribution and E-Customer Satisfaction D. Distribution as a Marketing Strategy
VII. The Importance of Promotion A. Promotional Objectives B. The Promotional Mix—The Target Audience: Promotion and the Buyer Decision Process C. Advertising Promotions 1. Advertising Media 2. Internet Advertising—Data Mining and Data
Pricing Objectives involve specifying the role of price in an organization’s marketing and strategic plans. These
Price skimming, also known as market-plus, involves setting a high price when compared to the competition and then eventually lowering this price. It is usually used for new products and services that will attract early-adopters willing to pay a higher price. The business can initially reach these early-adopters to maximise revenue, but this may be limited because students are often price-sensitive due to their low income. However, the higher price enables companies to test students’ willingness to pay a high price, and then lower the price to appeal to those who are more price-sensitive. Although, this may aggravate early adopters, a lasting high price may defer mass market acceptance. The initial high profit margin may lead companies into avoiding cutting production costs which is necessary for when the selling price lowers. However, price skimming allows the company to quickly recover product
Loyalty programs include frequent flier miles or points systems associated with credit card offers that can be used only with the original company, creating a perceived loss or cost when switching to a competitor. Most programs are able to get consumers to spend more money just to get to free or bonus item.
Price is defined as the amount of money charged for a product or service. In marketing terms, price is considered to be the sum of the values that consumers exchange for the benefits of having and using the product or service. Price is also the only element in the marketing mix that produces revenue—product, place, and promotion are all costs. There are three forms of pricing strategies: customer value-based, cost-based, and competition-based pricing. Customer value-based pricing uses buyers’ perceptions of value to set price and are also used to set the price ceiling for the product. Cost-based pricing uses the costs of producing, selling, and distributing products plus a fair markup for pricing. The cost of the product also sets a price floor. A competition-based pricing is one based on competitors’ strategies and prices and can help the company determine what kind of positioning it wants to take based on how it wants to compete, “such as becoming a price leader, offering the highest quality, or becoming a luxury brand”. (wiseGEEK, 2015)
Companies can choose many ways to set prices, skimming price strategy where a company sets a higher price than normal and a penetrating price where low initial price is set. “Pricing
Although they are able to somewhat control prices due to their product differentiations and their status as a brand name, they will make profits by lowering price. However the danger in lowering prices is that with each additional product, utility will drop for the consumer. Therefore, firms must be careful in balancing consumer demand with the projected consumer utility.
Pricing strategy associated with services is typically more complex than the pricing of tangible goods. As a consumer, what pricing issues do you consider when purchasing services? How difficult is it to compare prices among competing services, or to determine the complete price of the service before purchase? What could service providers do to solve these issues?
The emergence of high-low pricing tactics materialized out of an earnest desire to retain a profitable margin of sales. Usually, this pricing strategy involves a period of high, often subjective, initial prices followed by a period of low discount prices. One can attribute the effectiveness of using the
Research Challenge Identifying the optimal price for a new product is a critical step in the innovation process – and correcting the price of an existing product is a necessary component of successful brand management. With the wide range of pricing research techniques practiced in the industry, it is not always clear which technique best addresses the business issue at hand. This paper describes the most common methods used for consumer goods pricing research and offers guidelines on when – and when not
“Pricing is actually a pretty simple and straight forward thing. Customers will not pay literally a penny more than the true value of the product” (Johnson, R. n.d.). The introductory citation by Canadian Politician Ron Johnson lays the foundation for this case assignment. A case assignment composed of proposals to numerous companies pertaining to their pricing strategy. For products created by their individual organizations. Let’s kickoff this case assignment by exploring possible strategies, for a company that recently developed a new 3D television.
The digital economy, as we learned in class (videos), is exerting a great pressure on the traditional firm-imposed pricing strategy. Firm
Today’s highly competitive business world forces companies to create different tactics and relatively rely on multiple pricing strategies to conduct business.
Quite often, consumers purchase goods and services based on their perceived need. Upon making the decision that a need is present and a solution is available consumers are more equipped to react to that need. Although previously perceived that consumers will normally accept prices as presented by suppliers that remains to not be the case. Consumers assess and process prices based on past purchases and other psychological process they went through previously such as persuasive marketing strategies, accessibility of the goods or services and possibly information gathered from prior purchasers of a product. There are countless options that are available to consumers. Consumers are then faced with the choice of choosing the product that best fulfills their need at that given point. Consumers who are knowledgeable regarding prices will be aware of the approximated price for products (Zhao, Zhao & Deng, 2015).
Price interacts with all other elements of the marketing mix to determine the effectiveness of each and of the whole. The objectives that guide pricing strategy should be a subset of the objectives that guide overall marketing strategy. Thus, it is probably wrong to view price as an independent element of marketing strategy or to assert that price, by itself, is a central element in the marketing mix.” (Webster, 1979)
When marketers talk about what they do as part of their responsibilities for marketing products, the tasks associated with setting price are often not at the top of the list. Marketers are much more likely to discuss their activities related to promotion, product development, market research and other tasks that are viewed as the more interesting and exciting parts of the job.