MKTG MIAT C8 - Pricing & Distribution Strategies v2.ppt

8/10/2019 MKTG MIAT C8 - Pricing & Distribution Strategies v2.ppt

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ABB 10302Principles of MarketingChapter 8


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Dr V -Principle of Marketing 3

Learning Outcome

8.1 Introduction

8.2 Factors affecting pricing

8.3 Types of wholesalers

8.4 Types of retailers

8.5 Selection of Distribution Channel

8.6 The nature of physical Distribution


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What is Pricing?

Method adopted by a firm to set selling price.

Depends on the firm'saverage costs, and on

the customer'sperceived valueof the product

in comparisonto his or her perceived valueof

the competingproducts.

Different pricingmethodsplace varying degreeofemphasis on selection, estimation,

and evaluationof costs, comparative analysis,

and marketsituation

Read more: http://www.businessdictionary.com/definition/pricing.html#ixzz28x6wJ1FE
http://www.businessdictionary.com/definition/selling-price.htmlhttp://www.investorguide.com/definition/firm.htmlhttp://www.businessdictionary.com/definition/average-cost.htmlhttp://www.businessdictionary.com/definition/customer.htmlhttp://www.businessdictionary.com/definition/perceived-value.htmlhttp://www.investorguide.com/definition/comparison.htmlhttp://www.investorguide.com/definition/value.htmlhttp://www.businessdictionary.com/definition/competing.htmlhttp://www.businessdictionary.com/definition/product.htmlhttp://www.investorguide.com/definition/pricing.htmlhttp://www.businessdictionary.com/definition/method.htmlhttp://www.businessdictionary.com/definition/degree.htmlhttp://www.businessdictionary.com/definition/selection.htmlhttp://www.businessdictionary.com/definition/evaluation.htmlhttp://www.businessdictionary.com/definition/costs.htmlhttp://www.businessdictionary.com/definition/comparative-analysis.htmlhttp://www.businessdictionary.com/definition/market.htmlhttp://www.businessdictionary.com/definition/pricing.htmlhttp://www.businessdictionary.com/definition/pricing.htmlhttp://www.businessdictionary.com/definition/market.htmlhttp://www.businessdictionary.com/definition/comparative-analysis.htmlhttp://www.businessdictionary.com/definition/costs.htmlhttp://www.businessdictionary.com/definition/evaluation.htmlhttp://www.businessdictionary.com/definition/selection.htmlhttp://www.businessdictionary.com/definition/degree.htmlhttp://www.businessdictionary.com/definition/method.htmlhttp://www.investorguide.com/definition/pricing.htmlhttp://www.businessdictionary.com/definition/product.htmlhttp://www.businessdictionary.com/definition/competing.htmlhttp://www.investorguide.com/definition/value.htmlhttp://www.investorguide.com/definition/comparison.htmlhttp://www.businessdictionary.com/definition/perceived-value.htmlhttp://www.businessdictionary.com/definition/customer.htmlhttp://www.businessdictionary.com/definition/average-cost.htmlhttp://www.investorguide.com/definition/firm.htmlhttp://www.businessdictionary.com/definition/selling-price.html


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jw marketing - price 5

PRICE

Price is one of the factors that affects buyers purchasing

decision.

Important indicator of qualityand image

Provides customers with a way of making a judgement

about value for money

Importance of price can varytremendously depending on theproduct.

Marketing mix PricePROFIT CENTER

Product, Place and DistributionCOST CENTER.


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Dr V -Principle of Marketing 6

Setting of Pricing

Considerations

1. Marketing objectives

2. Marketing mix strategy

3. Costs4. Organization for pricing

5. The nature & demand of the market

6. Competition

7. Other environmental factors (economy, resellers, government)


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7

FACTORS AFFECTING PRICING DECISIONS

1. The organisations objectives

2. The marketing mix i.e 4 Ps

3. Costs

4. Competition

5. Consumer perceptions i.e JukeBox

6. Legal constraints i.e Subsidized items


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jw marketing - price 8

PRICING STRATEGIES

Company can choose to set theprice of a product (numbers of

pricing strategies or policies it

might choose from)

LONG TERMSHORT TERM


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15 Pricing Strategies


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Penetration Pricing


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Penetration Pricing

Price set to penetratethe market

Lowprice to secure high volumes

Typical in mass market products chocolatebars, food stuffs, household goods, etc.

