MARKETING MANAGEMENT price that produces maximum current profit, cash flow, or rate

of return on investment.
LESSON 10: DEVELOPING PRICING STRATEGIES AND
Maximum Market Share/Market-penetration Pricing - some
PROGRAMS
companies want to maximize their market share. They believe a
higher sales volume will lead to lower unit costs and higher
What is Price?
long-run profit. They set the lowest price, assuming the market
Price is the sum of all values that consumers exchange for the
is price sensitive.
benefits of having or using the product or service. Price is the
Market Skimming - companies unveiling a new technology
only element in the marketing mix that produces revenue;
favor setting high prices to maximize market skimming, i.e.
promotion, product, package, place (produce cost.)
prices start high and slowly drop over time.
Synonyms for Price
Product-Quality Leadership - a company might aim to be the
Rent, Tuition, Fee, Fare, Rate, Toll, Special assessment, Bribe,
product-quality leader in the market. Products or services
Dues, Salary, Commission, Wage
characterized by high levels of perceived quality, taste, and
status are priced just high enough not to be out of consumers'
Consumer Psychology - provides opportunities to examine
reach.
issues such as what factors are most important:
Partial Cost Recovery - nonprofit and public organizations may
• when people decide to purchase a particular item
have other pricing objectives such as partial cost recovery
• how customers determine the value of a service
knowing that it must rely on private gifts and public grants to
• and whether or not marketing promotions can convince a
cover its remaining costs.
reluctant consumer to try a new product for the first time

Determine Demand
Pricing - is the process of determining what a company will
• Understand factors that affect price sensitivity
receive in exchange for its products
Consumers are less price sensitive when:
❖​ product is more distinctive
Common Pricing Mistakes
❖​ buyers are less aware of substitutes
• companies base their prices on their costs, not their
❖​ buyers cannot easily compare quality of substitutes
customers' perceptions of value
❖​ the expenditure is a lower part of buyer's total income
• companies base their prices on "the marketplace" taking
❖​ the expenditure is small compared to the total cost
traditional industry margins
❖​ part of the cost is borne by another party
• failure to vary price by product item, market segment,
❖​ the product is used with assets previously bought
distribution channels, and purchase occasion attempting to
❖​ the product is assumed to have more quality, prestige,
achieve the same profit margin across different product lines
or exclusiveness
• companies hold prices at the same level for too long, ignoring
❖​ buyers cannot store the product
changes in costs, market, competitive environment and in
• Estimate demand curves:
customers' preferences
❖​ statistical analysis
setting price independently of the rest of the marketing mix
❖​ price experiments
❖​ surveys
Steps in Setting Pricing
• Understand price elasticity of demand:
1. Selecting the pricing objective
❖​ elasticity
2. Determining demand
❖​ inelasticity
3. Estimating costs
4. Analyzing competitors' costs, prices, and offers
Inelastic Demand - refers to the demand for
5. Selecting a pricing method
a good or service remaining relatively unchanged when the
6. Selecting the final price
price moves up or down.
Elastic Demand - one in which the change in quantity
Selecting Pricing Objectives
demanded due to change in price is large.
Survival - companies pursue survival as their major objective if
Demand is less elastic when:
they are plagued with overcapacity, intense competition, or
❖​ there are few or no substitutes/competitors
changing consumer wants. As long as prices cover variable costs
❖​ buyers do not readily notice the higher price
and some fixed costs, the company stays in business.
❖​ buyers are slow to change their buying habits and
Maximum Current Profit - many companies try to set a price
search for lower prices
that will maximize current profits. They estimate the demand
❖​ buyers think higher prices are justified
and costs associated with alternative prices and choose the
 Estimate Costs (ascending bids), Dutch auctions (descending bids),
• Types of costs and levels of production must be considered Sealed-bid auctions
Major Types of Costs:
❖​ Fixed Costs/Overhead: costs that don’t vary with Select Final Price
production or sales revenue • Requires consideration of additional factors:
❖​ Variable Costs: vary with the level of production ❖​ impact of other marketing activities
❖​ Total Costs: sum of fixed and variable costs at a given ❖​ company policies pricing
level of production ❖​ gain and risk sharing pricing
❖​ Average Cost: cost per unit at a given level of ❖​ impact of price on other parties
production = total cost/quantity of production
• Accumulated production leads to cost reduction via the Impact of Other Marketing Activities - the final price must take
experience curve into account the brand's quality and advertising relative to the
• Differentiated marketing offers create different cost levels competition.
(Activity-based cost ABC) Company Pricing Policies - the price must be consistent with
company pricing policies in order to ensure that salespeople
Analyze Competition quote prices that are reasonable to customers and profitable to
• Firms must analyze the competition with respect to: the company.
❖​ costs Gain and Risk Sharing Pricing - in case buyers resist accepting a
❖​ prices seller's proposal because of a high perceived level of risk, the
❖​ possible price reactions seller has the option of offering to absorb part or all the risk if it
• Pricing decisions are also influenced by quality of offering does not deliver the full promised value.
relative to competition Impact of Price on Other Parties - considering the impact of
contemplated price on other parties such as:
Select Pricing Method ❖​ distributors
• Price-setting begins with the three “Cs” ❖​ sales force
❖​ suppliers
❖​ competitors
❖​ dealers/retailers

