m

1. Pricing
Methods & Strategies

2. 10- 2
What is Price?
Price Has Many Names
• Rent
• Fee
• Rate
• Commission
• Assessment
Tuition
Fare
Toll
Premium
Retainer
Bribe
Salary
Wage
Interest
Tax

3. 10- 3
Definition
• Price
–The amount of money charged for a
product or service, or the sum of the
values that consumers exchange for the
benefits of having or using the
product or service.

4. 10- 4
• Price and the Marketing Mix:
– Only element to produce revenues
– Most flexible element
– Can be changed quickly
• Price Competition
• Common Pricing
Mistakes
What is Price?

5. Factors Affecting Price Decisions

6. 10- 6
Factors to Consider When Setting Price
• Market positioning influences
strategy
• Other pricing objectives:
– Survival
– Current profit maximization
– Market share leadership
– Product quality leadership
• Not-for-profit objectives:
– Partial or full cost recovery
– Social pricing
Marketing
objectives
Marketing mix
strategies
Costs
Organizational
considerations
Internal Factors

7. 10- 7
Factors to Consider When Setting Price
• Pricing must be carefully
coordinated with the other
marketing mix elements
• Target costing is often used to
support product positioning
strategies based on price
• Non-price positioning can also
be used
*Target Costing: Deducting the
desired profit margin from the
price at which a product will sell,
given its appeal and competitors
prices.
Marketing
objectives
Marketing mix
strategies
Costs
Organizational
considerations
Internal Factors

8. 10- 8
Factors to Consider When Setting Price
• Types of costs:
– Variable
– Fixed
– Total costs
• How costs vary at different
production levels will
influence price-setting
• Experience (learning) curve
effects on price
Marketing
objectives
Marketing mix
strategies
Costs
Organizational
considerations
Internal Factors

9. 10- 9
Factors to Consider When Setting Price
• Who sets the price?
– Small companies: CEO or top
management
– Large companies: Divisional
or product line managers
• Price negotiation is
common in industrial
settings
• Some industries have
pricing departments
Marketing
objectives
Marketing mix
strategies
Costs
Organizational
considerations
Internal Factors

10. 10- 10
Factors to Consider When Setting Price
• Types of markets
– Pure competition
– Monopolistic competition
– Oligopolistic competition
– Pure monopoly
• Consumer perceptions of
price and value
• Price-demand relationship
– Demand curve
– Price elasticity of demand
Nature of market
and demand
Competitors’
costs, prices,
and offers
Other
environmental
elements
External Factors

11. 10- 11
Factors to Consider When Setting Price
• Consider competitors’ costs,
prices, and possible reactions
when developing a pricing
strategy
• Pricing strategy influences the
nature of competition
– Low-price low-margin strategies
inhibit competition
– High-price high-margin strategies
attract competition
• Benchmarking costs against the
competition is recommended
Nature of market
and demand
Competitors’
costs, prices,
and offers
Other
environmental
elements
External Factors

12. 10- 12
Factors to Consider When Setting Price
• Economic conditions
– Affect production costs
– Affect buyer perceptions of
price and value
• Reseller reactions to prices
must be considered
• Government may limit or
restrict pricing options
• Social considerations may be
taken into account
Nature of market
and demand
Competitors’
costs, prices,
and offers
Other
environmental
elements
External Factors

13. Major Considerations in Setting Price

14. Pricing Objective
• Pricing will be straight forward if a company has selected its target market
and market positioning carefully.
• Pricing Strategy largely determined by decision on ‘Market Positioning’.
• Each price will have a different impact on: Profits, Sales Revenues and
Market Share.
• 5 Main Pricing objectives :
• Survival
• Maximum Current Profit
• Maximum Sales Growth
• Maximum Market Skimming
• Product Quality Leadership

15. Survival
• This objective is pursued in case of a companies
plagued with:
• 1. Overcapacity
• 2. Intense Competition
• 3. Changing Customer wants.
• Prices often cut down, with less importance to profits to
keep the plant going and inventories turning over.
• Companies stay in business as long as prices cover
variable costs and some fixed costs.
• It’s definitely a short run objective !!!

16. Maximum Current Profit
Setting prices that maximize current profits
• Estimate demand and costs associated with alternative
prices and choose the price that produces maximum
current profit, cash flow or ROI
• Disadvantages:
• Assumes that the firm has knowledge of its demand and
cost functions
• More emphasis on current financial performance rather
than long run performance
• Ignores effects of other marketing mix variables,
competitors reactions and legal restraints on price.

