Chapter 7 Pricing and Distribution——Delivering the Value
Price
Price: Cost to Customer
What the customer gives up -Time Effort Money
What the customer receives - A benefit or cluster of benefits
Major Pricing Strategies
Considerations in Setting Price
Product costs----Price floor, no profit bellow this price
Competition and other external factors-----Competitors' strategies and prices +Marketing strategy, objectives, and mix+ Nature of the market and demand
Consumer Perceptions of value----Price ceiling, no demand above this price
Pricing Srategies
Marketing Penetration
Skim the Cream
Product Line Pricing
Cost Plus Pricing
Target Pricing
Price Differentiation
Going Rate Pricing
EDLP(Everyday Low Price)
Odd Number Pricing
Value-based Pricing
Major Pricing Strategies
Customer Value-Based Pricing
Value-based pricing uses the buyers’ perceptions of value rather than the seller’s cost.
At the end of the day, customer will decide whether a product’s price is right.
Pricing decisions, like other marketing mix decisions, must start with customer value.
Customer-oriented pricing involves understanding how much value consumers place on the benefits they receive from the product and setting a price that captures that value
Customer perspective on price
Customers define value as benefits minus cost
Examples of costs to e-tailing customers
Money – what is the real cost? How is it calculated; what does it include (shipping, taxes, duties, gift wrap)
Time – finding what you want, waiting for it to arrive, slow web sites
Energy – Web = self service, so no-one to help in research and locating an item
Psychic costs – frustration, lack of trust of web commerce, lack of confidence in on-line service delivery etc.
Value-Based Pricing vs. Cost-Based Pricing
Cost-based pricing
Design a good product
Determine product costs
Set price based on cost
Convince buyers of product's value
Value-based pricing
Assess customer needs and value perceptions
Set target price to match customer perceived value
Determine costs that can be incurred
Design product to deliver desired price
Dynamic Pricing
Big issue now is persuading people to pay for something they used to get for “free”
Get instant vendor price comparisons
Check prices at the point of purchase
Name your price and have it met
Monitor customer behavior & tailor offers
Give customers access to special prices
Negotiate prices online or even in person
A changing pricing environment
Sharing economy
Bartering
Renting
Where the company sells goods or services at two or more
different price points, based on segment/value differentiation
System automatically generates a different price depending on a number of pre-set variables
Technology/Data gives the ability to recognize a consumer, then customize prices, segmenting sometimes to a segment of one
Use with care – customers may get upset
Place
Definition
Place: Convenience for Customer
Marketing channels can be viewed as sets of interdependent organisations involved in the process of making a product or service available for use or consumption.
Supply Chains and the Value Delivery Network
Supply chain “make and sell” view includes the firm’s raw materials, productive inputs, and factory capacity.
Upstream partners are firms that supply raw materials, components, parts, information, finances, and expertise needed to create a product or service.
Demand chain “sense and respond” view suggests that planning starts with the needs of the target customer.
Downstream partners include the marketing channels or distribution channels that look toward the customer, including retailers and wholesalers.
The Nature and Importance of Marketing Channels
Number of Channel Levels
Physical flow of products
Flow of ownership
Payment flow
Information flow
Promotion flow
How Channel Members Add Value
Information: Gathering and distributing marketing research and intelligence information about actors and forces in the marketing environment needed for planning and aiding exchange.
Promotion: Developing and spreading persuasive communications about an offer.
Contact: Finding and communicating with prospective buyers.
Matching: Shaping and fitting the offer to the buyer’s needs, including activities such as manufacturing, grading, assembling, and packaging.
Negotiation: Reaching an agreement on price and other terms of the offer so that ownership or possession can be transferred.
Physical distribution: Transporting and storing goods
Financing: Acquiring and using funds to cover the costs of the
channel work.
Risk taking: Assuming the risks of carrying out the channel work
Channel Behavior and Organization
Vertical Marketing Systems
Conventional distribution systems consist of one or more independent producers, wholesalers, and retailers, each separate business seeking to maximize its own profits, perhaps even at the expense of profits for the system as a whole.
Historically, conventional distribution channels have lacked leadership and power, often resulting in damaging conflict and poor performance.
One of the biggest channel developments over the years has been the emergence of vertical marketing systems that provide channel leadership.
Conventional distribution systems: producer--wholesaler--retailer--consumer
Vertical Marketing Systems: produce+wholesaler+retailer-------consumer
Vertical Marketing Systems----its simply a channel in which members at different levels(hence, vertical) work together in a unified way( hence, system) to accomplish the work of the channel.
Vertical marketing systems (VMSs) provide channel leadership and consist of producers, wholesalers, and retailers acting as a unified system.
Corporate marketing systems - combine successive stages of production and distribution under single ownership.
Contractual marketing systems - independent firms at different levels of production and distribution who join together through contracts, e.g. Franchise organizations
Administered marketing systems - successive stages of production and distribution are coordinated through the size and power of one of the parties.
Horizontal Marketing Systems
Horizontal marketing system is a channel arrangement in which two or more companies at one level join together to follow a new marketing opportunity.
By working together, companies can combine their financial, production, or marketing resources to accomplish more than any one company could alone. eg, SUMSUNG+SONY
Multichannel Distribution Systems
Multichannel distribution systems are systems in which a single firm sets up two or more marketing channels to reach one or more customer segments.
Single Channel: Customer experience a single type of touch-point; Retailers have a single type of touch-point
Multi-Channel: Customer sees multiple touch-points acting independently; Retailers' channel knowledge and operations exist in technical & functional silos
Cross-Channel：Customer sees multiple touch-points as part of the same brand; Retailers have a "single view of the customer" but operate in functional silos
Omni-Channel: Customer experience a brand not a channel within a brand; Retailers leverage their "single view of the customer" in coordinated and strategic ways
Changing Channel Organization
Disintermediation is the cutting out of marketing channel intermediaries by producers or the displacement of traditional resellers by new intermediaries.
Reintermediation – Opodo, Hulu
Door-to-Door Selling: Growing popularity in China— AIG insurance, Mary Kay, Tupperware, Avon, Amway
Peer-to-Peer Marketing:ITCs are dramatically altering distribution (e.g. Google Lens); Interactive TV may become a viable direct marketing channel in the future; eBay pioneered P2P and now Etsy, AirBnB, TaskRabbit are transforming it.
Marketing Logistics and Supply Chain Management
Nature and Importance of Marketing Logistics
Marketing logistics (physical distribution) involves planning, implementing, and controlling the physical flow of goods, services, and related information from points of origin to points of consumption to meet consumer requirements at a profit.
A new shopping environment
Mobile shopping: anytime, anywhere
Online/instoreshopping:‘Showrooming’
‘One click’ online purchases
Cashless shopping via mobile payments
Augmented reality online