Adapting the Price

• Select pricing method: 1. Geographical Pricing
❖​ markup pricing - is just adding a standard mark-up to • Barter: the direct exchange of goods with no money and no
the product's cost third party involved
❖​ target-return pricing - used to achieve a planned or • Compensation deal: the seller receives some percentage of
target rate of return on investment the payment in cash and the rest in products
❖​ perceived-value pricing - companies base their price • Buyback arrangement: the seller sells a plant equipment or
on the customer's perceived value. The key to technology to another country and agrees to accept as partial
perceived-value pricing is to deliver more value than payment products manufactured with the supplied equipment
the competitor and to demonstrate this to prospective • Offset: the seller receives full payment in cash but agrees to
buyers spend a substantial amount of the money in that country within
❖​ value pricing - win loyal customers by charging a fairly a stated time period.
low price for a high-quality offering, that means
reengineering the company's operations to be low-cost 2. Price Discounts and Allowances
without sacrificing quality • Quantity discount: the more you buy, the cheaper it
❖​ going-rate pricing - the firm bases its price largely on becomes-cumulative and non-cumulative.
competitors' prices. (smaller firms "follow the leader"). • Functional/Trade discounts: discount offered by a
It is quite popular where costs are difficult to measure manufacturer to trade-channel members if they will perform
or competitive response is uncertain certain functions.
❖​ auction-type pricing - One major purpose of auctions • Cash discount: a deduction granted to buyers for paying their
is to dispose of excess inventories or used goods. bills within a specified period of time, (after first deducting
Three major types of auctions: English auctions trade and quantity discounts from the base price).
• Seasonal discount: a price reduction to those who buy out of ❖​ Competition may match or beat price cuts
season. 2. Initiating price increases
• Allowance: an extra payment designed to gain reseller • Circumstances leading to price increases:
participation in special programs. ❖​ Cost inflation
❖​ Over demand
3. Promotional Pricing 3. Responding to competitor's price changes
• Loss-leader pricing: supermarkets and department stores • the degree of product homogeneity affects how firms
often drop the price on well known brands to stimulate respond to price cuts initiated by the competition
additional store traffic • market leaders can respond to aggressive price cutting by
• Special-event pricing: sellers well establish special pricing in smaller competitors in several ways
certain seasons to draw more customers Market Leader can respond to competitor initiated price cuts
• Cash rebates: companies offer cash rebates to encourage in several ways:
purchase of the manufacturers products within a specified time ❖​ Maintain price and profit margin (vulnerable)
period ❖​ Maintain price and add value
• Low-interest financing: the company can offer customers ❖​ Reduce price (and cost)
low-interest financing ❖​ Increase price and improve quality (add new brand)
• Longer payment terms: sellers especially mortgage banks and ❖​ Launch a low-price product line
auto companies stretch loans over longer periods and thus
lower the monthly payment
• Warranties and service contracts: companies can promote
sales by adding a free or low cost warranty service contract
• Psychological discounting: this strategy involves setting an
artificially high price and then offering the product at
substantial savings

4. Differentiated/Discriminatory Pricing - companies often

adjust their basic price to accommodate differences in
customers, products, locations, etc.
Discriminatory pricing tactics include:
• Customer-segment pricing - different customer groups pay
different prices for the same product or service.
• Product-form pricing - different versions of the product are
priced differently, but not proportionately to their costs.
• Image pricing - some companies price the same product at
two different levels based on image differences
• Channel pricing - Coca-Cola carries different prices depending
on whether the consumer purchases it in a fine restaurant, a
fast-food restaurant, or a vending machine.
• Location pricing - the same product is priced differently at
different locations though the cost at each location is the same
• Time pricing - prices are varied by season, day, or hour. Energy
rates to commercial users vary accordingly.

