MARKETING RESEARCH &

Marketing MANAGEMENT (MKTG101)

UNIT 3: Pricing, Promotion

And Distribution Strategy

-Dr. Anupam Bandyopadhyay

 Points to be Covered

 Policies & Practices

 Pricing Methods & Price determination policies

 Marketing Communication

 Advertising & Publicity

 Marketing Channels : Retailing

 Introduction
 Price is the sum of all the values that customers give up
to gain the benefits of having or using a product or a
service.
 Price is the only element in the marketing mix that
produces revenue; all other elements represent cost

 Pricing decisions are complex (associated with many

factors such as the company, the customer, the
competition, the marketing environment).

 Price signifies profit to sellers and cost to customers.

 What is Price?
 Price is what customer gives to retailers in exchange of
goods and services.

 Price is what a retailer charge for something which has

value.
 Price leads to revenue for a company
 The Importance of Price to
Marketing Managers

 Price is the only element within marketing mix (4Ps) that

generates revenue. Company pays all its dues from that
revenue and remaining left as profit.

 Pricing strategy should be closely associated with overall

business, competitive and marketing strategy. Pricing
helps marketers to segment market and define products.
 Factors Affecting Pricing Decisions
 A. Internal Factors:
They are generally within the control
of the organization.

1. Company Objectives:
Pricing policies and strategies
must be in line with the firm’s
pricing objectives.
For example- if a company
desires a certain return on the
total capital investment.
2. Organization Structure:
In small organizations, generally the top management
frame pricing objectives and policies. However, in large
firms product line managers also participate in decision
making.

3. Marketing Mix:
The pricing strategy of a firm must incorporate the
information related to the other components of
marketing mix as well, because these factors are closely
related.

4. Cost of the Product:

If a product is priced less than the cost of production,
the firm has to suffer the loss.
B. External Factors:

1. Demand:
If there is no demand for the product, the product
cannot be sold at all.

The demand curve shows the number of units the

market will buy in a given period at different prices
 Normally, demand and price are inversely related
 Higher price = lower demand
 For prestige (luxury) goods, higher price can equal
higher demand when consumers perceive higher prices
as higher quality
Price elasticity of demand illustrates the response of
demand to a change in price

Inelastic demand occurs when demand hardly changes

when there is a small change in price

Elastic demand occurs when demand changes greatly for

a small change in price

Price elasticity of demand =

% change in quantity demand
% change in price
2. Competition:

The pricing strategy of competitors have a significant role to

play in the pricing decision. If the product cannot be
differentiated with special features, a firm cannot charge a
higher price than that of its competitors.

3. Economic Conditions:
Economic conditions affect the demand for goods and services.
So, in a depressed economy, to generate more revenue one
can sells goods at a lesser price, but in a boom period, goods
can be sold at a higher price.
Major Pricing Strategies
Pricing Strategies
 Cost Oriented Pricing
 Perceived-Value Pricing
 Competition Oriented Pricing
 Penetration Pricing Strategy
 Skimming Pricing Strategy
 Cost Oriented Pricing
Markup Pricing:
Adding a standard markup to the product’s cost.
Suppose a watch manufacturer has the following costs and sales expectations:
Variable cost per unit Rs. 20, Fixed costs Rs. 20,00,000, Expected unit sales 20,000
The manufacturer’s unit cost is given by:
Unit cost = variable cost + fixed cost/unit sales = Rs.20 + Rs.20,00,000/ 20,000 =
Rs.120
Now assume the manufacturer wants to earn a 20 percent markup on sales.
The manufacturer’s mark up price is given by:
The Markup price = unit cost/(1 - desired return on sales) = Rs.120/(1 - 0.2) = Rs.
150
The manufacturer will charge dealers Rs.150 per watch and make a profit of Rs.30
per unit.
Now, if the dealers want to earn 50 % on their selling price, they will markup the
watch 100% to Rs. 300. Here Dealers are expressing markup as a percentage of
selling price.
 Markups are generally higher on seasonal products (to cover the risk
that the products may not be sold), specialty products, products that
associates higher storage and handling costs.
 Markup pricing works successfully only if it produces the expected
level of sales.
Many manufacturers, wholesalers, retailers, and services use this pricing
method for the following reasons:
 It is a simple method
 Prices usually are uniform when other businesses within the same
industry use this type of pricing;

