DEBRE BIRHAN UNIVERSITY

College of Business and Economics

Master of Business Administration
Course Title: Advanced Marketing Management

Pricing Decision and placing the product with a case study @ DASHEN
BREWERY S.C

Group members name Id number

1. Anwar Muhammed--------------------------PGR(P)/025/12
2. Amare Azmeraw------------------------------PGR(P)/023/12
3. Anteneh Solomon----------------------------PGR/(P)024/12
4. Lealem Addis--------------------------------PGR/(P)046/12

Submitted to: - SHIFERA.B (phD)

Debre Berhan,Ethiopia
November 2019
 ACKNOWLEDGEMENT

We would like to thank our teacher, SHIFERA. B (PHD) for giving this assignment and for his
assistance and advice to developed and finalize this study .We also wish to express appreciatio n
to manager and employees of DASHEN BREWERY SHARE COMPANY who gave us necessary
data relevant source information and document.
Finally we wish express our heart full thanks for our family friends and secretary who supported
us necessary materials, financial support.
 Abstract
Price is the amount of money charged for a product or service. Of all marketing
mix elements price is the only one which generates revenue for the company. Price
is said to be the most flexible element of the marketing mix as it can be changed
quickly. Price to a large extent depends on the number of competitors and level of
competition.

Channels of distribution are of vital importance to all types of firms producer,

wholesaler and retailer. Each type of channel is a link in a distribution network of
organizations extends from producer to the end users of products or services.(
Gupta,1999:18) On top of that a distribution channel consist of the set of people
and firm involved in the transfer of title to a product as the product moves from
producer to ultimate customer or a business user. A channel of distribution always
includes both the producer and the final customer for the product in its present
forms as well as any middlemen such as retailer and wholesaler (Etezel M. and
others, 2004;390).Moreover a channel of distribution is a path way composed of
intermediaries also called middlemen, who perform such functions as needed to
ensure smooth flow of goods and services from the manufacturing ends to the
consuming ends in order to achieve marketing of the produce of a company
(Bacavathip,2005:296).
This paper, however, will try to study the practice of pricing decision and product
placing with particular reference to Dashen Brewery Private Limited Company.
Contents
ACKNOWLEDGEMENT .................................................................................................................................................................... 1
Abs tra ct.......................................................................................................................................................................................... 2
INTRODUCTION .............................................................................................................................................................................. 4
1. Pri cing Decisions................................................................................................................................................................... 5
1.1 Internal Fa ctors Affecting Pri cing Decision ......................................................................................................................... 5
1.1.1 Ma rketing /pri cing Objecti ves.......................................................................................................................................... 6
1.1.2 Ma rketing Mi x Stra tegy.................................................................................................................................................... 7
1.1.3 Cos ts ................................................................................................................................................................................. 7
1.2 External Fa ctors........................................................................................................................................................................ 9
1.2.1 The Ma rket and Demand ................................................................................................................................................. 9
1.2.2 Consumer Perception of Pri ce and Value ...................................................................................................................... 10
1.2.3 Competitors costs , pri ces and offers.............................................................................................................................. 10
1.2.4 Other external fa ctors .................................................................................................................................................... 10
1.3Pri cing Methods / Approa ches........................................................................................................................................... 11
1.3.1Cos t – Based Pri cing ........................................................................................................................................................ 11
1.3.2 Ma rket based pri ci ng / Value based pri cing................................................................................................................... 11
1.3.3 Competiti on – Oriented pri cing...................................................................................................................................... 11
1.3.4 Other pri ci ng methods ................................................................................................................................................... 12
2. Pla cing the product.................................................................................................................................................................. 13
2.1 Functions of Dis tribution Channels ................................................................................................................................... 13
2.2 Types of Distri bution Channels .............................................................................................................................................. 15
2.2.1 Di rect Channel or Zero-level Channel (Ma nufa cturer to Customer) ............................................................................. 15
2.2.2 Indirect Channels (Selling Through Intermediaries)................................................................................................ 15
2.2.3 Dual Dis tribution ............................................................................................................................................................ 16
2.2.4 Dis tributi on Channels for Servi ces ................................................................................................................................. 16
2.3 Fa ctors Determining the Choi ce of Distribution Channels................................................................................................ 17
2.3.1 Ma rket Cha ra cteris tics ................................................................................................................................................... 17
2.3.2 Product Cha ra cteristi cs .................................................................................................................................................. 18
2.3.3 Company Cha racteris ti cs................................................................................................................................................ 18
2.4 Cha nnels Stra tegy Decision ............................................................................................................................................... 19
3.1 Objecti ve of the study ....................................................................................................................................................... 21
3.2 Si gni ficance of the Study ................................................................................................................................................... 22
3.3 Methods of Data Collection .............................................................................................................................................. 22
3.4 company profile................................................................................................................................................................. 22
3.5 Da ta presenta tion and Anal ysis......................................................................................................................................... 23
3.6 THEORY VS DASHEN PRACTISE COMPARISON .................................................................................................................. 25
3.7 conclusion and recommenda tion...................................................................................................................................... 26
 INTRODUCTION
The marketing mix represents the ingredients that go into marketing programs. Every successful
marketing system should aim at blending effectively all inputs constituting the marketing mix
which is a phrase used to describe the various combinations of the four inputs which constitute the
core of an organization's marketing system. These four inputs, which are referred to as the “4P’S”,
are product, price, place and promotion. The extended marketing mix added three more P’S i.e.
processes, physical evidence, and people. These inputs are inter-related in the sense that, a
disregard for one of them will imply a failure of the remaining three. They represent the core of
every marketing system and constitute an effective approach to the study of a course in
marketing management.