Initiating and Responding to Price Changes

1. Initiating price cuts
• Circumstances leading to price cuts:
❖​ Excess plant capacity
❖​ Declining market share
❖​ Attempt to dominate the market via lower costs
• Price cutting traps:
❖​ Price/quality perceptions
❖​ Low prices don't create market loyalty
LESSON 11: DELIVERING VALUE: DESIGNING & MANAGING ●​ Facilitate payment of bills
INTEGRATED MARKETING CHANNELS Forward and backward flow functions:
●​ Gather information
Marketing Channels - are sets of interdependent organizations ●​ Negotiate price and transfer of ownership
participating in the process of making a product or service ●​ Finance inventories
available for use or consumption. They are the set of pathways ●​ Assume risk
a product or service follows after production, culminating in
purchase and consumption by the final end user. Consumer Marketing Channel Levels
Marketing Channels or Intermediaries may be following • A zero-level channel, also called a direct marketing channel,
types/categories: consists of a manufacturer selling directly to the final customer.
• Merchants such as wholesalers and retailers buy, take title to, Examples are door-to-door sales, mail order, telemarketing, etc.
and resell the merchandise. • A one-level channel contains one selling intermediary, such as
• Agents such as brokers, manufacturers' representatives, sales a retailer.
agents search for customers and may negotiate on the • A two-level channel contains two intermediaries such as a
producer's behalf but do not take title to the goods. wholesaler and a retailer.
• Facilitators such as transportation companies, independent • A three-level channel contains three intermediaries. In the
warehouses, banks, advertising agencies assist in the meatpacking industry, wholesalers sell to jobbers, essentially
distribution process but neither take title to goods nor small-scale wholesalers, who sell to small retailers.
negotiate purchases or sales.
Industrial Marketing Channel Levels
Marketing Channel Strategy Zero level channel: manufacturer-customer
Push Strategy - uses the manufacturer's sales force, trade One level channel: manufacturer-distributor-customer
promotion money, or other means to induce intermediaries to Two level channel: manufacturer-manufacturer's representative
carry, promote, and sell the product to end users. or sales branches-customer
Pull Strategy - the manufacturer uses advertising, promotion, Three level channel: manufacturer-manufacturer's
and other forms of communication to persuade consumers to representative or sales branches-distributor-customer
demand the product from intermediaries, thus inducing the
intermediaries to order it. Channel Design Decisions
Designing a Channel System requires:
Hybrid Channels or Multichannel Marketing occurs when a • Analyzing Consumer Needs
single firm uses two or more marketing channels to reach ❖​ Lot Size - the number of units the channel permits a
customer segments. typical customer to purchase on one occasion.
Value Network - a system of partnerships and alliances that a ❖​ Waiting And Delivery Time - the average time
firm creates to source, augment and deliver its offerings. May customers wait for receipt of goods. Customers
include: Suppliers, Customer, Consumer, Media increasingly prefer faster delivery channels.
❖​ Spatial Convenience - the degree to which the
The Role Of Marketing Channel marketing channel makes it easy for customers to
A marketing channel performs the work of moving goods from purchase the product.
producers to consumers. It overcomes the time, place, and ❖​ Product Variety - the assortment provided by the
possession gaps that separate goods and services from those marketing channel.
who need or want them. ❖​ Service Backup - add on services (credit, delivery,
installation, repairs) provided by the channel. The
Members of the marketing channel perform a number of key greater the service backup, the greater the work
functions such as: provided by the channel.
Forward flow functions: • Setting Channel Objectives
●​ From company to customers ❖​ In order to develop channel structure, managers
●​ Develop/disseminate communication should decide on some goals to be achieved.
●​ Store and move the physical products ❖​ These goals must be in line with some other
●​ Oversee transfer of ownership component of the marketing mix, to anticipate
Backward flow functions: collision among them.
●​ From customers to company ❖​ These goals must be congruent with marketing and
●​ Place orders with manufacturers other general objectives and strategies of the firm
• Identifying Major Channel Alternatives communicate the importance of intermediaries in a joint effort
Types Of Intermediaries - identifying what alternatives are to satisfy end users of the product.
available and best suited for the purpose. • Evaluating Channel Members - producers must periodically
Number of Intermediaries evaluate intermediaries' performance against standards such
❖​ Exclusive distribution means severely limiting the as:
number of intermediaries ❖​ sales quota attainment
❖​ Selective distribution relies on only some of the ❖​ average inventory levels
intermediaries willing to carry a particular product. ❖​ customer delivery time
❖​ Intensive distribution places the goods or services in as ❖​ treatment of damaged and lost goods
