DESIGNING PRICING STRATEGIES AND PROGRAMS

CHAPTER – 9• Setting the Price

• Adapting the Price

• Initiating and Responding to Price and Changes

Selecting and Managing Marketing Channels• Channel Design Decisions

• Channel Management Decisions

• Channel Dynamics

• Channel Cooperation, Conflict, and Competition

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Pricing Approach

Sell value, not price.

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Figure 16.3: Setting Pricing Policy

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Setting the Price • Step 1: Selecting the pricing objective

• Survival

• Maximize current profits

• Maximize their market share

• Market-penetration pricing and skimming pricing • Best when:

• Market is highly price-sensitive, and a low price stimulates market growth,

• Production and distribution costs fall within accumulated production experience, and

• Low price discourages actual and potential competition

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Figure 16.4: Inelastic and Elastic Demand

Setting the Price Step 2: Determining Demand

• Price sensitivity

• Total Cost of Ownership (TCO)

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Setting the Price

Step 3: Estimating Cost• Types of Cost and Levels of Production

• Fixed costs (overhead)

• Variable cost

• Total cost

• Average cost

• Accumulated Production• Experience curve (Learning curve)

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Figure 16.7: The Three Cs Model for Price Setting

Setting the Price • Differentiated Marketing Offers

• Activity-based cost (ABC) accounting

• Target costing

Step 4: Analyzing Competitors’ Cost, Prices, and Offers

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Setting the Price

Step 5: Selecting a Pricing Method• Markup Pricing

Unit Cost = variable cost + (fixed cost/unit sales)

• Markup price Markup price=

unit cost/ (1 – desired return on sales)

• Target-Return PricingTarget-return price = unit cost + (desired return X investment capital)/unit sales

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Setting the Price Step 6: Selecting the Final Price

• Psychological Pricing• Reference price

• Gain-and-Risk-Sharing Pricing

• Influence of the Other Marketing Elements• Brands with average relative quality but high relative advertising

budgets charged premium prices

• Brands with high relative quality and high relative advertising budgets obtained the highest prices

• The positive relationship between high advertising budgets and high prices held most strongly in the later stages of the product life cycle for market leaders

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Adapting the Price

• Geographical Pricing • Barter

• Compensation deal

• Buyback arrangement

• Offset

• Price Discounts and Allowances

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Adapting the Price

• Promotional Pricing• Loss-leader pricing

• Special-event pricing

• Cash rebates

• Low-interest financing

• Longer payment terms

• Warranties and service contracts

• Psychological discounting

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Adapting the Price

Discriminatory Pricing• Customer segment pricing

• Product-form pricing

• Image pricing

• Channel pricing

• Location pricing

• Time pricing

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Initiating and Responding to Price Changes

Initiating Price Increases• Cost inflation

• Anticipatory pricing

• Over demand

• Reduction of discounts

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Initiating and Responding to Price Changes

Reactions to Price Changes• Customer Reactions

• Competitor Reactions

Responding to Competitors’ Price Changes• Maintain price

• Maintain price and add value

• Reduce price

• Increase price and improve quality

• Launch a low-price fighter line

Selecting and Managing Marketing Channels

• Channel Design Decisions• Channel Management Decisions• Channel Dynamics• Channel Cooperation, Conflict, and Competition

Channel Design Decisions

• Analyzing customer needs (lot size, delivery time, product variety, service back up etc.)

• Establishing objectives and constraints

• Identifying the major channel alternatives( Type and no. of intermediaries, terms and conditions of channel members etc.)