17. Maximum Sales Growth
• Higher sales volume leads to lower unit costs and higher
long run profits.
• Set lowest prices assuming is price sensitive [ Market
Penetration Pricing]
• Requisites:
• Low price discourages actual and potential competition.

18. Maximum Market Skimming
• Setting high prices to ‘skim’ the market.
• Estimate highest price that can be charged given the
comparative benefits of its new product v/s available
substitutes.
• Each time sales slow down, the company lowers down
the price to draw in the next price sensitive layer of
customers.
• Thus the company skims maximum amount of revenue
from the various market segments.

19. Product Quality Leadership
• Employed in case of company aiming to be product
quality leader in the market
• Pricing slightly higher than competitors because of the
above feature.

20. PRICING Strategies
Cost Based
Pricing
1.Cost plus
2.Break even
Value and Competition Based
Pricing
Value Based:
1.Every day Low Pricing
2.High Low Pricing
Competition Based:
1.Destroyer Pricing
2.Price Matching or Going
Rate Pricing
3.Price Bidding or Close Bid
Pricing
Product Mix Pricing
1.Product Line Pricing
2.Optional Product Pricing
3.Captive Product Pricing
4.By-Product Pricing
5.Product Bundle Pricing

21. Cost Based Pricing
COST PLUS
Adding and make up the total cost of the product
• Advantages:
• sellers are more certain about the cost than the
demand
• If all companies use this method Price become
Standard
• It is fairer to both buyers and sellers
• Disadvantages:
• It ignores demand and competition

22. BREAK EVEN:
The firm determines the price at which it will make a target profit
Value Based Pricing: setting the price of a product
on the basis of consumers’ value rather than
manufacturers cost
Every Day Low Pricing:
Constant low prices and no
Discounts EX:
High Low Pricing: Charging
higher prices everyday but running
frequent promotions to lower the
prices on temporary bases
Competition Based Pricing: based on
competitors products
Destroyer: to eliminate competition ex: VK
Price Matching: price equal to competitors
Price Bidding: Normally it is used in
construction and Manufacturing services.
This is done through quotations
Value & Competition Based Pricing

23. 1. Product line Pricing: setting the price for entire product line
ex: Nokia Mobiles
2. Optional Product Pricing: giving accessory product with
main product ex: PC +4GB PEN drive etc
3. Captive Product Pricing: setting the price for a product that
must be used along with the main product ex: Gillette razors
4. By Product: determining the price of main product in order
to make the main products more attractive
5. Product Bundle Pricing: several product together at the
reduced price ex: Anchor toothpaste + Brush etc

24. Pricing Procedure
1. Defining the Pricing Objective.
2. Determining the Demand .
3. Estimating the Cost.
4. Analyzing Competitors’ Cost, Prices and Offers.
5. Selecting a Pricing Method.
6. Selecting the Final Price.
7. Adapting the Price.

25. MARKETING CHANNELS OR DISTRIBUTION CHANNELS
Authorized Dealers for Auto Limited 2 Wheeler. Vidyanagar Hubli.

26. What is Marketing Channel?
• A set of interdependent organizations that help
make a product or service available for use or
consumption by consumer or business user.
• Also known as Distribution Channels.
• Marketing Channels are based on VDN i.e.
Value Delivery Network.
• which means:
• The network made up of company, suppliers,
distributers & ultimately customers who
partner with each other to improve the
performance of the entire system in delivering
customer value.
Marketing Channels

27. According to AMA
(American Marketing Association)
• “Channel of Distribution is the Structure of
Intra Company Organization units and Extra
Company Agents and Dealers, Wholesale and
Retails, through which commodity, a product
or Service is Marketed”.
Marketing Channels

28. Importance of MC
• Push Strategy:
• This Involves manufacturer using it sales force
and trade promotion money to induce
intermediaries to carry, promote and sell the
product to end users.
• It is appropriate strategy where there is:
• Low Brand or Product Loyalty.
Marketing Channels

29. Importance of MC
• Pull Strategy:
• Manufacturer using advertising and promotion to
persuade consumers to ask intermediaries for the
product. Thus inducing intermediaries to order it.
• This Strategy is appropriate where there is high
brand or Product loyalty and high Involvement.
• Top marketing companies like:
Skillfully employ both push and pull strategies
Marketing Channels

30. Example of Push & Pull Strategy of

31. Channel Development and Levels
M
M
M
C
C
C
Distributor
M
M
M
C
C
C
M-Manufacturer C-Consumer
No of contacts without a Distributor
M*C= 3*3=9
No of contacts with Distributor
M+C=3+3=6
Thus MC’s reduce the amount of work that must be done by both producers
and Consumers.
Marketing Channels