Suitable for products with long anticipated lifecycles

May be useful if launching into a new market


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Market Skimming


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Market Skimming

High price, Low volumes

Skim the profit from themarket

Suitable for products thathave short life cycles orwhich will face competition atsome point in the future (e.g.after a patent runs out)

Examples include:

Playstation, jewellery, digitaltechnology, new DVDs, etc.

Many are predicting a firesale in

laptops as supply exceeds demand.

Copyright: iStock.com


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Value Pricing


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Value Pricing

Price set in accordance

with customer

perceptions about the

value of theproduct/service

Examples include

status

products/exclusiveproducts

Companies may be able to set prices

according to perceived value.



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Loss Leader


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Loss Leader

Goods/services deliberately sold below cost toencourage sales elsewhere

Typical in supermarkets, e.g. During Hari Raya,

selling raw chicken at RM3/kg in the hope thatpeople will be attracted to the store and buyother things

Purchases of other items more than covers loss

on item solde.g. Freemobile phone when taking on contract

package


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Psychological Pricing


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Psychological Pricing

Used to play on consumer perceptions

Classic example RM 9.99 instead ofRM10.99!

Links with value pricing high value

goods priced according to whatconsumers THINK should be the price


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Going Rate (Price Leadership)


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Going Rate (Price Leadership)

In case of price leader, rivals have difficulty in competingon price too high and they lose market share, too lowand the price leader would match price and force smallerrival out of market

May follow pricing leads of rivals especially where thoserivals have a clear dominance of market share

Where competition is limited, goingratepricing may beapplicable banks, petrol, supermarkets, electricalgoodsfind very similar prices in all outlets


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Tender Pricing


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Tender Pricing

Many contracts awarded on a tender basis

Firm (or firms) submit their price for carrying out thework

Purchaser then chooses which represents best value

Mostly done in secret


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Price Discrimination


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Price Discrimination

Charging a different pricefor the samegood/service in different

markets Requires each market to

be impenetrable

Requires different priceelasticity of demand ineach marketPrices for rail travel differ for the same journey

at different times of the day



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Destroyer Pricing/Predatory Pricing


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Destroyer/Predatory Pricing

Deliberate price cutting or offer of free

gifts/products to force rivals (normally

smaller and weaker) out of business orprevent new entrants

Anti-competitive and illegal if it can be

proved


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Absorption/Full Cost Pricing


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Absorption/Full Cost Pricing

Full Cost Pricingattempting to set price

to cover both fixed and variable costs

Absorption Cost Pricing Price set to

absorb some of the fixed costs of

production


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Marginal Cost Pricing


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Marginal costthe cost of producing ONE extra or ONE

fewer item of production

Marginal Cost pricingallows flexibility

Particularly relevant in transport where fixed costs may

be relatively high

Allows variable pricing structure e.g. on a flight from

London to New York providing the cost of the extra

passenger is covered, the price could be varied a good

deal to attract customers and fill the aircraft


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Example:

Aircraft flying from KL to KK Total Cost (including normal profit) =

RM1,500 of which RM1,300 is fixed cost*

Number of seats = 160, average price = RM 93.75

Marginal Cost of each passenger = 2000/160 = RM 12.50

If flight not full, better to offer passengers chance of flying at RM12.50 and

fill the seat than not fill it at all!

