Pricing Strategies PDF

PRICING Price - The amount of money charged for a product or service - The sum of the values that customers exchange for the benefits of having or using the product or service In a product, 1. Cost, 2. Price, (e.g. Poundland) 3. Value (e.g. Apple due to their premium) Major pricing...

PRICING Price - The amount of money charged for a product or service - The sum of the values that customers exchange for the benefits of having or using the product or service In a product, 1. Cost, 2. Price, (e.g. Poundland) 3. Value (e.g. Apple due to their premium) Major pricing strategies Customer value-based pricing - Uses buyers’ perceptions of value, not the seller’s cost, as the key to pricing 1. Good-value pricing - Involves offering just the right combination of quality and good service at a fair price a. Everyday low pricing (EDLP) - Charging a constant, everyday low price with few or no temporary price discounts - Daiso, Walmart b. High low pricing - Charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items - 10.10, holiday sales 2. Value-added pricing - Involves attaching value-added features and services to differentiate a company’s offers and charging higher prices Cost-based pricing - Setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk 1. Cost-plus pricing (markup pricing) - Adding a standard markup to the cost of the product 2. Break-even pricing (target return pricing) - Setting price to break even on the costs of making and marketing a product, or setting price to make a target return - The floor price—absolute minimum you must price your product Types of costs 1. Fixed costs - Overhead costs - Do not vary with production or sales level 2. Variable costs - Vary directly with the level of production Steps for cost-based pricing 1. Design a good product 2. Determine product costs 3. Set price based on cost 4. Convince buyers of product’s value Steps for value-based pricing 1. Assess customer needs and value perceptions 2. Set target price to match customer perceived value 3. Determine costs that can be incurred 4. Design product to deliver desired value at target price Internal and external considerations affecting price decision 1. Overall marketing strategy, objectives, and mix - The price must tell the same story with the other Ps 2. Organizational considerations - Other expenses 3. The economy - Are we in a recession? 4. The government - Regulations from the government (price controls) 5. Social concerns - During pandemics and calamities, will you increase prices still? 6. The market and demand - Competitors, supply, and demand Competition based pricing - Setting prices based on competitors’ strategies, prices, costs, and market offerings - Usually the case for oligopolies (TelComm or even major fast food) Pricing in different types of markets 1. Pure competition - Market consists of many buyers and sellers trading in a uniform commodity such as wheat, copper, or financial securities  -In a purely competitive market, marketing research, product development, pricing, advertising, and sales promotion play little or no role. - Sellers in these markets do not spend much time on marketing strategy since it plays little or no role to the prices in the market 2. Monopolistic competition - Market consists of many buyers and sellers who trade over a range of prices rather than a single market price - Range of prices occurs because sellers can differentiate their offers to buyers - Sellers try to develop differentiated offers for different customer segments - Use branding, advertising, and personal selling to set their offers apart 3. Oligopolistic competition - Market consists of a few sellers who are highly sensitive to each other’s pricing and marketing strategies - Each seller is alert and responsive to competitors’ pricing strategies and moves - Usually uses competition based pricing Price elasticity - The change in demand with the change in price - Most products are elastic unless essential products or a product that is able to successfully differentiate themselves New-product pricing 1. Market-skimming pricing - Setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price - The company makes fewer but profitable sales 2. Market-penetration pricing - Setting a low price for a new product in order to attract a large number of buyers and a large market share Product mix pricing 1. Product line pricing - Setting prices across an entire product line 2. Optional-product pricing - Pricing optional or accessory products sold within the main product 3. Captive-product pricing - Pricing products that must be used with the main product 4. By-product pricing - Pricing low-value by-products to get rid of them 5. Product bundle pricing - Pricing bundles of products together Price adjustments 1. Discount and allowances pricing - Reducing prices to reward customer responses such as paying early or promoting the product 2. Segmented pricing - Adjusting prices to allow for differences in customers, products, or locations 3. Psychological pricing - Adjusting prices for psychological effect 4. Promotional pricing - Temporarily reducing prices to increase short-run sales  5. Geographic pricing - Adjusting prices to