However, it ignores two important variables –

 Competitors' prices and consumer demand for the product.
Target-return Pricing:
 In target-return pricing, the firm determines the price that produce
its target rate of return on investment. Public utilities, which
need to make a fair return on investment, often use this method.
 Suppose the watch manufacturer has invested Rs. 3 million in the
business and wants to set a price to earn a 20 percent ROI,
specifically Rs. 6,00,000. The target-return price is given by the
following formula:
 Target-return price = unit cost + (desired return*invested
capital)/unit sales
= Rs.120 + (.20 X Rs. 3,000,000) /20,000
= Rs. 150
**The manufacturer will realize this 20 percent ROI If its
costs and sales turn out to be accurate.
 Perceived-value pricing
 Companies base their price on the customer’s perceived
value.

 Companies set their price as per the customers’ belief on

product’s or service’s worth.

 The value-based pricing strategy successfully works in the

markets where possessing an item enhances a customer's
self-image.

 The company should have effective communication channels

and strong relationships with its customers.
 Perceived-value pricing
 Good-value pricing: offers the right combination
of quality and good service at a fair price
 Everyday low pricing (EDLP) charging a constant
everyday low price with few or no temporary price
discounts
 High-low pricing charging higher prices on an
everyday basis but running frequent promotions to
lower prices temporarily on selected items
 Value-added pricing attaches value-added
features and services to differentiate offers,
support higher prices, and build pricing power
 Competition oriented pricing
 A manufacturer determines price of its products by
considering the price of a similar product sold by
competitors rather than considering consumer demand
and cost of production.

 In a market where there is limited number of

competitors the response from the competitors is very
important to analyze product positioning.
 Penetration Pricing Strategy

 Penetration pricing is a pricing strategy used by several

businesses to attract customers to a new product or service
by offering a lower price during its initial offering.

 The lower price helps a new product or service to

penetrate the market and attract a significant number of
customers away from competitors.
 Conditions are in favor of adopting a market-
penetration pricing strategy: (1) The consumers are
highly price sensitive and a low price can attract them
away from competitors; (2) a low price discourages
actual and potential competition

 A major disadvantage to a market penetration pricing

strategy is that an increase in sales volume may not lead
to an increase in profits if prices must remain low to
keep the new customers.
 Skimming Pricing Strategy
 Sometimes companies introduce a new technology in
the market and set high prices to maximize market
skimming. In market-skimming pricing, companies
start with a high price and slowly drop over time.

 Market skimming makes sense under the following

conditions: (1) A sufficient number of buyers have a high
current demand; (2) the high initial price does not
attract more competitors to the market; (3) the high
price should be communicated in a way that shows
superiority of the product.
 Setting the price
 Step1: Selecting the pricing objective
First, the company decides where to position its market
offerings.

There are five major objectives viz., survival, maximum

current profit, maximum current share, maximum
market skimming, and product-quality leadership.

Survival: Pursuing Survival is very important to a

company especially while dealing with situations like
overcapacity, intense competition, and changing
consumer wants.
 Maximum current profit: Many companies try to set a
particular price so that the maximum current profits can be
earned.

 Maximum market share: Many companies try to maximize

their market share. They believe that a higher sales volume may
decrease unit costs, which in turn lead to a higher long-run
profit.

 Maximum market skimming: Some companies introduce a

new technology and set a high price to maximize market
skimming.

 Product-quality leadership: Some Brands aim to be the

product-quality leaders in the market. They strive to be
affordable luxury products or services and characterized by high
levels of perceived quality, taste, and status with a premium
price and within consumers’ reach.
 Step 2: Determining Demand
Each price leads to a different level of demand and have a
different impact on a company’s marketing objectives.
Normally an inverse relationship exists between price
and demand, the higher the price, the lower the demand.

Step 3: Estimating Costs

The company tries to set a price that covers its cost of
producing, distributing, and selling the product, and
includes a fair return for its effort and risk.
A company’s costs can generally be divided, fixed and
variable. Fixed cost which is also known as overhead cost
does not vary with production level or sales revenue.
Variable costs vary directly with the level of production.
Total costs comprise the sum of the fixed and variable
costs for any given level of production.
 Step 4: Analyzing Competitors’ Costs, Prices, and
Offers
With the expectation of determining prices based on market
demand and company costs, the firm must take into account
the prominent competitors’ costs, prices, and possible price
reactions.

