Marketing Channels Bluefield College October 26, 2010

External Factors Affecting Pricing Decisions The market and demand: Analyzing the price-demand relationship: Different prices result in different levels of demand, as shown by the demand curve. Price elasticity of demand: Refers to how responsive changes in demand will be to a change in price. Small demand change = inelastic demand. Large demand change = elastic demand.

Market-Skimming Pricing Setting a high price for a new product to “skim” revenues layer-by-layer from those willing to pay the high price. Company makes fewer, but more profitable sales. When to use a market-skimming strategy: Product’s quality and image must support its higher price. Costs of low volume cannot be so high they cancel out the benefit of higher price. Competitors should not be able to enter market easily and undercut price.

Market-Penetration Pricing Setting a low initial price in order to “penetrate” the market quickly and deeply. Can attract a large number of buyers quickly and win a large market share. When to use a market-penetration pricing strategy: Market is highly price sensitive so a low price produces more growth. Costs fall as sales volume increases. Competition must be kept out of the market or the effects will be only temporary.

Product Mix Pricing

Price Adjustments

Price Adjustment Strategies Discounts: Cash Quantity Functional Seasonal Allowances: Trade-in Promotional Types of segmented pricing: Customer-segment: different customers pay different prices for the same good. Product-form: different versions are priced differently but not according to cost. Location pricing: different prices are charged for each location even when the cost of offering the good is the same. Time pricing: price is varied according to time of year, season, month, day, or hour.

Price Adjustment Strategies Psychological pricing: Considers the psychology of prices and not simply the economics; the price is used to say something about product. Price can often influence perceptions of quality. Reference prices are important. Promotional pricing: Discounts (loss leaders). Special-event pricing. Cash rebates . Low-interest financing. Longer warranties. Free maintenance.

Price Adjustment Strategies Geographical pricing: FOB-origin pricing. Uniform-delivered pricing. Zone pricing. Basing-point pricing. Freight-absorption pricing. Dynamic pricing: Adjusting prices continually to meet the characteristics and needs of individual customers and situations.

Price Adjustment Strategies Factors influence international pricing: Economic conditions. Competitive situations. Laws and regulations. Development of the wholesaling and retailing system. Consumer perceptions and preferences. Different marketing objectives. Costs.

Price Changes Price cuts may be initiated due to: Excess capacity. Falling demand in face of strong competitive price or a weakened economy. Attempt to dominate market through lower costs. Price increases can greatly improve profits and may be initiated due to: Cost inflation. Overdemand. Marketers should avoid the practice (or appearance) of price gouging.

Responding to Competitor Price Changes

Public Policy and Pricing Pricing within channel levels: Price fixing. Predatory pricing. Pricing across channel levels: Price discrimination. Retail price maintenance. Deceptive pricing.

Supply Chains Producing and making products available to buyers requires building relationships with “upstream” and “downstream” supply chain partners. Upstream: Firms that supply the raw materials, components, parts, and other elements necessary to create a good. Downstream: Marketing channel partners that link the firm to the customer.

Marketing Channels A set of interdependent organizations that help make a product or service available for use or consumption by the consumer or business users.

Marketing Channels

Nature Marketing Channels Number of channel levels: The number of intermediary levels indicates the length of a channel. Direct marketing channels Have no intermediary levels between the manufacturer and the customer. Indirect marketing channels Contains one or more intermediaries. All channel institutions are connected by several types of flows.

Channel Behavior and Organization The channel will be most effective when: Each member is assigned tasks it can do best. All members cooperate to attain overall channel goals. Otherwise, channel conflict can occur: Horizontal conflict occurs among firms at the same level of the channel (e.g., retailer to retailer). Vertical conflict occurs between different levels of the same channel (e.g., wholesaler to retailer). Some conflict can be healthy competition.

Conventional Channels and Vertical Marketing Systems

Channel Behavior and Organization Franchise organizations are a common form of contractual vertical marketing system in which a franchisor links several stages in the product-distribution process. Types of franchise organizations: Manufacturer-sponsored retailer franchise. Manufacturer-sponsored wholesaler franchise. Service-firm sponsored retailer franchise.

Channel Behavior and Organization Horizontal marketing systems: Two or more companies at one level join together to follow a new marketing opportunity. Multichannel distribution system: Occurs when a single firm sets up two or more marketing channels to reach one or more customer segments. Also called hybrid marketing channel system. Offers many advantages.

Multichannel Distribution System

Channel Behavior and Organization Changing channel organization: Disintermediation occurs when product and service producers cut out traditional intermediaries or displace resellers with radical new types of intermediaries. Disintermediation presents both problems and opportunities for both producers and resellers. Resellers and intermediaries must innovate to survive. Producers must seek additional direct channels to remain competitive, though channel conflict often results.

Marketing Logistics Planning, implementing, and controlling the physical flow of materials, final goods, and related information from points of origin to points of consumption to meet customer requirements at a profit.

Marketing Logistics and Supply Chain Management Greater emphasis has been placed on logistics recently because: Firms can gain a competitive advantage when logistics result in better service or lower prices. Improved logistics can lower costs. Increased product variety has created a need for improved logistics management. Improvements in information technology have created the means for major gains in distribution efficiency. Logistics effect the environment as well as the firm’s environmental sustainability efforts.

Marketing Logistics and Supply Chain Management Goals of the logistics system: Deliver a targeted level of customer service at the least cost. Major logistics functions: Warehousing. Inventory management. Transportation. Logistics information management.