2 The Importance of Pricing Objective 1:11The Importance of PricingPricing decisions cause more concern of top-level executives than any other marketing mix area because…Pricing is viewed as having the most direct link to the firm’s bottom line.
3 Channel Pricing Structure Objective 2:11Anatomy ofChannel Pricing StructureAll channel participants want a “share of the profits”Generally, members will only carry those products that offer a GM sufficient to cover costs and generate a sufficient profit.
4 The “Golden Rule” of Channel Pricing 11The “Golden Rule”of Channel PricingIt is not enough to base pricing decisions solely on the market, internal cost considerations, and competitive factors. Rather, for those firms using independent channel members, explicit consideration of how pricing decisions affect channel member behavior is an important part of pricing strategy.
5 Influencing Pricing Strategy Objective 3:11Influencing Pricing StrategyChannel managers must…Determine pricing strategies that will foster or promote channel member cooperation and minimize conflict.While not always feasible, channel managers must focus on incorporating members’ concerns/needs into future pricing decisions.
6 Member Reactions Not Always Clear 11Member Reactions Not Always Clear(A Priori)Some possible reactions by members to a “cut” in price include…May expect the “cut” to increase sales volume and profitabilityMay be reluctant to deal with product because of possible negative effects on product’s imageMay be reluctant to deal with product because of possible negative effects on their own store imageMay resent “cut” because of a likely decrease in margins realizedMay be concerned about a loss in value on their existing inventory of the product
7 Channel Pricing Guidelines Objective 4:11Channel Pricing GuidelinesWhy are guidelines necessary?To help focus more clearly on the channel implications of one’s pricing decisions.To provide general prescriptions on how to minimize conflict potential and promote cooperation through one’s pricing decisions.
8 Profit Margin Guideline 11Profit Margin GuidelineGuideline #1:Each efficient reseller must obtain unit profit margins in excess of unit operating costs
9 Different Classes of Resellers Guideline 11Different Classes of Resellers GuidelineGuideline #2:Each class of reseller margins should vary in rough proportion to the cost of the functions the reseller performs.
10 Rival Brands Guideline 11Rival Brands GuidelineGuideline #3:At all points in the vertical chain(channel levels), prices charged must be in line with those charged for comparable rival brands
11 Special Arrangements Guideline 11Special Arrangements GuidelineGuideline #4:Special distribution arrangements—variations in functions performed or departures from the usual flow of merchandise—should be accompanied by corresponding variations in financial arrangements.
12 Conventional Norms Guideline 11Conventional Norms GuidelineGuideline #5:Margins allowed to any type ofreseller must conform to the conventional percentage norms unless a very strong case can be made for departing from the norms.
13 Variation on Models Guideline 11Variation on Models GuidelineGuideline #6:Variations in margins on individualmodels and styles of a line are permissible and expected. However, they must vary around the conventional margin for the trade.
14 Price Points Guideline 11Price Points GuidelineGuideline #7:A price structure should containofferings at the chief price points,where such price points exist.
15 Product Variations Guideline 11Product Variations GuidelineGuideline #8:A manufacturer’s price structuremust reflect variations in the attractiveness of individual product offerings.
16 There is no guarantee on effectiveness Objective 5:11Caveat on GuidelinesThere is no guarantee on effectivenessParticular circumstances and situations exist in which these guidelines will not apply or will be irrelevant.
17 Other Issues in Channel Pricing Objective 6:11Other Issues in Channel PricingExercising control in channel pricingChanging pricing policiesPassing price increases on through channelUsing price incentives in the channelDealing with gray marketing, diverting* and free riding
18 Exercising Control in Pricing 11Exercising Control in PricingGiven members often view pricing as an area over which they have total control, channel managers…Must rule out any type of coercive power approaches to controlling member pricing policyShould encroach on the pricing domain of a member only if it believes that it is in its vital, long-term strategic interest to do so.Must, if necessary to possess control, enact “friendly persuasion”
19 Changing Price Policies 11Changing Price PoliciesChanges in the channel manager’s pricing policies or related terms of sale are likely to cause reactions among channel members.Thus,One must understand that fears of such changes are likely they result of becoming accustomed to the existing strategy, as well as concerns about their strategies being “tied” to those of the channel manager.
20 Passing Price Increases 11Passing Price Increaseson Through ChannelChannel managers must be sensitive not to simply “pass” price increases on to the channel. Instead, they should…Consider the long- and short-term implications of such increases versus maintaining current prices.If price increases are necessary, change strategies in other areas to assist in offsetting the effects of such increases.
21 Using Price Incentives in the Channel 11Using Price Incentives in the ChannelChannel managers may face difficulties in gaining strong retailer acceptance or follow-through on pricing promotions.Thus, channel managers must…Make promotions as simple & straightforward as possibleDesign price promotion strategies to be at least as attractive to the retailer as they are to the customer
22 Gray Marketing Vs. Diverting* 11Gray Marketing Vs. Diverting*Diverting*Occurs when unauthorized members of a channel buy/sell excess merchandise to/from authorized members.*Gray marketingOccurs when branded merchandise flows through unauthorized channels that cross national boundaries*Free ridingOccurs when customers seek product information etc. from full service firms then purchase from a limited service discounter or over the Internet.*