32. Channel Levels
• Channel Level:
• A layer of Intermediaries that performs some
work in bringing the product and ownership
closer to the final buyer.
M C
ZERO Level
(Also Called
Direct Marketing
Channel)
One Level, Two
Level, Three Level
(Also Called Indirect
Marketing Channel)
Marketing Channels

33. Channel Levels
 Zero Level( or Direct Marketing) Channel:
 A Manufacturer Selling Products directly to the consumer.
 One Level: with one selling intermediary.
 Two Level: contains two selling intermediaries. These
intermediaries could be retailers, distributors, a system
house, or combination of stockiest/wholesalers and retailers,
distributors and dealers.
 Three Level: three selling intermediaries such as
distributor, wholesaler, retailer etc
 Thus Many Levels are there.

34. Channel Levels.
M
C
M M M
C C C
M M M M
C C C C
Consumer Marketing Channels B2C Industrial Marketing Channels B2B
Retailers
wholesaler
retailer
wholesa
ler
retailer
Dealer
Industrial
Distributors
Manufacturers
Representative
Manufacturers
Representative
Zero
Level
One
Level
Two
Level
Three
Level
Zero
Level
One
Level
Two
Level
Three
Level
Marketing Channels

35. Channel Design Decisions.
1) Analyzing Customers’ Desired Service
Output Levels.
2) Establishing Objectives and Constraints.
3) Identifying Major Channel Alternatives.
4) Evaluating the Major Alternatives.
Marketing Channels

36. Analyzing Customers’ Desired Service Output Levels.
 In designing marketing channel, the marketer must understand the
service output levels desired by target customers. Channels produce five
service outputs.
1. Lot Size: the no of units the channel permits a typical customer to
purchase on one occasion.
2. Waiting and delivery time: the average time customers of that
channel wait for the receipt of goods.
3. Spatial Convenience: the degree to which marketing channels make
it easy for customers to purchase the product.
4. Product Variety: the assortment breadth provided by the marketing
channel
5. Service Backup: the add on services(credit, delivery, installation,
repairs) provided by the channel.
Marketing Channels

37. 1. Perfect STP Planning.
2. Objectives Vary with Product Characteristics.
3. Cost Management Plays Very Important Role.
4. The objectives to be set upon the environment
which the company is operating.
Establishing Objectives and Constraints.
Marketing Channels

38. Identifying Major Channel Alternatives.
 A Channel Alternative is described by three
elements:
1. Types of business intermediaries available.
2. The no of intermediaries needed.
3. Terms and responsibilities of each channel
member.
Marketing Channels

39. Types of Business Intermediaries available:
 The people and Organizations that assist in the flow of goods and services from producer
to customer are known as Marketing Intermediaries.
 The following are the common type of intermediaries:
 Agent or Broker: legal authority to goods/services on behalf of producer.
 Middleman: just anybody acting as mediator between Producer & Consumer
 Wholesaler: who deal bulk sales from the producers to organizations.
 Retailer: last link of the channel who deal directly with consumers.
 Distributor: distributor deal on their own account and push the products.
 Dealer: sell only to final consumers.
 Value Added Resellers(VAR’s): buy the basic product from producer and add
value to it or, depending on the nature of the product modify it and then resell it
to final customers.
 Merchants: Assume ownership of goods that they sell to customers or other
intermediaries.
 Facilitating (C&F) Agents: they are the people and organizations that assists
the flow of products and information to marketing channels and include
banking insurance functions. Transportation and Storage Agent. Covering the
risk. Financial Service.
Marketing Channels

40. The no of Intermediaries Needed.
• Selective : use of more than one but fewer than all, of the
intermediaries who are willing to carry the company’s
products.
Exclusive: giving a limited number of dealers the
exclusive right to distribute the company’s products in
their Territories.
Intensive Distribution:
Stocking the products as many as many outlets as
possible.
Marketing Channels

41. Evaluating the Major Alternatives
• Each channel alternative needs to be evaluated
against:
• Economic
• Control
• Adaptive Criteria.
Marketing Channels

42. Economic Criteria
• It includes: sales, cost, profitability of different
channel alternatives.
• Channel Advantage:
• When a company successfully switches to its
customers to lower cost channels, while
assuming no loss of sales or deterioration in
service quality.
Marketing Channels

43. Control & Adaptive Criteria
• Sales agency is an independent firm seeking to
maximize its profits.
• Better approach is needed to adapt the product
and to sell.
• Long term relationships.
Marketing Channels