The price is the amount a customer pays for the product. The price is very important as it
determines the company's profit and hence, survival. Adjusting the price has a profound impact on
the marketing strategy, and depending on the price elasticity of the product, often; it will affect
the demand and sales as well. The setting of a price should therefore complement the other
elements of the marketing mix.

Pricing is usually not considered as an exciting part of a marketer’s job. As such, prices are
not varied enough for different product items, market segments and purchase occasions by
most Ethiopian firms. These companies handle pricing in a variety of ways which makes it
important to achieve their sales and targeted profits. They are not able to adopt the right pricing
strategies that will enable them adapt to the competitive pressures posed by Foreign Service
firms.

Development of marketing competencies is particularly important in creating a competitive ad-

vantage. The following key decision areas are considered to be ‘central’ to strategic marketing
management and to the development of marketing competencies. Firstly, the design of marketing mix
(price, promotion, product, and place) determines how the company will compete in these target
markets. Secondly, marketing managers may have to choose between markets or market segments. The
place where the company will compete is determined by the selection of a target market segment.
Thirdly, advertising media selection referring to the prediction of the media to be used is another
decision area within the marketing function. Fourthly, the design of marketing mix is a forecasting
practice, by which marketing management attempts to predict the best available options (for each of
the marketing mix elements, which are product, place, price and promotion) for a given mix or
estimates that a specific set of assumptions will hold for a set of alternative mixes. Positioning strategy
is another marketing decision area where forecasting has a substantial contribution. The factors
possibly affecting the next stage of the patterns (e.g. trend) that the product may follow in the PLC
model can also be determined. Forecasting also helps managers determine the timing of entrance to the
market. Moreover, sales prediction is also an area in which forecasting is utilized intensive ly.
Predicting sales of a new product has a particular importance for management from strategic point of
view. (Polat, 2008)

Chapter 1

1. Pricing Decisions
Every company’s pricing decisions are characterized by a number of internal and external
factors. Before setting prices, the company must decide what it wants to accomplish with such
a product or service. Internally, a company's pricing decision can be based on its marketing
objectives, marketing mix strategies and costs. ( Feargal, 1990).

1.1 Internal Factors Affecting Pricing Decision

When setting price, marketers must take into consideration several factors which are the result
of company decisions and actions. To a large extent these factors are controllable by the
company and, if necessary, can be altered. However, while the organization may have control
over these factors making a quick change is not always realistic. For instance, product pricing
may depend heavily on the productivity of a manufacturing facility (e.g., how much can be
produced within a certain period of time). The marketer knows that increasing productivity
can reduce the cost of producing each product and thus allow the marketer to potentially lower
the product’s price. But increasing productivity may require major changes at the
manufacturing facility that will take time (not to mention be costly) and will not translate into
lower price products for a considerable period of time. ( Feargal , 1990). The internal factors
affecting pricing decisions include marketing objectives, the other marketing mix strategy, and
costs.