 Step 5: Selecting a Pricing Method

Companies select a pricing method which includes one or
more of these three considerations. 1. Where costs set a floor
to the price. 2. Competitors’ prices and the price of
substitutes provide an insight. 3. Customers’ assessment of
unique features establishes the price ceiling.

 Step 6: Selecting the Final Price

Pricing methods narrow the choice from which the company
can select its final price. While selecting that price, the
company must consider additional factors such as impact of
other marketing activities, company pricing policies.
 Promotions refer to the entire set

of activities, which communicate

the product, brand or service to

the user. The idea is to make

people aware, attract and induce

to buy the product, in preference

over others
Importance of Promotion
 To introduce a new product
 To educate customers about the product usage
 To increase awareness of the product
 To differentiate from competitors
 To achieve increase in product recall
 To build brand value and image
 To encourage people to buy in bulk especially in
off season to level the demand
 To encourage people to try their product over
their existing products
 Promotion Mix

Promotion mix is combination of various

promotional tools.
 Advertising includes print or verbal ads.
 Sales promotions are common promotional activities
that involve coupons, discounts, and gifts with purchase.
 Direct Marketing and Personal Selling are methods of
using word-of-mouth advertising to let others know about
your products or services.
 Public Relations is managing information flow between
an organization and public. It is aimed at maintaining a
particular image in the minds of customers, investors and
other stakeholders.
“Any paid form of non personal presentation and
promotion of ideas, goods and services through mass
media such as newspapers, magazines, TV or radio by an
identified sponsor.” - Philip Kotler

[Link]
Advertising, not deals, builds brands
- David Ogilvy

An advertisement is a paid-for communication intended to

inform and influence one or more people.
- Jeremy Bullmore (Chairman, JWT)
 Advertising
 Advertising is a cost-effective way to distribute
messages in order to build a brand preference or to
educate people.
 In developing an advertising program, marketing
managers must always take decisions on “the five Ms”:
 Mission: What are our advertising objectives?
 Money: How much can we spend and how do we
allocate our spending across media types?
 Message: What message should we send?
 Media: What media should we use?
 Measurement: How should we evaluate the results?
 Advertising Objectives
 Informative advertising aims to create brand
awareness and knowledge of new products or new
features of existing products.
 Persuasive advertising aims to create liking,
preference, and purchase of a product or service.
 Reminder advertising aims to stimulate repeat
purchase of products and services.
 Reinforcement advertising aims to convince current
purchasers that they made the right choice.
 Advertising Budget
Factors affecting budget decisions

 Stage in the product life cycle: new products

typically worth large advertising budgets to build
awareness and to gain consumer trial. Established
brands usually are supported with lower advertising
budgets.

 Market share and consumer base: High-market-

share brands usually require less advertising
expenditure as a percentage of sales to maintain its
market share. To build share by increasing market size
requires larger expenditures.
Cont…
 Competition and clutter: In a market where a large
number of competitors exist and there is high
advertising spending, a brand must advertise more
heavily to be noticed.

 Advertising frequency: the number of repetitions

required to put the brand’s message across the
consumers has an obvious impact on the advertising
budget. More repetition attracts more budgets.

 Product substitutability: Brands that are less-

differentiable or commodity-like product classes (soft
drinks, banks, and airlines) require heavy advertising to
establish a unique image.
 Developing the Advertising
Campaign
 Message generation and evaluation: Advertisers
usually go for “the big idea” that connects with
consumers rationally and emotionally, sharply
differentiates the brand from competitors.

 Creative development and execution: Impact of

the advertisements depends not only on what it says,
often it is more important to make sure how it says.
 Television Ads Television is generally regarded as the
most powerful advertising medium and it can reach a
wide range of consumers at low cost per exposure.

 Print Ads Print media offers a different platform as

compared to broadcast media.

 Radio Ads Radio is also a penetrating medium.