44. Channel Management Decisions
 Marketing Channel Management(MCM):
 Selecting, managing and motivating individual channel
members and evaluating their performance over a time.
 Channel decision refers to various decisions related to
selection of right channel member for distribution of
goods as well as services from the manufacturer to the
ultimate consumer.
 It includes:
 Selecting The Channel Members.
 Managing Channel Members.
 Motivating the Channel Members
 Training & Evaluating the Channel Members
Marketing Channels

45. Selecting the Channel Members
 Factors involving in the selection of channels:
1. Market Consideration: B2C or B2B, Number of
potential customers, size of order, buying habits of
customers, geographical concentration of the market.
2. Product Consideration: unit value, product line,
technical nature, size and weight, life cycle, value.
3. Company considerations: volume of production,
financial resources, experienced and competent
management, services provided by channels, desire of
control of the channels.
4. Middlemen considerations: availability of desired
middlemen, financial ability, attitude, sales potential,
cost, competition and legal constraints.
Marketing Channels

46. Managing the Channel Members
• The following decisions are considered
important while making the decision:
• Marketing mix variables.
• Long term commitments.(PRM)
• Degree of channel control.
• Level of customer services.
• Price of the product/services.
Marketing Channels

47. Motivating the Channel Member.
 Relationship Marketing.
 The Concept of Marketing Which emphasis on building mutually
satisfying long term relationships with key parties in order to earn and
retain their business.
 PRM: Activities of the firm undertakes to build mutually satisfying
long term relations with key partners such as suppliers, distributors, ad
agencies, and marketing research suppliers.
 Benefits and cost offered to intermediaries:
 Reduction in the amount of capital employed by the distributor.
 Lower operating cost.
 Availability of specialists’ services.
 Reduction of overall risk.
 Customer finance schemes.
 Increased sales promotion.
Marketing Channels

48. Motivating the Channel Member.
• Cooperative Programs: Traditional
Methods which includes:
• Advertising allowances, training sales
people, payment for displays, free goods,
commission on extra sales.
• DAC: Distribution Advisory Council:
• It helps in an overall improvement of
channel communication which in turn, helps
manufacturer learn more about the needs
and problems of his channel members.
Marketing Channels

49. Motivating the Channel Member.
 Channel Power:
 Ability to alter channel members’ behavior so that they
take actions they would not have taken otherwise.
 Coercive Power: manufacturers threaten to withdraw a
resource or terminate relationship if intermediaries fail
to cooperate.
 Reward Power: extra benefit for achievements.
 Legitimate power: requests a behavior that is warranted
under a contract.
 Expert Power: special knowledge about intermediaries
value.
 Referent Power: highly respected to be associated with
them.
Marketing Channels

50. Training & Evaluating the Channel
Member
 Training:
 Training programs.
 Requires third party service engineers to complete
set of courses and take certification exams. Those
who pass formerly recognized as Microsoft Certified
Professionals, and they can use this designation to
promote business.
 Evaluation:
 Performance Appraisal of each member periodically.
Marketing Channels

51. Channel Conflict & solutions.
• Channel Conflict: when one channel member’s
action prevent the channel from achieving
goal.
• Reasons for Conflict:
• Product Range Mix
• Ordering Procedures
• Delivery schedules
• Trading terms and credit arrangements
• Packaging & handling
• Joint promotion
• Different perception of the market.
Marketing Channels

52. Types of Conflict
• Horizontal Conflict: conflict at the same level
between channel members
• Ex: retailers on issue of pricing.
• Vertical Conflict: conflict between different level
with in the same channel
• Ex: wholesaler & Manufacturer Conflict on issue
of delivery of goods.
• Multichannel Conflict: with two or more channels
established by the manufacturer to sell in the
market
• Ex: retailer-distributor- manufacturer conflict
related to credit facility
Marketing Channels

53. Remedies or Solutions to Conflict
• Channel Coordination: bringing channel
members together to solve the issues.
• Proper Communication.
• Superordinate goals.
Marketing Channels

54. Examples of Marketing Channels
• VMS: Vertical Marketing System
• Producers, wholesalers, retailers acting in single system.
• It’s a failure approach
• Ex:
Horizontal Marketing System(HMS): two or more unrelated companies put
together resources or programs to exploit emerging market opportunity.
Ex:
Third Party Delivery(TPD): specialized agency providing logistics and distribution
services Ex: ACE providing door to door service for
Multi Channel Marketing System(MCMS OR MLM): company showrooms as well as
channel members:
Ex:
Marketing Channels