account for geographic location of customers 6. Dynamic pricing - Adjusting prices continually to meet the characteristics and needs of individual customers and situations 7. International pricing - Adjusting prices for international markets Initiating price changes Initiating price cuts Initiating price increases Buyer reactions to price changes Competitor reactions to price changes Effective action in responding to price changes Reduce prices Raise perceived value Improve quality and increase price Launch low price “fighter brand” Public policy and pricing Prohibited pricing strategies within channel levels  1. Price fixing - Talking with competitors to set prices 2. Predatory pricing - Selling below cost with the intention of punishing a competitor or putting them out of business Prohibited pricing across channel levels 1. Price discrimination - Charging different prices to different customers - It must be ensured that the same prices are given to all customers any given level of trade 2. Price maintenance - Requiring dealers to charge a specific retail price 3. Deceptive pricing - Seller states price that may mislead customers  MARKETING CHANNELS Value delivery network - Made up of the company, suppliers, distributors, and ultimately customers who “partner” with each other to improve the performance of the entire system Marketing channel - Set of interdependent organizations that help make a product or service available for use or consumption by the consumer or business user. Channel members add value Value added by channels 1. Information - Gathering and distributing marketing research and intelligence information about actors and forces in the marketing environment needed for planning and aiding exchange 2. Promotion - Developing and spreading persuasive communications about offers 3. Contact - Finding and communicating prospective buyers 4. Matching - Shaping and fitting the offer to the buyer’s needs, including activities such as manufacturing, grading, assembling, and packaging 5. Negotiation - Reaching an agreement on price and other terms of the offer so the ownership or possession can be transferred 6. Physical distribution - Transporting and storing goods 7. Financing - Acquiring and using funds to cover the costs of the channel work 8. Risk taking - Assuming the risks of carrying out the channel work Number of channel levels Channel level - A layer of intermediaries that performs some work in bringing the product and its ownership closer to the final buyer 1. Direct marketing channel - Has no intermediary levels (e.g. Dell) 2. Indirect marketing channel - Contains 1 or more intermediary levels Channel conflict - Disagreement among marketing channel members on goals, roles, and rewards 1. Horizontal conflict - Occurs among firms at the same level of the channel 2. Vertical conflict - Happens between different levels of the same channel Vertical marketing systems 1. Conventional marketing system - Producers, wholesalers, and retailers are each a separate business seeking to maximize its own profits, perhaps even at the expense of the system as a whole 2. Vertical marketing system - Consists of producers, wholesalers, and retailers acting as a unified system - 1 channel member owns the others, has contracts with them, or wields so much power that they must all cooperate - Types of vertical marketing system a. Corporate vertical marketing system - Integrates successive stages of production and distribution under single ownership b. Contractual vertical marketing system  - Consists of independent firms at different levels of production and distribution who join together through contracts—includes franchises c. Administered vertical marketing system - Leadership is assumed not through common ownership or contractual ties but through the size and power of one or a few dominant channel members Types of franchises 1. Manufacturer-sponsored retailer 2. Manufacturer-sponsored wholesaler 3. Service-firm-sponsored retailer Horizontal marketing system - A channel arrangement in which 2 or more companies at 1 level join together to follow a new marketing opportunity Multichannel distribution systems - A distribution system in which a single firm sets up 2 or more marketing channels to reach 1 or more customer segments Disintermediation - The cutting out of marketing channel intermediaries by product or service producers, or the displacement of traditional by radical new types of intermediaries Marketing channel design - Includes designing effective marketing channels by analyzing consumer needs, setting channel objectives, identifying major channel alternatives, and evaluating them. Number of marketing intermediaries 1. Intensive distribution - Stocking the product in as many outlets as possible 2. Exclusive distribution  - Giving a limited number of dealers the exclusive right to distribute the company’s products in their territories 3. Selective distribution - The use of more than 1, but fewer than all, of the intermediaries who are willing to carry the company’s products Marketing channel management - Involves selecting, managing, and motivating individual channel members and evaluating their performance over time Public policy