many outlets as possible. ❖​ cooperation in promotional and training programs
Terms and Responsibilities of Channel Members - each channel • Underperformers need to be counseled, retrained, motivated,
member must be treated respectfully and given the or terminated.
opportunity to be profitable. • Modifying Channel Design and Arrangements - in
The main elements in this regard are: competitive markets with low entry barriers, the optimal
❖​ Price policy calls for the producer to establish a price channel structure will inevitably change over time. The change
list and schedule of discounts and allowances that could mean:
intermediaries see as equitable and sufficient. ❖​ adding or dropping individual market channels or
❖​ Conditions of sale refers to payment terms and channel members or
producer guarantees. Most producers grant cash ❖​ developing a totally new way to sell goods.
discounts to distributors for early payment. They might • Global Channel Considerations - international markets pose
also offer a guarantee against defective merchandise distinct challenges, including variations in customers' shopping.
or price declines, creating an incentive to buy larger habits, but opportunities at the same. Companies must:
quantities. ❖​ Try to get close to customers in order to understand
❖​ Distributors' territorial rights define the distributors' their needs and wants.
territories and the terms under which the producer ❖​ modify and design channels to satisfy the customers.
will enfranchise other distributors.
❖​ Mutual services and responsibilities must be carefully Channel Integration & Systems
spelled out, especially in franchised and • Vertical Marketing Systems - a conventional marketing
exclusive-agency channels. channel consists of an independent producer, wholesaler(s),
• Evaluating Major Channel Alternatives and retailer(s). Each is a separate business seeking to maximize
Evaluation Criteria its own profits, even if this goal reduces profit for the system as
❖​ Economic criteria compares the likely sales costs and a whole. No channel member has complete or substantial
profitability of different channel members control over other members. A vertical marketing system
❖​ Control refers to channel members' control over the (VMS), by contrast, includes the producer, wholesaler(s), and
marketing of the product retailer(s) acting as a unified system. There are three types:
❖​ Adaptive criteria refers to the ability to remain flexible ❖​ Corporate VMS combines successive stages of
to adapt to environmental changes production and distribution under single ownership.
❖​ Administered VMS coordinates successive stages of
Channel Management Decisions production and distribution through the size and
• Selecting Channel Members - to select the appropriate power of one of the members. Manufacturers of
channel members, producers should determine what dominant brands can secure strong trade cooperation
characteristics distinguish the better intermediaries such as: and support from resellers.
❖​ number of years in business ❖​ Contractual VMS consists of independent firms at
❖​ other lines carried, growth different levels of production and distribution,
❖​ profit record integrating their programs on a contractual basis to
❖​ financial strength obtain more economies or sales impact than they
❖​ cooperativeness could achieve alone.
❖​ service reputation • Horizontal Marketing Systems - another channel
• Training and Motivating Channel Members - carefully development is the horizontal marketing system, in which two
implemented training, market research, and other or more unrelated companies put together resources or
capability-building programs can motivate and improve programs to exploit an emerging marketing opportunity. The
intermediaries' performance. The company must constantly
companies might work together on a temporary or permanent ➢​ Market makers - 3rd parties that link buyers and
basis or create a joint venture company. sellers
• Integrating Multichannel Marketing Systems - an integrated ➢​ Customer communities (e.g., blogs,
organization-sponsored chat rooms)
marketing channel system is one in which the strategies and
• E-Commerce and Brick-and-Click Companies
tactics of selling through one channel reflect the strategies and
Original brick entity incorporating click
tactics of selling through one or more other channels. Adding
❖​ Offer different brands
more channels gives companies three important benefits:
❖​ Offer online partners higher commissions to cushion
❖​ increased market coverage
the negative impact on sales
❖​ lower channel cost
❖​ Take order on Web but have retailer deliver and collect
❖​ more customized selling
payment
Original click entity incorporating brick
E-Commerce
❖​ Provide consumer with channel option
E-Commerce uses a Web site to transact or facilitate the sale of
❖​ Facilitate building and growth of brand awareness
products and services online. Online retailers can predictably
• M-Commerce Marketing (m for mobile)
provide convenient, informative, and personalized experiences
❖​ Phone or PDA allow for virtual commerce allowing
for vastly different types of consumers and businesses. By
companies to keep consumers connected to brands
saving the cost of retail floor space, staff, and inventory, online
