Pricing and Appraisal

of Marketing Channels
 Anatomy of Channel Pricing Structure
Understanding Channel Pricing Structure:
2. Elements of Channel Pricing Structure:
1. Introduction to Channel Pricing:
 Producer Price:
 Channel Pricing: Involves  The initial price set by the producer for the product.
determining the prices at which  Wholesale Price:
products move through the  The price at which producers sell products to
wholesalers. It includes the cost of production plus a
marketing channel from producers
margin.
to end consumers.
 Retail Price:
 Critical Element: Pricing decisions  The price at which retailers sell products to end
significantly impact the profitability consumers. It includes the wholesale price plus a margin.
 Consumer Price:
and success of the entire
 The final price paid by consumers for the product.
distribution channel.
3. Markup Pricing: 4. Markdown Pricing:
 Definition:  Definition:
 Markup: The percentage added to  Markdown: The reduction of the original selling price of
the cost of a product to determine its a product.
selling price.  Reasons for Markdown:
 Formula:  Clearance of excess inventory, seasonal sales,
 Markup Percentage = (Selling Price - promotions, or addressing changes in market conditions.
Cost Price) / Cost Price * 100  Formula:
 Example:  Markdown Percentage = (Original Selling Price - Reduced
Selling Price) / Original Selling Price * 100
 If the cost of a product is $50, and the
 Example:
desired markup is 40%, the selling
price would be $70.  If the original selling price of a product is $100, and it is
marked down to $70, the markdown percentage is 30%.
 Markup Percentage = ($70 - $50) /
 Markdown Percentage = ($100 - $70) / $100 * 100 = 30%
$50 * 100 = 40%
 Key Factors Influencing Channel Pricing

1. Costs of Production and Distribution: 5. Market Conditions and Economic Factors:

2. Competitive Pricing: 6. Product Life Cycle:

3. Consumer Demand and Perceived Value: 7. Regulatory and Legal Considerations:

4. Channel Member Expectations: 8. Brand Image and Positioning:

9. Promotional Strategies:
Key Guidelines for Developing Effective Channel Pricing Strategies
1. Understand Cost Structures:
 Guideline: Gain a deep understanding of the cost structures at each level of the marketing channel.
 Rationale: Comprehensive knowledge of costs helps in setting realistic prices that ensure profitability.
2. Align with Market Positioning:
 Guideline: Align pricing strategies with the market positioning of the product or service.
 Rationale: Prices should reflect the perceived value of the product and its positioning in the market.
3. Consider Channel Member Margins:
 Guideline: Take into account the margin expectations of channel members, such as wholesalers and retailers.
 Rationale: Fair and attractive margins encourage collaboration and commitment from channel partners.
4. Adapt to Market Conditions:
 Guideline: Be flexible and adaptive to changing market conditions.
 Rationale: Dynamic pricing strategies allow businesses to respond to shifts in demand, competition, and economic
factors.
5. Leverage Technology for Pricing Analytics:
 Guideline: Utilize technology for pricing analytics and real-time market data.
 Rationale: Technology enables businesses to gather insights, track competitor prices, and implement dynamic pricing
6. Balance Profitability and Market Share Goals:
 Guideline: Strike a balance between profitability goals and market share objectives.
 Rationale: Depending on the business strategy, prioritize either maximizing profits or gaining market share.
7. Monitor and Evaluate Competitor Pricing:
 Guideline: Regularly monitor and evaluate competitor pricing strategies.
 Rationale: Awareness of competitor prices helps in positioning products effectively within the market.
8. Integrate Promotions and Discounts Thoughtfully:
 Guideline: Integrate promotional pricing and discounts thoughtfully into the overall pricing strategy.
 Rationale: Well-executed promotions can drive sales and enhance the perceived value of the product.
9. Collaborate with Channel Members:
 Guideline: Collaborate with channel members in the pricing decision-making process.
 Rationale: Involving channel partners fosters a sense of partnership and aligns pricing strategies with channel expectations.
10. Implement Clear and Transparent Pricing Policies:
 Guideline: Implement clear and transparent pricing policies.
 Rationale: Transparency builds trust among channel partners and consumers, contributing to long-term relationships.
11. Regularly Review and Adjust Pricing Strategies:
 Guideline: Regularly review and adjust pricing strategies based on performance and market dynamics.
 Rationale: Continuous assessment ensures relevance and effectiveness in a dynamic business environment.
 Channel Pricing Strategy
1. Cost Analysis:
 Conduct a thorough analysis of production and
distribution costs for the new product. 6. Promotional Opportunities:
2. Competitor Analysis:  Explore promotional opportunities, such as
 Evaluate the pricing strategies of key competitors launch discounts or bundled offerings, to create
buzz.
in the consumer electronics market.
7. Pricing Model Selection:
3. Consumer Research:
 Select an appropriate pricing model (cost-plus,
 Conduct consumer research to understand the
value-based, competitive) based on the gathered
perceived value of the new product and
insights.
willingness to pay.
8. Dynamic Pricing Consideration:
4. Channel Member Consultation:
 Evaluate the feasibility of dynamic pricing based
 Consult with channel members, including
on real-time market dynamics.
wholesalers and retailers, to understand their
margin expectations. 9. Implementation and Monitoring:
5. Market Conditions Assessment:  Implement the chosen pricing strategy and
 Assess current market conditions, monitor its effectiveness in the market.
including
economic factors and industry trends.
 Challenges and Strategies in Channel Pricing
1. Free Riding:
 Challenges: It can lead to resentment and reduced motivation among contributing members.
 Strategies:
 Implement clear policies outlining the responsibilities and contributions expected from each channel member.
 Use performance metrics to reward and incentivize those who actively contribute to the channel's success.
 Foster a sense of shared responsibility and collaboration among all channel members.
2. Countering Grey Channels:
 Definition: Grey channels involve unauthorized or parallel channels through which products are sold outside the authorized
distribution network.
 Challenges: Grey channels can undermine pricing strategies, erode brand value, and lead to channel conflict.
 Strategies:
 Strengthen legal agreements and contracts with channel members to prevent unauthorized distribution.
 Implement robust channel monitoring systems to detect and address grey market activities.
 Establish clear consequences for channel members engaging in unauthorized distribution.
 Educate consumers about the risks of purchasing products from unauthorized sources.
1. Minimum Advertised Price (MAP) Policies:
 Definition: MAP policies set the minimum price at which a product can be advertised.
 Challenges: Violations of MAP policies can lead to price erosion and impact brand perception.
 Strategies:
 Enforce MAP policies consistently across all channel members.
 Provide training and support to help channel members understand the importance of adhering to MAP policies.
 Monitor and address violations promptly to maintain a level playing field.
2. Price Discrimination:
 Definition: Price discrimination involves charging different prices to different customers or in different markets for the same
product.
 Challenges: Unfair price discrimination can lead to dissatisfaction among customers and channel partners.
 Strategies:
 Clearly communicate and justify any variations in pricing to avoid perceptions of unfairness.
 Implement pricing strategies that consider regional differences, market conditions, and customer segments.
 Provide transparency to channel partners about the factors influencing pricing decisions.
CHANNEL INTEGRATION
CHANNEL INTEGRATION