and distribution decisions 1. Exclusive dealing - Seller requires that the dealers not handle competitor products 2. Exclusive territorial agreements - Producers agreeing not to sell to other dealers in a given area, or the buyer may agree to sell only on its own territory 3. Tying agreements (like full line forcing) - Producers of the strong brand sometimes sell it to dealer only if the dealers will take some or all of the rest of the line Marketing logistics (physical distribution) - Involves the 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 Supply chain management - Managing upstream and downstream value-added flows of materials, final goods, and related information among suppliers, the company, resellers, and final customers 1. Inbound logistics - Moving products from suppliers to the factory 2. Outbound logistics - Moving products from the factory to resellers and ultimately to customers 3. Reverse logistics - Moving broken, unwanted, or excess products returned by consumers or resellers Major logistics functions 1. Warehousing - Storing goods while they wait to be sold a. Storage warehouses - Store goods for moderate to long periods of times b. Distribution centers - A large and automated warehouse designed to receive goods from various plants and suppliers, take orders, fill them efficiently, and deliver goods to customers as quickly as possible 2. Inventory management - Delicate balance between carrying too little inventory and carrying too much ★ Just in time logistic systems  - Producers and retailers carry only small inventories of parts or merchandise, often only enough for a few days of operations - New stocks arrive as needed, rather than being stored in inventory until being used 3. Transportation - There are 5 main transportation modes plus 1 additional a. Trucks (land) b. Railroads (train) c. Water carriers (ship) d. Pipelines (oil, chemicals) e. Airfreight (planes) f. Internet (Netflix, iTunes, Spotify) ★ Intermodal transportation - Combining 2 or more modes of transportation a. Piggyback (use of rail and trucks) b. Fishyback (water and tracks) c. Trainship (water and rail) d. Airtruck (air and truck) 4. Integrated logistics management - The logistics concept that emphasizes teamwork, both inside the company and among all the marketing channel organizations, to maximize the performance of the entire distribution system Third party logistics (3PL) provider - An independent logistics provider that performs any or all of the functions required to get its client’s product to market - Usually faster, more efficient, and less costly ADVERTISING AND PUBLIC RELATIONS The promotion mix 1. Advertising - Any form of nonpersonal presentation and promotion of ideas, goods, or services by an identified sponsor 2. Sales promotion - Short-term incentives to encourage the purchase or sale of a product or service 3. Personal selling - Personal presentation by the firm’s sales force for the purpose of making sales and building customer relationships 4. Public relations - Building good relations with the company’s various publics by obtaining favorable publicity and corporate image management 5. Direct marketing - Direct connections with carefully targeted individual consumers to obtain immediate response and cultivate lasting relationships Integrated marketing communications - Customers are changing and marketing strategies should be changing as well - The communications model is shifting from broadcasting to narrowcasting The nature of each promotion tool 1. Advertising ★ Positives - Reaches geographically dispersed buyers - Low cost per exposure - Enables repeat messages - Very expressive tool ★ Negatives - Impersonal - Not directly persuasive - One-way communication - Costly 2. Personal selling ★ Positives - Most effective at certain stages of the buying process - Quick adjustments can be made - Customer relationships are formed ★ Negatives - Very costly - Loyalty to salesforce not the firm 3. Sales promotions ★ Positives - Attract consumer attention - Offer strong incentives to purchase - Reward quick response ★ Negatives - Short-lived - Often not effective in long-run brand preference Promotion mix strategies Advertising decisions Setting advertising objectives 1. Informative advertising - Communicating customer value - Building a brand and company image - Telling the market about a new product - Explaining how a product works ➔ Suggesting new uses for a product ➔ Informing the market of a price change ➔ Describing available services and support ➔ Correcting false impressions 2. Persuasive advertising - Building brand preference - Encouraging switching to a brand - Changing customer’s perception of product value ➔ Persuading customers to purchase now ➔ Persuading customers to receive a sales call ➔ Convincing customers to tell others about the brand 3. Reminder advertising  - Maintaining customer relationships - Reminding consumers that the product may be needed in the near future ➔ Reminding consumers where to buy the product ➔ Keeping the brand in customer’s mind during off-seasons Setting the advertising budget 1. Affordable method - Setting the promotion budget at the level management thinks the company can