Pricing Strategies Overview

Pricing Strategies

• Price: The amount of money charged for a product or service. It's the sum of values customers exchange for the benefits of using the product.

• Major Pricing Strategies: Cost-based and value-based pricing. Major pricing strategies include cost-plus pricing and break-even pricing (target return pricing).

• Customer Value-Based Pricing: Uses buyers' perceptions of value, not seller's cost, as the key.

  • Good-value pricing: Offering the right combination of quality and service at a fair price.
    • Everyday low pricing (EDLP): Charging a consistent, low price with few temporary discounts. (e.g., Daiso, Walmart).
    • High/low pricing: Charging higher prices regularly but offering temporary discounts on select items. (e.g., 10.10, holiday sales)
  • Value-added pricing: Attaching value-added features and services, and charging a higher price.

• Cost-Based Pricing: Setting prices based on production, distribution, and selling costs plus a fair return for effort and risk.

  • Cost-plus pricing (markup pricing): Adding a standard markup to the cost of the product.
  • Break-even pricing (target return pricing): Setting price to cover all costs (making/marketing) and generating a target return.

• Types of Costs:

  • Fixed costs: Overhead costs that don't vary with production or sales (e.g., rent, insurance)
  • Variable costs: Costs that directly vary with production levels (e.g., materials)

Pricing in Different Market Structures

• Pure competition: Many buyers and sellers trading uniform commodities. Price is usually determined by market forces.
• Monopolistic competition: Many sellers offering differentiated products. Prices are influenced by branding and differentiation.
• Oligopolistic competition: A few major sellers who are very sensitive to each other's pricing strategies and moves.

Price Adjustments

• Geographic pricing: Adjusting prices to account for location.
• Dynamic pricing: Continuously changing prices based on customer and market factors.
• International pricing: Adjusting prices for international markets.

Effective Action in Responding to Price Changes

• Reduce prices
• Raise perceived value
• Improve quality
• Launch low-price fighter brand

Pricing Across Channel Levels

• Price fixing: Collaborating with competitors to set prices.
• Predatory pricing: Selling below cost to harm a competitor or drive them out of business.
• Price discrimination: Charging different prices to different customers.
• Price maintenance: Requiring dealers to charge a specific retail price.
• Deceptive pricing: Misleading customers with advertised prices.

Marketing Channels

• Value delivery network: Company, suppliers, distributors, and customers collaborating to improve system performance.
• Marketing channel: Interdependent organizations facilitating product or service availability to consumers or businesses. Channel members add value.
• Channel levels: Number of intermediaries between producer and final customer. (e.g., manufacturer -> wholesaler -> retailer -> consumer) Direct and indirect channels exist.
• Channel conflict: Disagreements among channel members about goals, roles, or rewards.
  • Horizontal conflict: Conflicts among firms at the same channel level.
  • Vertical conflict: Conflicts between different levels in the same channel.
• Vertical marketing systems: Producers, wholesalers, and retailers acting as a unified system, rather than separately. (e.g., corporate, contractual).
• Disintermediation: Displacing traditional intermediaries with new types of intermediaries.

Marketing Channel Design and Number of Intermediaries

• Intensive distribution: Stocking the product in as many outlets as possible.
• Exclusive distribution: Limiting the number of dealers to distribute the company's products in a given region.
• Selective distribution: Using more than one but fewer than all available distributors.

Marketing Logistics (Physical Distribution)

• Inbound logistics: Moving products from suppliers to the factory.
• Outbound logistics: Moving products from factory to resellers (and subsequently, consumers).
• Reverse logistics: Moving broken, unwanted, or excess products back to the appropriate locations.

Transportation

• 5 main methods exist: Trucks, railroads, water carriers, pipelines, airfreight, and intermodal. Internet-driven transportation also crucial.

Advertising and Public Relations

• Promotion mix: Advertising, sales promotion, personal selling, public relations, and direct marketing.

• Advertising objectives: Creating awareness, informing consumers about new products, Persuasive advertising builds brand preference and encourages switching brands.

• Advertising budget: Several methods exist: affordable method, percentage-of-sales method, competitive-parity method, and objective-and-task method.

• Message decisions: Determine the message strategy and creative concept.

• Media decisions: Determine appropriate media type and vehicles.

• Advertising evaluation: Assessing the communication impact and sales/profit impact.

• Public relations: Building good relationships with the company's publics. This includes press relations (press releases), product publicity, public affairs, lobbying, and community relations.

Online Marketing

• Forms of online marketing: Kiosk marketing, digital direct marketing technologies, online marketing (click-only and click-and-mortar companies), consumer-to-consumer (C2C) marketing, business-to-consumer (B2C), business-to-business (B2B) channels.

Sustainable Marketing

• Socially and environmentally responsible marketing: Meeting present consumer needs while preserving future generations' ability to meet their needs.

• Marketing concept: Meeting customer's needs and wants more effectively and efficiently than competitors.

• Societal marketing concept: Considering the consumer's future welfare.

• Sustainable marketing principles: Consumer-oriented, customer-value, innovative, mission-driven, and societal marketing principles.

• Social criticisms of marketing: High prices; deceptive practices; high-pressure selling; shoddy/harmful products; planned obsolescence; insufficient service to disadvantaged groups including false wants/materialism, cultural pollution.

• Sustainable Marketing Ethics: Ethical marketing, including all stakeholders (consumers, company, society).

Sales Promotion

• Consumer promotions: Samples, coupons, cash refunds/rebates, price packs, premiums, advertising specialties, contests, sweepstakes, games and event marketing. These are short-term incentives encouraging purchase/sales.
• Trade promotions: Incentives aimed toward resellers to carry a brand/push it on to end consumers. Include discounts, allowances, free goods, push money, and advertising items.
• Business promotions: Incentives to build business leads, stimulate sales, reward customers, and motivate salespeople.

Personal Selling

• Inside and outside sales forces. Inside salespeople use phones/internet to sell to customers. Outside salespeople work directly with customers.
• Recruiting and selection of sales personnel: Companies look for motivated and skilled people.
• Sales Force structure: Strategies for organizing a company's sales force include territorial, product, and customer-based approaches.
• Compensation of Sales Personnel: Fixed and variable compensation structures exist, which includes commission and/or bonus.
• Supervising and motivating sales personnel: Companies emphasize this to ensure sales are met.