*All figures are estimates only


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Contribution Pricing


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Contribution Pricing

Contribution = Selling PriceVariable (direct costs)

Prices set to ensure coverage of variable costs

and a contributionto the fixed costs

Similar in principle to marginal cost pricing

Break-even analysis might be useful in such

circumstances


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Target Pricing

Setting price to target a specified profit

level

Estimates of the cost and potential

revenue at different prices, and thus the

break-even have to be made, to determine

the mark-up

Mark-up = Profit/Cost x 100


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Cost-Plus Pricing


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Cost-Plus Pricing

Calculation of the average cost (AC) plus

a mark up

AC = Total Cost/Output


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Influence of Elasticity


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Any pricing decision must be mindful of the

impact of price elasticity

The degree of price elasticity impacts on thelevel of sales and hence revenue

Elasticity focuses on proportionate (percentage)changes


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Price Inelastic:

% change in Quantity < % change in Price

5% increase in price would be met by a fall in

sales of something less than 5%Revenue would rise

A 7% reduction in price would lead to a rise insales of something less than 7%

Revenue would fall


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Price Elastic:

% change in quantity demanded > % changein price

4% rise in price would lead to salesfalling by something more than 4% Revenue would fall

A 9% fall in price would lead to a rise in salesof something more than 9% Revenue would rise


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What is Wholesaler?

Person or firmthat buys large quantity of goods from

various producersor vendors, warehous

es them, and resells to retailers.Wholesalers who carry only non-

competing goods or lines are

called distributors.

Read

more: http://www.businessdictionary.com/definition/wholesaler.html#ixzz290

0U4JQz
http://www.businessdictionary.com/definition/person.htmlhttp://www.businessdictionary.com/definition/buy.htmlhttp://www.businessdictionary.com/definition/quantity.htmlhttp://www.businessdictionary.com/definition/goods.htmlhttp://www.businessdictionary.com/definition/producer.htmlhttp://www.businessdictionary.com/definition/vendor.htmlhttp://www.businessdictionary.com/definition/warehouse.htmlhttp://www.businessdictionary.com/definition/warehouse.htmlhttp://www.businessdictionary.com/definition/retailer.htmlhttp://www.businessdictionary.com/definition/lines.htmlhttp://www.businessdictionary.com/definition/distributor.htmlhttp://www.businessdictionary.com/definition/wholesaler.htmlhttp://www.businessdictionary.com/definition/wholesaler.htmlhttp://www.businessdictionary.com/definition/wholesaler.htmlhttp://www.businessdictionary.com/definition/wholesaler.htmlhttp://www.businessdictionary.com/definition/distributor.htmlhttp://www.businessdictionary.com/definition/lines.htmlhttp://www.businessdictionary.com/definition/retailer.htmlhttp://www.businessdictionary.com/definition/warehouse.htmlhttp://www.businessdictionary.com/definition/warehouse.htmlhttp://www.businessdictionary.com/definition/vendor.htmlhttp://www.businessdictionary.com/definition/producer.htmlhttp://www.businessdictionary.com/definition/goods.htmlhttp://www.businessdictionary.com/definition/quantity.htmlhttp://www.businessdictionary.com/definition/buy.htmlhttp://www.businessdictionary.com/definition/person.html


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A businessor personthat sellsgoodsto

the consumer, as opposed to

a wholesaleror supplier, who

normally selltheir goods to anotherbusiness.

What is Retailer?

Readmore: http://www.businessdictionary.com/definition/retailer.html#ixzz28zzAHP

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T p s f R t il
http://www.businessdictionary.com/definition/business.htmlhttp://www.businessdictionary.com/definition/person.htmlhttp://www.investorguide.com/definition/sell.htmlhttp://www.businessdictionary.com/definition/goods.htmlhttp://www.businessdictionary.com/definition/consumer.htmlhttp://www.businessdictionary.com/definition/wholesaler.htmlhttp://www.businessdictionary.com/definition/supplier.htmlhttp://www.businessdictionary.com/definition/sell.htmlhttp://www.businessdictionary.com/definition/retailer.htmlhttp://www.businessdictionary.com/definition/retailer.htmlhttp://www.businessdictionary.com/definition/retailer.htmlhttp://www.businessdictionary.com/definition/retailer.htmlhttp://www.businessdictionary.com/definition/sell.htmlhttp://www.businessdictionary.com/definition/supplier.htmlhttp://www.businessdictionary.com/definition/wholesaler.htmlhttp://www.businessdictionary.com/definition/consumer.htmlhttp://www.businessdictionary.com/definition/goods.htmlhttp://www.investorguide.com/definition/sell.htmlhttp://www.businessdictionary.com/definition/person.htmlhttp://www.businessdictionary.com/definition/business.html


