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• Pricing
Internal External
Factors Factors
Costs
Competition
Organizational
considerations
Other environmental factors
(Economy, Government)
Possible consumer reference prices
• Consumers compare the mentioned price of a product to an internal
reference price which they remember.
• Typical Price
• Ex: Charges paid for e rickshaw for a distance
• Lower Bound Price (Flooring price – Minimum cost consumers would pay)
• Ex: Commodity prices (Salt prices)
• Determining demand
• Estimating costs
Maximum Perceived
market share Accumulated value pricing
production
Maximum
market
skimming Target
costing
Product
quality
leadership
Other
Objectives
Step 1 - Selecting the pricing objectives
• The company first decides where it wants to position it’s market offering.
• Survival –
• If a company has overcapacity, intense competition or changing customer wants. It
is a short term objective to cover variable and some fixed cost.
• Ex: Food delivery apps,
• Online retailers – ebay, Jabong, Myntra, Snapdeal
• Other Objectives –
• Non profit organizations and universities aim for partial cost recovery and rely on
private gifts and public grants.
• Ex: Subsidized fees in University
• Lower ticket price at museum to attract more tourists/Visitors
Step 2 – Determining Demand
Each price leads to a different level of demand.
• Surveys exploring how many units consumer would buy at different proposed
prices
• Statistical Analysis of Past prices, quantities sold over a period of time at different
locations
• Price Elasticity of Demand
• The higher the elasticity, the greater the volume growth resulting from 1% price
reduction.
• There may be a “Price indifference Band” within which price changes have
little or no effect.
• Price Elasticity of Demand
• Fixed Cost – Costs that do not vary with production level or sales revenue.
• Total Cost – Sum of the fixed and variable cost at any given level of production
• Average Cost – The cost per unit at that level of production (Total Cost/Production)
• Accumulated Production (Experience) –
• With experience workers gain efficiency, material management is better,
procurement costs fall resulting in to average cost fall with accumulated production
experience.
• Ex: Cost of producing first 1,00,000 bars of soap could be Rs. 10/- and for next 1,00,000 soap
bars, it could further reduce to Rs. 9/- only.
• Target Costing
• The firm must examine each cost element – Design, engineering, manufacturing,
sales and should implement operational excellency to bring down the costs.
• Cost Function
• Competitor’s Price
• 7 Price setting methods:
• Assuming that manufacturer wants to earn a 20% mark up on sale, the price would
be
• Mark Up price = Unit Cost/(1- Desired return on sale)
• 16/1 - .2 = 20/-
• Ex: A manufacturer has invested Rs. 10 lakh and wants to make 20%
return.
• A retailer using EDLP charges a constant low price with little or no price
promotion or special class.
• Ex – Best Price by Wal Mart, Metro Cash & Carry
– High Low Pricing – The retailer changes higher prices on an every day basis
but runs frequent promotions with prices temporary low than EDLP.
• Going Rate Pricing – The firm bases it’s price largely on competitor’s
prices. When cost is difficult to measure or competitive response is
uncertain, firms find it good to go by industry’s collective wisdom.
• Ex: Oil companies, Telecom companies
– English Auction (Ascending Bids) : One seller and many buyer. A seller puts
up an item and bidders raise their prices until the top price is reached. The
highest bidder gets the item.
– Ex: eBay
– Dutch Auction (Descending Bids) : One buyer and Many sellers. The highest
price is announced and then potential sellers compete to offer the lowest price.
– Ex: Wholesale Market
Position Pricing
Bundle Pricing (Club a
Premium Pricing (Selling (Selling Image and reflect
group of products at
exclusively) Ex: Apple, consumer views)
reduced prices) Ex: Buy
Rolex Ex: Royal Enfield, Dove by One Get One offers
HUL
Initiating and Responding to Price Changes
• 1% Price increase
• 33.33% Profit increase
Anticipating Competitive Response
• Objective of the competitor’s price change (To steal the market, utilize
excess capacity, changing input cost, industry wide price change)
• Every marketing activity starts with the customer and ends with the customer.
The customer is the ultimate target for a marketer.