Channel integration refers to the process of selecting the options of

production, branding and distribution by the same organisation and
checking its feasibility and the profitable options in the current
prevailing market situations or operating separately all the above
said activities by other specialised organisations.
 TYPES OF CHANNEL
INTEGRATION
• Vertical channel integration
 Corporate vertical marketing system
 Administered vertical marketing system
 Contractual vertical marketing system
• Horizontal channel integration
• Hybrid channel integration
VERTICAL CHANNEL
INTEGRATION
• A ‘VMS’ is a distribution channel in which the various channel
members are tightly coordinated in order to achieve operating
efficiencies and marketing effectiveness.
• VMS characteristics:
• Ownership of levels
• Contracts members of channel
• Market power of members
 TYPES OF VERTICAL MARKETING
SYSTEMS
• Corporate systems: Production and distribution owned by same company

(single owner at each stage)Bombay Dyeing, Bata.

• Administered systems: Economic power of a channel member (dominant

member exercising its power)Pepsi, coke.

• Contractual systems: Contractual arrangement between a variety of channel
members (co-ordinates channel activities through

• channel agreements among channel members like wholesales, retailers,

franchisers)
Types of Vertically Integrated
Marketing Systems (VIMS)
Corporate
Common Ownership at Different
Levels of the Channel i.e. Sears

Contractual
Degree of
Direct Control Contractual Agreements Among
Channel Members

Administered
Leadership is Assumed by One or
a Few Dominant Members i.e. Kraft
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Types of Vertically Integrated
Marketing Systems
Vertically
VerticallyIntegrated
Integrated
Marketing
Marketing
Systems
Systems(VIMS)
(VIMS)

Corporate
Corporate Contractual
Contractual Administered
Administered
VMS
VMS VMS
VMS VMS
VMS

Wholesaler
WholesalerSponsored
Sponsored Retailer
Retailer Franchise
Franchise
Voluntary
VoluntaryChain
Chain Cooperatives
Cooperatives Organizations
Organizations

Manufacturer-
Manufacturer- Manufacturer-
Manufacturer- Service-Firm-
Service-Firm-
Sponsored
SponsoredRetailer
Retailer Sponsored
SponsoredWholesaler
Wholesaler Sponsored
Sponsored
Franchise
FranchiseSystem
System Franchise
FranchiseSystem
System Franchise
FranchiseSystem
System
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HORIZONTAL CHANNEL INTEGRATION

Two or more companies at one channel level join together to follow a

new marketing opportunity.

Example: Coffee day outlets in airports, retail outlets In petrol outlets,

etc…
HYBRID CHANNEL INTEGRATION
A single firm sets up two or more marketing channels to reach one or
more customer segments.
Example: retailers, catalogs, and sales force
 DESIGNING AND MANAGING HYBRID CHANNEL
SYSTEMS

The channel distribution is used in situations where the same

product is sold to different market segments, Unrelated products are
sold in the same market (HLL), the size of the buyers varies
Pharmaceutical companies).

The design helps in better coverage of the market by using most

appropriate means of reaching each segment, it reduces the cost of
distribution by adding new channels, etc…