afford 2. Percentage-of-sales method - Setting at a certain percentage of current or forecasted sales or as a percentage of the unit sales price 3. Competitive-parity method - Setting to match competitors’ outlays 4. Objective-and-task method - Developing budget by (1) defining specific objectives, (2) determining the tasks that must be performed to achieve these objectives, and (3) estimating the costs of performing these tasks Develop advertising strategy Advertising strategy - The strategy by which the company accomplishes its advertising objectives - Consists of 2 major elements: 1. Creating advertising messages - Develop a creative concept or big idea - Choose execution strategy a. Message strategy - Decide what general message will be communicated to consumers b. Creative concept - The impelling “big idea” that will bring the advertising message strategy to life in a distinctive and memorable way ★ Advertising appeals must be: ➔ Meaningful (pointing out benefits that make product more desirable or interesting) ➔ Believable (consumers must believe the product will deliver promised benefits) ➔ Distinctive (must tell how the product is better than other brands) 2. Selecting advertising media  - Decide reach, frequency, and impact - Choose major media type - Select media vehicle - Decide on media timing Advertising schedules 1. Continuity - Scheduling ads evenly within a given period 2. Pulsing - Scheduling ads unevenly over a given period Evaluating advertising effectiveness Return on advertising investment - Net return on advertising investment divided by the costs of advertising investment Public relations - Involving building good relations with the company’s various publics Function of public relations 1. Press relations or press agency - Creating and placing newsworthy information in the news media to attract attention to a person, product, or service 2. Product publicity - Publicizing specific products 3. Public affairs  - Building and maintaining national or local community relations 4. Lobbying - Building and maintaining relations with legislators and government officials to influence legislation and regulation 5. Development - Public relations with donors or members of nonprofit organizations to gain financial or volunteer support 6. Investor relations Major public relation tools PERSONAL SELLING AND SALES PROMOTION Personal selling - The personal presentation by the firm’s sales force for the purpose of making sales and building customer relationships The role of the sales force - Represent the company to customers - Represent customers to the company Sales force management - The analysis, planning, implementation, and control of sales force activities Designing sales force strategy and structure Sales force strategy and structure 1. Territorial sales force structure - Salesperson assigned to a geographic territory and sells full line 2. Product sales force structure - Salesperson specialized in selling only a portion of the company’s products 3. Customer (market) sales force structure - Salespeople specialize in selling to certain customers or industries Outside (field) sales force - Typical sales agents  - Not in the office, in the field Inside sales force - Telemarketers - They make use of telephones and the internet to be able to sell goods and services Recruiting and selecting salespeople Characteristics of a salesperson 1. Intrinsic motivation 2. Disciplined work style 3. The ability to close a sale 4. The ability to build relationships Training salespeople Training - Includes learning about customers, the company and its products, effective selling, and the selling process Compensating salespeople Fixed salary + variable commission or benefits + fringe benefits = compensation Supervising and motivating salespeople Sales 2.0 - The merging of innovative sales practices with Internet 2.0 technologies to improve sales force effectiveness and efficiency Sales quotas - Standards that state the amount a salesperson should sell The personal selling process Sales promotion - Consists of short-term incentives to encourage purchase or sales of a product or service Rapid growth of sales promotions 1. Consumer promotions  2. Trade promotions - Sales promotion tools used to persuade resellers to carry a brand, give it shelf space, promote it in advertising, and push it to the consumer a. Discount b. Allowance c. Free goods d. Push money e. Advertising items 3. Business promotions - Sales promotion tools used to generate business leads, stimulate purchases, reward customers, and motivate salespeople 4. Sales force promotions Developing the sales promotion program  DIRECT AND ONLINE MARKETING Direct marketing - Consists of connecting directly with carefully targeted individual consumers to both obtain an immediate response and cultivate lasting customer relationships - Ex: direct mail Benefits of direct marketing to buyers Convenient Easy/private Wealth of products Information Interactive Immediate Benefits of direct marketing to sellers Low cost Efficient Speedy Improved efficiencies Flexibility Access to buyers Customer database - An organized collection of comprehensive data about individual customers or prospects, including