 Digital Ads Advertising on digital platforms using

internet
 Deciding on Media
• Reach (R). The number of different persons or
households exposed to a particular media schedule at
least once during a specified time period

• Frequency (F). The number of times within the

specified time period that an average person or
household is exposed to the message

• Impact (I). It is the qualitative value of an exposure

through a given medium.
Place advertising options
 Billboard: The concept of billboards has been transformed
and now it uses colorful, digitally produced graphics,
Backlighting.
 Public Spaces Advertisers have been increasingly placing
ads in unconventional places such as on movie screen,
airplane bodies, sports arena, office and hotel elevators, and
public places.
 Point of Purchase: There are many ways to communicate
with consumers at the point of purchase (P-O-P). In-store
advertising includes ads on shopping carts and shelves.

Selecting Specific Media Vehicles

The media planner must search for the most cost-
effective vehicles within each chosen media type.
Evaluating Advertising Effectiveness

 Communication-effect research: Communication-

effect research, called copy testing seeks to determine
whether an ad is communicating effectively. Marketers
should perform this test both before an ad is put into
media and after it is printed or broadcast.
 Sales-effect research: What sales are generated by an
ad that increases brand awareness by 10 percent?
Companies want to know whether they are
overspending on advertising.
Publicity

• Publicity is not restricted to products or services only but can be

attributed to politics, entertainment, arts, artists, etc.
• The cost associated is usually less as compared to the other
marketing activities like promotion and advertising which cost
sums of money for the people.
• PR is the field which organizes the process of publicity in a
controlled way.
• Publicity can be both positive as well as negative: If a publicity
event reinforces and improves the brand image, it can be
termed as positive publicity but if it causes loss to the
organization through publicity awareness, it can be termed as
negative.
Types of Publicity: News; Press Release; Product Release;
Emergency; Conferences; Events; Offers

Importance of publicity

• Publicity is an effective medium to disseminate message to the

mass with more credibility. People have more trust on news
given by publicity.
• The credibility level of publicity is much higher than advertising
and other means of market promotion.
• It provides more information as the valuable information is free
from space and time constraints.
• The firm is not required to pay for publicity. The indirect costs
related to publicity are much lower than other means of
promotion.
• It is a part of public relations. It is free from exaggeration; it
carries more factual information about company. It is more
trustable. It helps establish public relations.
• Publicity is the activity of increasing the awareness about a
person, product or service and to grab the attention of the
crowd.
• It is a way to project the company or a brand in front of the
potential customer.
• Publicity generally gives the authority of an independent voice.
It may turn helpful in increasing the sales from the potential
customers.
• Generally, publicity covers the varied information. It normally
involves name of company, its goods and services, history,
outstanding achievements, and other similar issues. The
knowledge is more complete compared to advertisement.

• Publicity directly helps middlemen and sale persons. Their

tasks become easy. Publicity speaks a lot about products on
behalf of middlemen and salesmen. Sellers are not required to
provide more information to convince the buyers.

• It is suitable to those companies which cannot afford the

expensive ways to promote the product.
• Publicity increases credit or fame of the company.
Publicity on company’s assistance in relief
operations during flood, earthquake, draught, and
other natural calamities highlights its name and
social contribution in mass media. People hold high
esteem to this company.

 Publicity can be used by non-commercial

organisations/ institutes like universities, hospitals,
associations of blinds or handicaps, and other
social and missionary organisations. They can
publicize their noble works by the medium of
publicity.
 Advertising Vs Publicity
Advertising Vs Publicity
 Management of Distribution
Distribution includes all the tasks and institutions
through which products are managed to be reached to
final consumer or moved to point of sale
Generally there are two sub-areas of distribution
 Acquisitive distribution: This sub-aspect relates the
legal, economic, informative and social relationships
between all of the players involved in the transfer of
goods.
 Logistic (physical) distribution: It concentrates
towards bridging space and time through transport and
storage of the products, including order processing and
delivery.
Distribution management specifically has
to decide on the following areas
 Selection: evaluating and selecting suitable distribution
channels

 Acquisition: motivating those involved in the distribution

channel to work together with the manufacturer

 Coordination: steering and coordinating the distribution

channel(s) in accordance with the company’s goals
 Distribution channel
A distribution channel is a succession of intermediaries
through which a good or service passes until it reaches
the final buyer or the end consumer.

Major Types of Intermediaries

 Agent: Business entity that negotiates purchases, sales,
or both but does not take title to the goods involved.

