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MARKETING MANAGEMENT

DEVELOPING PRICING STRATEGIES AND


PROGRAMS
Common Pricing Mistakes

• Determine costs and take traditional industry


margins
• Failure to revise price to capitalize on market
changes
• Setting price independently of the rest of the
marketing mix
• Failure to vary price by product item, market
segment, distribution channels, and
purchase occasion
Consumer Psychology
and Pricing

Reference Prices

Price-quality inferences

Price endings

Price cues
Price Cues

• “Left to right” pricing ($299 vs. $300)


• Odd number discount perceptions
• Even number value perceptions
• Ending prices with 0 or 5
• “Sale” written next to price
Steps in Setting Price
Select the price objective

Determine demand

Estimate costs

Analyze competitor price mix

Select pricing method

Select final price


Step 1: Selecting the Pricing Objective

• Survival
• Maximum current
profit
• Maximum market
share
• Maximum market
skimming
• Product-quality
leadership
Step 2: Determining Demand

Price Sensitivity

Estimating
Demand Curves

Price Elasticity
of Demand
Inelastic
and Elastic Demand
Factors Leading to Less Price
Sensitivity
• The product is more distinctive
• Buyers are less aware of substitutes
• Buyers cannot easily compare the quality of substitutes
• The expenditure is a smaller part of buyer’s total income
• The expenditure is small compared to the total cost of
the end product
• Part of the cost is paid by another party
• The product is used with previously purchased assets
• The product is assumed to have high quality and
prestige
• Buyers cannot store the product
Step 3: Estimating Costs

Types of Costs

Accumulated
Production

Target Costing
Tata motors developed ‘Nano’its
small car with a target price
Step 5: Selecting a Pricing Method
• Markup pricing
• Target-return pricing
• Perceived-value
pricing
• Value pricing
• Going-rate pricing
• Auction-type pricing
Auction-Type Pricing

English auctions

Dutch auctions

Sealed-bid auctions
Step 6: Selecting the Final Price

• Impact of other marketing activities


• Company pricing policies
• Gain-and-risk sharing pricing
• Impact of price on other parties
Price-Adaptation Strategies

Geographical Pricing

Discounts/Allowances

Promotional Pricing

Differentiated Pricing
Price-Adaptation Strategies

Discounts/ Allowances
• Cash discount
• Quantity discount
• Functional discount
• Seasonal discount
• Allowance
Promotional Pricing Tactics
• Loss-leader pricing
• Special-event pricing
• Cash rebates
• Low-interest financing
• Longer payment terms
• Warranties and service
contracts
• Psychological
discounting
Differentiated Pricing

• Customer-segment
pricing
• Product-form pricing
• Image pricing
• Channel pricing
• Location pricing
• Time pricing
Pricing for rural markets
• A large proportion have a low and seasonal income
• Several approaches adopted by retailers and
companies to address this
• Rural retailers often extend credit
• Retailers also “break the bulk” and sell in loose form,
in small quantities
• Companies use a similar strategy by introducing
“low-unit packing” or LUP
• Companies also develop low-priced products with a
target price for rural markets
• Companies might offer refill packs or recyclable and
reusable packs
MARKETING MANAGEMENT

DESIGNING AND MANAGING INTEGRATED


MARKETING CHANNELS
What is a Marketing Channel?

A marketing channel system is the


particular set of interdependent
organizations involved in the process of
making a product or service available
for use or consumption.
Channels and
Marketing Decisions
• A push strategy uses the manufacturer’s
sales force, trade promotion money, and
other means to induce intermediaries to
carry, promote, and sell the product to end
users.
• A pull strategy uses advertising, promotion,
and other forms of communication to
persuade consumers to demand the product
from intermediaries.
Rural Distribution
Innovative Distribution Traditional Channels
Channels for Rural for Reaching Out to
Markets Rural Customers
• Hub and Spoke • Haats
Model • Mandis
• Mobile shops and offices • Melas
• Linkage with community
based organizations
(SHGs, NGOs, and
cooperatives
Channel Member Functions

• Gather information
• Develop and disseminate persuasive
communications
• Reach agreements on price and terms
• Acquire funds to finance inventories
• Assume risks
• Provide for storage
• Provide for buyers’ payment of their bills
• Oversee actual transfer of ownership
Marketing Channel Flows
Consumer Marketing Channels
Industrial Marketing Channels
Designing a
Marketing Channel System

Analyze customer needs

Establish channel objectives

Identify major channel alternatives

Evaluate major channel alternatives


Channel Service Outputs

Lot size

Waiting/delivery time

Spatial convenience

Product variety

Service backup
Identifying Channel Alternatives

Types of
intermediaries
Number of
intermediaries
Terms and
responsibilities
Number of Intermediaries

Exclusive

Selective

Intensive
Terms and Responsibilities
of Channel Members

• Price policy
• Condition of sale
• Distributors’ territorial rights
• Mutual services and responsibilities
The Value-Adds vs. Costs of Different
Channels
Channel-Management Decisions

Selecting channel members

Training channel members

Motivating channel members

Evaluating channel members

Modifying channel members


Channel Power

• Coercive
• Reward
• Legitimate
• Expert
• Referent
Channel Integration and Systems

Vertical marketing
systems
• Corporate VMS
• Administered VMS
• Contractual VMS
Horizontal
marketing systems
Multichannel
systems
What is Channel Conflict?

• Channel conflict occurs when one


member’s actions prevent another
channel from achieving its goal.
• Types of channel conflict
• Vertical
• Horizontal
• Multichannel
Causes of Channel Conflict

Goal incompatibility

Unclear roles and rights

Differences in perception

Intermediaries’ dependence
on the manufacturer
e-Commerce Marketing Practices

• Pure-click
• Brick-and-click

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