• Once the product is developed and priced, the marketing manager should now
plan to develop distribution strategy and design distribution channel to reach
customers.
➢ Wholesalers and Retailers- Buy, take title to and resell the merchandise; they are
called Merchants.
Distributor Distributor
Wholesaler
37
Marketing Channel alternatives
(Channels for Industrial Products)
Agents or Agents or
Brokers Brokers
Industrial Industrial
Distributor Distributor
Agents
• Push Strategy – this refers to use of manufacturer’s sales force, trade promotion
money, or other means to induce intermediaries to carry promote and sell the
product to end users. It is used more in low brand loyalty products, brand choice is
made at point of sale (POS) and impulse items.
• Ex: Vadilal, Kwality Walls, Amul
• Top companies skillfully employs both the PUSH and PULL strategy.
Channel Design Decisions
DESIRED LOT SIZE - The number of units the channel permits a typical customer to purchase
on one occasion.
Ex: A bulk dealer will discourage you from buying a single unit at Chandni Chowk.
WAITING & DELIVERY TIME - The average time customers of that channel wait for receipt
of the goods.
Ex: Assured time bound delivery of goods by online channels
PRODUCT VARIETY
The assortment breadth provided by the marketing channel.
Ex: Higher the choices by a brand, greater the chance of purchase (Shampoo Range)
SERVICE BACKUP
The add-on services (credit, delivery, installation, repairs) provided by the channel.
2. Establishing Objectives and Constraints
The objectives of channel design are heavily dependent upon the marketing
and corporate objectives. The broad objectives include:
Ex: Apple wanted to create a dynamic retail experience for consumers, which
was not met by existing channel, hence, they opened own stores.
3. Identification of Major Channel Alternatives
• Type of Intermediaries
• Selective Distribution – More than exclusive but still few selected channel
partners to carry the product.
• Ex: Reliance Digital, Value Plus - IFB front loaded Washing Machine
• Price Policy – Producer will establish a price list, discounts applicable and
allowances that will be allowed for channel partners to follow.
Company needs to estimate the costs of selling different volumes through each channel
and the next step is comparing sales and costs.
Ex: A furniture company in Delhi has to sell in South India. It can either hire a staff of 10 or
can go with a sales agency having staff of 50.
Step 1 – Estimating sale with each alternative
Step 2 – Estimating the cost of selling different volume through each channel
Step 3 – Compare Sales and Costs
Company also looks for a long term commitment and channel which is flexible to learn
and willing to grow with new changes in policies and procedures.
Channel Management Decisions
• Channel Partnership – Creating a long term relationship with clearly defined market
coverage, inventory levels & marketing development
• Ex: Philips Lighting Dealers
• Modifying Channel Design and Arrangements – Introducing new policies as per the
market dynamics
• Ex: Introduction of Sub-distributor concept by Vodafone
Retailing – a set of business activities that adds value to the products and
services sold to consumers for their personal or family use.
Types of Retailers
Wholesaling includes all the activities in selling goods or services to those who buy for
resale or business use. It excludes
- Manufacturer
- Farmers
- Retailers
Wholesalers pay less attention to promotion, atmosphere and location since they deal
with business customers rather than end users.
Wholesalers transactions are usually larger than retail transactions and they usually
cover large trade area compared over a retailer.
• Merchant wholesalers – take title to product and sell it Ex: KSB pumps
➢ The goal of multichannel is to give consumers a choice, and allow them buy when
and where they want to.
Ex: SBI Yono, Online Communication, SMS, Website, Hoardings, POP at ATM,
Brochures at Bank premises, Kiosk of SBI at Airport or Railway platforms
Vertical Marketing Systems
• VMS consists of producers, wholesalers and retailers acing as a unified group to
serve the customer.
• Corporate VMS – One member of the distribution channel owns all the other
member channels having all the elements of production and distribution channel
under a single ownership.
• Ex: Amway
• Ex: Nike and Apple having a partnership for Nike+ footwear range in which the
iPOD can be connected with shoes to play music and display information about
time, distance covered, calories burned and heart pace on the screen.