 Distributor: Wholesale middleman, found especially

when selective or exclusive distribution is common and
strong promotional support is needed. Sometimes used
synonymously for a wholesaler.
 Wholesaler: Entity primarily engaged in buying, taking
title to, storing (usually), and physically handling goods in
large quantities. Wholesalers resell the goods (usually in
smaller quantities) to retailers or to organizational
buyers.

 Jobber: Middleman that buys from manufacturers and

sells to retailers. This intermediary is sometimes called a
“rack jobber” to connote the service of stocking racks
or shelves with merchandise.

 Retailer: Entity primarily engaged in selling to end-user

consumers.
Supply Chains and the Value
Delivery Network
Upstream partners include raw material
suppliers, components, parts, information,
finances, and expertise to create a product or
service

Downstream partners include the marketing

channels or distribution channels that look
toward the customer, including retailers and
wholesalers
Supply chain “make and sell” view includes
the firm’s raw materials, productive
inputs, and factory capacity
Demand chain “sense and respond” view
suggests that planning starts with the
needs of the target customer, and the
firm responds to these needs by
organizing a chain of resources and
activities with the goal of creating
customer value
The Nature and Importance of
Marketing Channels
 From an economic view, intermediaries
transform the assortment of products
into assortments wanted by consumers
 Channel members add value by bridging
the major time, place, and possession gaps
that separate goods and services from
users
 Intermediaries offer the firm more than it
can achieve on its own
 Functions of Intermediaries
 Market information involves the wholesaler providing
information to suppliers and customers about
competitors, new products, and price developments

 Selling and promoting involves the wholesaler’s sales

force helping the manufacturer reach many smaller
customers at lower cost

 Transportation involves the wholesaler providing

quick delivery due to its proximity to the buyer
 Warehousing involves the wholesaler holding inventory,
reducing its customers’ inventory cost and risk

 Financing involves the wholesaler providing credit and

financing suppliers by ordering earlier and paying on time

 Risk bearing involves the wholesaler absorbing risk by

taking title and bearing the cost of theft, damage, spoilage,
and obsolescence.
The Nature and Importance of
Marketing Channels

Connected by types of flows:

 Physical flow of products
 Flow of ownership
 Payment flow
 Information flow
 Promotion flow
 Channel Behavior and Organization
Marketing channel consists of firms that have
partnered for their common good with each
member playing a specialized role

Channel conflict refers to disagreement over

goals, roles, and rewards by channel members

 Horizontal conflict

 Vertical conflict
 Conventional distribution systems
consist of one or more independent
producers, wholesalers, and retailers. Each
seeks to maximize its own profits, and
there is little control over the other
members and no formal means for
assigning roles and resolving conflict.
Multichannel Distribution System
 Disintermediation occurs when product
or service producers cut out
intermediaries and go directly to final
buyers, or when radically new types of
channel intermediaries displace traditional
ones
 Channel Design Decisions

Analyzing Setting
consumer channel
needs objectives

Identifying
major
Evaluation
channel
alternatives

Copyright ©2014 by Pearson Education, Inc. All rights reserved

Analyzing Consumer Needs

 Find out what target consumers want

from the channel
 What segments to serve
 Best channels to use
 Minimize the cost of meeting customer
service requirements
Setting Channel Objectives

 Determine targeted levels of customer

service
 Balance consumer needs not only against
the feasibility and costs of meeting these
needs but also against customer price
preferences
Identifying Major Alternatives
 Types of intermediaries
 Number of marketing intermediaries
 Responsibilities of channel members

Intensive distribution
• Candy and toothpaste

Exclusive distribution
• Luxury automobiles and prestige clothing

Selective distribution
• Television and home appliance
Evaluating the Major Alternatives
Each alternative should be evaluated
against:
◦ Economic criteria
◦ Control
◦ Adaptability criteria
RETAILING
 Retailing encompasses the business
activities involved in selling goods
and services to consumers for their
personal, family, or household use.
It includes every sale to the final
consumer.
How Retailers Add Value
 Breaking Bulk-Buy it in quantities customers
want
 Holding Inventory-Buy it at a convenient place
when you want it
 Providing Assortment-Buy other products at the
same time
 Offering Services-See it before you buy, get
credit, layaway