• Evaluating the major channel alternatives

• Selecting the channel

Channel Management Decisions

• Selecting the channel members

• Training and motivating the channel members (channel power and channel partnership)

• Evaluating channel members

• Modifying the channel design and arrangement

Channel Dynamics

• Channel systems are constantly evolving and developing

• Vertical Marketing Systems• Corporate VMS

• Administered VMS

• Contractual VMS

• Horizontal Marketing Systems

• Multichannel Marketing Systems

Channel Dynamics

• Conflict, Cooperation, & Competition• Types of conflict

• Vertical, horizontal, and multichannel

• Causes of conflict• Major causes: Goal incompatibility; unclear roles and rights

• Other potential causes exist

• Managing channel conflict

• Cooptation

• Diplomacy

• Mediation

• Arbitration

Managing Channel Conflict

Subordinate goal

adoption

Exchange people

between channel levels

Consumer Marketing Channels

Industrial Marketing Channels

MANAGING RETAILING, WHOLESALING AND MARKET LOGISTICS

• Retailing

• Wholesaling

• Market Logistics

Retailing

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All of the activities involved in selling goods or services directly to final consumers for personal, non-business use.

Types of Retailers

• Specialty store

• Department store

• Supermarket

• Convenience store

• Discount store

• Off-price retailer

• Superstore

• Catalog showroom

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Levels of Service

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Self-service

Self-selection

Limited service

Full service

Nonstore Retailing

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Direct selling

Direct marketing

Automatic vending

Buying service

Wholesaling

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All the activities in selling goods or services to those who buy for resale or business use.

Major Wholesaler Types

• Merchant wholesaler

• Full-service wholesaler

• Limited-service wholesaler

• Brokers and agents

• Manufacturers’ and retailers’ branches and offices

• Specialized wholesalers

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What Wholesalers do

• Selling and promoting

• Buying and assortment building

• Bulk breaking

• Warehousing

• Transportation

• Financing

• Risk bearing

• Market information

• Management services and counseling

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Market Logistics

Supply chain management (SCM)

Starts before physical distribution, covering procurement of inputs, conversion into finished products, and product movement to final destinations.

Market logistics

Planning the infrastructure to meet demand, then implementing and controlling the physical flows of materials and final goods from points of origin to points of use to meet customer needs at a profit.

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Integrated Logistics Systems (ILS)

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Include materials management, material flow systems, and physical distribution, aided by information technology.

Market-Logistics Decisions

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Order processing

Warehousing

Inventory

Transportation

Designing and Managing Integrated Marketing Communications

• Overview of the Communication Process

• Developing Effective Communications

• Developing, Managing and Coordinating Integrated Communications

Designing and Managing Integrated Marketing Communications

Integrated Marketing Communications

Advertising

Direct Response

Sales Force

Events and Experiences

ClarityConsistencyMaximum Impact

Role of Marketing Communications

Persuade

Inform

Remind

Marketing Communications Mix

Advertising

Public Relations and Publicity Sales Force

Direct and Interactive Marketing

Word-of-Mouth

Events and Experiences

Sales Promotion

Communications Process Models

Macromodel Micromodel

Sender Receiver Consumers’ Response

Elements in the Communications Process

Identify target audience

Determine objectives

Design communications

Select channelsEstablish budgetDecide on media

mix

Measure results Manage IMC

Steps in Developing Effective Communications

Developing Effective Communications

Identify target audience

Determine objectives

Design communications

Select channelsEstablish budget

The Basics

MANAGING ADVERTISING, SALES PROMOTION AND PUBLIC RELATIONS

• Developing, Managing and Advertising Program• Sales Promotion• Public Relations

• Managing the Sales Force• Designing the Sales Force• Managing the Sales Force• Principles of Personal Selling• Managing Direct and Online Marketing• The Growth and Benefits of Direct Marketing• Customer Database and Direct Marketing• Major Channels for Direct Marketing• Marketing in the 21st Century: Online Marketing

MANAGING ADVERTISING, SALES PROMOTION AND PUBLIC RELATIONS

•Developing, Managing and Advertising Program• Sales Promotion•Public Relations

Managing the Sales Force

• Designing the Sales Force

• Managing the Sales Force

• Principles of Personal Selling

Managing Direct and Online Marketing

• The Growth and Benefits of Direct Marketing

• Customer Database and Direct Marketing

• Major Channels for Direct Marketing

• Marketing in the 21st Century: Online Marketing