MODULE - 5
PRICING AND DISTRIBUTION
STRATEGY
Dr. Jerry John
Assistant Professor
KCM
What is Price?
• The price of products have to attract consumers attention
• Price is the quantity of payment or compensation given by one party to
another in return for goods or services.
• Consumers feel comfortable purchasing the products.
• What is pricing?
• Pricing is the process whereby a business sets the price at which it will
sell its products and services and may be part of the business’s
marketing plan.
• Pricing is a fundamental aspect of financial modeling and is one of
the four Ps of the marketing mix, the other three aspects being
product, promotion, and place.
• Price is the only revenue generating element amongst the four Ps, the
rest being cost centers.
• However, the other Ps of marketing will contribute to decreasing price
elasticity and so enable price increases to drive greater revenue and
profits
• A business can use a variety of pricing strategies
when selling a product or service.
Pricing • The price can be set to maximize profitability
for each unit sold or from the market overall.
Strategy • It can be used to defend an existing market
from new entrants, to increase market share
within a market or to enter a new market.
Pricing
• Pricing is the process whereby a business sets the price at which it will
sell its products and services, and may be part of the business's
marketing plan.
• Pricing is a fundamental aspect of financial modeling and is one of
the four Ps of the marketing mix, the other three aspects being
product, promotion, and place.
• Price is the only revenue generating element amongst the four Ps, the
rest being cost centers.
• Price is influenced by the type of distribution channel used, the type
of promotions used, and the quality of the product.
Pricing strategies
• Broadly, there are six approaches to pricing strategy mentioned in the marketing
literature:
• Operations-oriented pricing: where the objective is to optimize productive capacity, to
achieve operational efficiencies or to match supply and demand through varying prices.
In some cases, prices might be set to de-market.
• Revenue-oriented pricing: (also known as profit-oriented pricing or cost-based pricing) -
where the marketer seeks to maximize the profits (i.e., the surplus income over costs)
or simply to cover costs and break even.
• Customer-oriented pricing: where the objective is to maximize the number of
customers; encourage cross-selling opportunities or to recognize different levels in the
customer's ability to pay.
• Value-based pricing: (also known as image-based pricing) occurs where the company
uses prices to signal market value or associates price with the desired value position in
the mind of the buyer.
• Relationship-oriented pricing: where the marketer sets prices in order to build or
maintain relationships with existing or potential customers.
Survival
Profit
Pricing
Strategy ROI
Objectives
Market share
Product quality
Skimming Pricing
Premium Pricing
Pricing
Strategies
Discount Pricing
Penetration Pricing
Goods are sold at higher prices, which are
commonly used in electronic markets.
Find the optimum price point for a
product, usually a unique item with
Skimming unknown consumer demand.
Pricing To maximize the potential price layer by
layer until the optimum price is reach.
Example: Electronic devices.
Premium Pricing:
• Premium pricing (also
called image pricing or
prestige pricing) is the
practice of keeping the
price of a product or
service artificially high in
order to encourage
favorable perceptions
among buyers, based
solely on the price.
• Offers a reduction from the regular or list price
of a product.
Discounting • Businesses use discount pricing to sell low-
priced products in high quantities. With this
pricing: strategy, it is important to cut costs and stay
competitive.
Penetration Pricing:
• Set products prices low for a
specific time period to gain
market share early for
company.
• Setting a low price for a new
product in order to attract a
large no. of buyers and a
large market shares.
International Distribution System
• International distribution is the processes, relationships and fulfilment that you
set in place to get your products into overseas markets.
• Not to be confused with international e-commerce.
• That's just international shipping.
• International distribution is about wholesaling into new countries.
• The sole objective of production of any commodity is to help the goods reach
the ultimate consumers.
• In the era of modem large scale production and specialization it is not possible
for the producer to fulfill this work in all circumstances.
• The size of market has become quite large.
• Therefore, the producer has to face numerous difficulties if he undertakes the
distribution works himself.
Types of Distribution Channels:
• There are different types of channels of distribution and a
manufacturer may select any one of these channels.
• These channels may be broadly divided into two parts:
1. Distribution Channel of Consumer Goods:
• Manufacturer → Agent → Wholesaler → Retailer → Consumer
• Manufacturer → Agent → Retailer → Consumer
• Manufacturer → Agent → Consumer
• Manufacturer → Wholesaler → Retailer → Consumer
• Manufacturers → Retailer → Consumer
• Manufacturers → Consumers
Types of Distribution Channels:
2. Distribution Channel of Industrial Products:
• Manufacturer → Agent → Wholesaler → Industrial Consumer
• Manufacturer → Agent → Industrial Consumer
• Manufacturer → Wholesaler → Industrial Consumer
• Manufacturer → Industrial Consumer
• A distribution channel is the path taken by a
good or service to get from the producer to the
final user.
• 2 Types of Distribution Channels
Global • Direct Distribution Channel: Producers sell
Distribution goods or services directly to the final user.
• Example: Farmers selling product at a
Activities roadside stand.
• Indirect Distribution Channels: When goods
or services are sold with the use of one or
more intermediaries between the producer
and the consumer
A channel of distribution is the route or path along
which products flow from the point of production
to the point of ultimate consumption or use.
Channels of Distribution channels are also known as marketing
channels or marketing distribution channels or
Distribution trade channel.
It starts with producer and ends with the
consumer. In between there may be several
intermediaries or middlemen who operate to
facilitate the flow of the physical product to the
consumer.
Common Distribution Channels
Distribution Channel Members
An intermediary is any person or
Agent: Also known as Broker:
organization in the distribution
Brings together buyers and sellers
channel that moves goods and
but dose not take ownership of
services from the producer to the
the product.
consumer.
Wholesalers: A business that
buys large quantities of an item Retailers: A store or another
and resells them to a retailer. business that sells directly to the
Wholesaler dose not sell directly final users.
to final users of a product.
Distribution Channel Members-Function
Products flow downwards from
the producer to the consumers.
A channel of
distribution Cash flows upwards from
customers to the producer as
shows three payment for products.
types of flow:
Marketing information flows in
both directions.
Trends in Distribution Systems
• Increase in number of international retailers
• Huge growth in large – scale retailers
• Emergence of organized smuggling
• Information Technology
• International Retailing:
• All those activities involved in selling products and services to final
international consumers for their personal consumption.
• Global Pricing:
• The pricing that the company does for the products that it sells globally.
• Price Escalation
• A disparity in pricing where goods have higher costs in a foreign market than
in the domestic market due to transportation and exporting costs.
• Price escalation can also refer to the sum of cost factors in the distribution
channels which add up to a higher final cost for a product in a foreign market.
Global Intermediaries
• Export Management Company: Provides complete distribution
services for business that desire to sell in foreign markets.
• Export Trading Company: Full-Service global distribution intermediary.
They buy and sells products, conduct market research, and
distributing goods abroad.
• Freight Forwarder: A Freight Forwarder ships goods to customers in
other country.
Global Trends in Distribution Systems
• Broad changes in technology, global economic conditions, and
customer expectations have had a direct impact on distribution.
1. Rising Service Expectation
2. Growth of Multi-Channel Distribution
3. Increasing need for flexibility
4. Greater need for product data accuracy
5. Increased risk of failure