geographic, demographic, psychographic, and behavioral data Forms of direct marketing 1. Direct mail - Sending an offer, announcement, reminder, or other item to a person at a particular physical or virtual address 2. Catalog marketing - The use of print, video, or digital catalogs that are mailed to select customers, made available in stores or presented online 3. Telephone marketing - Accounts for more than 17% of direct marketing-driven sales 4. Direct-response television marketing (DRTM) - Infomercials - Home shopping channels  5. Kiosk marketing - Information and ordering machines - Consumer and business markets 6. Digital direct marketing technologies - Mobile phone marketing - Podcasts and vodcasts - Interactive TV 7. Online marketing - The fastest growing form of direct marketing ★ Click-only companies - Dot-coms - Operate only online without and brick-and-mortar market presence ★ Click-and-mortar companies - Traditional brick-and-mortar companies that have added online marketing to their operations a. Business-to-consumer - Businesses selling goods and services online to final consumers b. Business-to-business - B2B websites - Email - Online product catalogs - Online trading networks - Customer-support services c. Consumer-to-consumer - Auction sites - Blogs d. Consumer-to-business - Online exchanges in which consumers search out sellers, learn about their offers, and initiate purchases, sometimes even driving transaction terms Setting up an online marketing presence Forms of online advertising and promotion Creating or participating in online social networks Public policy issues in direct marketing - Irritation, unfairness, deception, and fraud - Invasion of privacy - A need for action SUSTAINABLE MARKETING Sustainable marketing  - Socially and environmentally responsible marketing that meets the present needs of consumers and businesses while also preserving or enhancing the ability of future generations to meet their needs Marketing concept - Recognizes that organizations thrive day-to-day by determining the current needs and wants of target group customers and fulfilling those needs and wants more effectively and efficiently than competitors do. - Focuses on meeting the company’s short-term sales, growth, and profit needs by giving customers what they want now Societal marketing concept - Considers the future welfare of consumers Strategic planning concept - Considers future company needs Sustainable marketing concept - Considers both the future welfare of consumers and future company needs - Sustainable marketing calls for socially and environmentally responsible actions that meet both the immediate and future needs of customers and the company Social criticisms of marketing Marketing’s impact on society False wants and too much materialism Too few social goods Cultural pollution Marketing’s impact on other businesses Acquisitions Creating barriers to entry Unfair competitive marketing practices Consumerism - Organized movement of citizens and government agencies to improve the rights and power of buyers in relation to sellers Seller’s rights Buyer’s rights Environmentalism - An organized movement of concerned citizens and government agencies to protect and improve people’s current and future living environment Environmental sustainability portfolio Sustainable marketing principles 1. Consumer-oriented marketing - Philosophy of sustainable marketing that holds that the company should view and organize its marketing activities from the consumer’s point of view 2. Customer-value marketing - Principle that holds that a company should put most of its resources into customer-value building marketing investments 3. Innovative marketing - Principle that requires that a company seek real product and marketing improvements 4. Sense-of-mission marketing - Principle that holds that a company should define its mission in broad social terms rather than narrow product terms 5. Societal marketing - Principle that holds that a company should make marketing decisions by considering consumers’ wants, the company’s requirements, consumers’ long-run interests, and society’s long-run interests Societal classification of products  1. Salutary products - Low immediate appeal but may benefit customers in the long run (e.g. insurance, helmet) 2. Pleasing products - Give high immediate satisfaction but may hurt consumers in the long run (e.g. junk food, cigarette) 3. Deficient products - Have neither immediate appeal nor long run benefits (e.g. bad tasting and ineffective medicine) 4. Desirable products - Give both high immediate satisfaction and long run benefits (e.g. LED lights, Toyota Prius, good tasting salad) Marketing ethics Good ethics - A cornerstone of sustainable marketing - In the long run, unethical marketing harms customers and society as a whole Corporate marketing ethics policies - Broad guidelines that everyone in the organization must follow - These policies should cover distributor relations, advertising standards, customer service, pricing product development, and general ethical standards Sustainable companies - Those that create value for customers through socially, environmentally, and ethically responsible actions