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Types of Retailer

1. Department Store2. Supermarkets

3. Warehouse retailers

4. Specialty Retailers5. E-tailer (Internet based)

6. Convenience retailer. i,e 7-Eleven

7. Discount retailer


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PHYSICAL DISTRIBUTIONSTRATEGIES


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Physical distribution

Takes place when a company decides the

channels of distribution to get their products to

the consumer

Comprises all the activities that help to ensure

that the right amount of product is delivered to

the right place at the right time. (Also known

as logistics)


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Logistics

Involves order processing, transporting,

storing, stock handling, and inventory control

Involves moving products

Support physical distribution


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The Storage of Goods


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Reasons for storage


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Reasons for storage

Production outpaced consumption

Products such as agricultural goods are only available certain

times of the year

Stabilize the price of the product

Stored at convenient locations for rapid delivery

Storage of goods ads time and place utility to goods

Products should be available when and where

consumers want them

Disadvantage -Storing products ties up capitalthat could be used as investment


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Private Warehouse

A facility designed to meet the specific needs of

its owner

Valuable for companies that, over a large volume

of products

Costly to build and maintain

Consider using when there is a significant

amount of products to move and the cost is

cheaper than using a public warehouse.


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Public Warehouse

Offers storage and handling facilities to

individuals or companies

Provide services such as space, shipment

consolidation, receiving, unloading, inspecting,

reshipping, order filling, and terminal operating

services

Advantage

low volume businesses or seasonalproduction

5


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5 Types of public warehousesCommodity warehouses

Bulk Storage warehouses

Household goods warehouse

Cold Storage warehouse

General Merchandise


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Bonded Warehouse

public or private, store products that require

payment of a federal tax

Imported or domestic products cannot be

removed until the required tax is paid

Distribution Planning for


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Distribution Planning forInternational Markets

Business must follow domestic and foreign trade laws

Must consider because many products are assembled from

parts made in many different countries

Must understand other countries (infrastructure) roads and

transportation facilities

Reliability of a countries channels of distribution

A countries retail establishments


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1. Describe the pricing strategies adopted by the airlines

2. What explanation can you offer for the differences in the prices quoted,

both within the two tables and between them?


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Group Assignment

Perform a price comparison strategies

used by the following companies : Malindo

Air, Air Asia and KLM.

If one of the companies decides toestablish a cargo business subsidiaries,

what are the facilities that they need to

develop?. Explain your answer.


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References

Kotler, Philip & Gary Armstrong Principles of Marketing.Eleventh Edition

Distribution strategy. (2010, November 25). Slide Share. Retrieved October 11, 2012,

from http://www.slideshare.net/SlidesPresentation1/distribution-strategy

Distribution strategy. (2010, November 25). Slide Share. Retrieved October 11, 2012,

from http://www.slideshare.net/SlidesPresentation1/distribution-strategy

Tamadam Food Logistics Consulting. (2011).Tamadam Food Logistics

Consulting. Retrieved October 12, 2012, from

http://www.tamadam.com/about/about.php

Pricing Strategies. (2006, October). Retrieved October 17, 2012, from

http://www.bized.ac.uk
http://www.slideshare.net/SlidesPresentation1/distribution-strategyhttp://www.tamadam.com/about/about.phphttp://www.tamadam.com/about/about.phphttp://www.slideshare.net/SlidesPresentation1/distribution-strategyhttp://www.slideshare.net/SlidesPresentation1/distribution-strategyhttp://www.slideshare.net/SlidesPresentation1/distribution-strategy

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MKTG MIAT C8 - Pricing & Distribution Strategies v2.ppt