throughout their day
retailers can profitably sell low-volume products to niche
❖​ By 2015 more people will be accessing the Internet
markets. Online retailers compete in three key aspects of a
from their phones than from their PCs
transaction:
Mobile marketing taking new forms:
❖​ customer interaction with the Web site
❖​ Target people who need to book travel while
❖​ delivery
on the move
❖​ ability to address problems when they occur
❖​ Use text messaging to alert consumers to
special promotions
E-commerce Type
❖​ Mobile marketing, with its GPS capability, is raining
❖​ Pure click companies are those that have launched a
privacy concerns
Web site without any previous existence as a firm.
❖​ Brick-and-click companies are existing companies that
Managing Retailing, Wholesaling and Logistics
have added an online site for information or
Retailing includes all the activities involved in selling goods or
e-commerce.
services directly to final customers for their personal,
nonbusiness use. A retailer is any business enterprise whose
E-Commerce and M-Commerce
sales volume comes primarily from retailing.
• E-Commerce and M-Commerce Marketing Practices
Types of retailing
Online retailers leverage the savings from not having to support
❖​ Store Retailing
a brick and mortar environment, to profitably sell low-margin
❖​ Non store Retailing
products to niche markets.
❖​ Franchise Retailing
• E-Commerce and Pure-click companies
Level of service
Types of Pure-click companies
❖​ Level 1: Self-service
❖​ Search engines (e.g., Google)
❖​ Level 2: Self-selection
❖​ Internet service providers (ISPs) (e.g., cable companies,
❖​ Level 3: Limited service
telecommunication companies, individual employers,
❖​ Level 4: Full service
stand-alones such as Earthlink and NetZero)
❖​ Commerce sites (e.g., Amazon, eBay, Expedia,
What is a Franchising System?
[Link])
Franchise is a business in which an established business
❖​ Transaction sites
owner-known as the 'franchisor-sells the rights to use their
❖​ Content sites (e.g, news, blogs)
company name, trademarks and business model to
❖​ Enabler sites
independent operators, called 'franchisees'. This is usually in
❖​ B2B websites - make markets more efficient by giving
return for a one-off franchise fee, plus an ongoing percentage
buyers easy access to a great deal of information from:
➢​ Supplier Websites
of sales revenue and other fees.
➢​ Infomediaries - 3rd parties that add value
Characteristics of Franchises Management service and counseling
• The franchisor owns a trade or service mark and licenses it to
franchisees in return for royalty payments. Market Logistics
• The franchisee pays for the right to be part of the system. ●​ Involves planning, implementing & controlling physical
Start-up costs include rental and lease equipment and fixtures flows of materials & final goods from points of origin
and usually a regular license fee. to points of use
• The franchisor provides its franchisees with a system for doing ●​ Management of the supplies and transport required
business for an operation
●​ Physical Distribution starts at the factory. Manager
Marketing Decisions choose a set of warehouses (stocking points) and
• Target- market decision transportation carriers that will deliver the goods to
• Product Assortment & Procurement Decision final
• Price Decision
• Services & atmosphere decision Integrated Logistics Systems
• Promotion Decision ●​ ILS include material management, material & systems,
• Place Decision and physical distribution, aided by Information
Technology (IT).
Trends in Retailing ●​ Third Party suppliers, such as FedEx Liniis Services or
• Growth of intertype competition Ryder Integrated Logistics, often participate in
• New retail forms and combinations designing or managing these systems
• Growth of giant retailers
• Growing investment in technology Market-Logistics Objectives
• Global presence of major retailers ●​ Many companies state their market-logistic objectives
• Selling an experience, not just goods as "getting the right goods to the right places at the
• Competition between store-based and non-store- based right time for the least cost"
retailing ●​ No system can simultaneously maximize customer
service and minimize distribution cost.
Wholesaling
All the activities involved in selling goods or services to those Market-Logistics Decisions
who buy for resale or business use. The firm must make four major decisions about its market
❖​ Excludes manufacturers, farmers & retailers. logistics
❖​ They are also called distributors. Order processing: How should orders be handled?
❖​ Pay less attention to atmosphere & location. Warehousing: Where should stocks be located?
❖​ Transactions are larger than in retailing. Inventory: How much stock should be held?
Transportation: How should goods be shipped?
Types of Wholesalers
• Merchant wholesalers Causes of Channel Conflict
• Full-service wholesalers ●​ Goal incompatibility
• Limited-service wholesalers ●​ Unclear roles and rights
• Brokers & agents ●​ Differences in perception
• Manufacturers' & retailers' branches ●​ Intermediaries' dependence on manufacturer
• Specialized Wholesalers

Wholesalers' functions:
Selling and promotion
Buying and assortment building
Bulk breaking
Warehousing
Transportation
Financing
Risk bearing
Market Information