1.1.1 Marketing /pricing Objectives

Before setting prices a company must know what it intends to accomplish with its products
and services in the sense that the clearer a company is about its objectives, the easier it is to
set prices. Such objectives might be for survival, maximize current profits, and domi nate
market share leadership or becoming the product quality leader in its product and service
market. (Kotler et al, 1997)The four main marketing objectives affecting price include:

Return on Investment (ROI) –A firm may set as a marketing objective the requirement that
all products attain a certain percentage return on the organization’s spending on marketing the
product. This level of return along with an estimate of sales will help determine appropriate
pricing levels needed to meet the ROI objective.

Cash Flow –Firms may seek to set prices at a level that will insure that sales revenue will at
least cover product production and marketing costs. This is most likely to occur with new
products where the organizational objectives allow a new product to simply meet its expenses
while efforts are made to establish the product in the market. This objective allows the marketer
to worry less about product profitability and instead directs energies to building a market for
the product.

Market Share –The pricing decision may be important when the firm has an objective of
gaining a hold in a new market or retaining a certain percent of an existing market. For new
products under this objective the price is set artificially low in order to capture a sizeable
portion of the market and will be increased as the product becomes more accepted by the target
market. For existing products, firms may use price decisions to insure they retain market share
in instances where there is a high level of market competition and competitors who are willing
to compete on price.

Maximize Profits –Older products that appeal to a market that is no longer growing may have
a company objective requiring the price be set at a level that optimizes profits. This is often
the case when the marketer has little incentive to introduce improvements to the product (e.g.,
demand for product is declining) and will continue to sell the same product at a price premium
for as long as some in the market is willing to buy. (Kotler etal,1997)

Other pricing objectives

- Deeper Penetration of the market

- Entering New Markets.
- Counter the Competition.
- Keeping at Pace with Competition.
- Providing the commodities at prices that will stimulate Economic Development.
- Providing the commodities at prices affordable by weaker section.

1.1.2 Marketing Mix Strategy

It is always relevant that pricing decisions are coordinated with product design, distribution
and promotional decisions to form a consistent and effective marketing program since
decisions made for other marketing mix variables may affect pricing decisions e.g. companies
who use many resellers and expect these resellers to support and promote their products/service
may have to build longer reseller price margins into their prices. In other way too, a company
often makes its pricing decision first and then bases other marketing mix decisions on the
prices it wants to charge for its products and services. Basically, the marketer is expected to
consider the total marketing mix when setting prices. If the products and services are
positioned on non-price factors then the decisions about product/service quality, promotion
and place (distribution) will strongly influence price. (Caskey, 2008)

1.1.3 Costs
Many companies before starting product’s price is to first determine how much it will cost to
get the product to their customers. Obviously, whatever price customers’ pay must exceed the
cost of producing a good or delivering a service otherwise the company will lose money. When
analyzing cost, the marketer will consider all costs needed to get the product to market
including those associated with production, marketing, distribution and company
administration (e.g., office expense). These costs can be divided into two main categories:

Fixed Costs -Also referred to as overhead costs, these represent costs the marketing
organization incurs that are not affected by level of production or sales. For example, for a
manufacturer of writing instruments that has just built a new production facility, whether they
produce one pen or one million they will still need to pay the monthly mortgage for the
building. From the marketing side, fixed costs may also exist in the form of expenditure for
fielding a sales force, carrying out an advertising campaign and paying a service to host the
company’s website. These costs are fixed because there is a level of commitment to spending
that is largely not affected by production or sales levels.

Variable Costs –These costs are directly associated with the production and sales of products
and, consequently, may change as the level of production or sales changes. Typically variable
costs are evaluated on a per-unit basis since the cost is directly associated with individual
items. Most variable costs involve costs of items that are either components of the product
(e.g., parts, packaging) or are directly associated with creating the product (e.g., electricity to
run an assembly line). However, there are also marketing variable costs such as coupons, which
are likely to cost the company more as sales increase (i.e., customers using the coupon).
Variable costs, especially for tangible products, tend to decline as more units are produced.
This is due to the producing company’s ability to purchase product components for lower
prices since component suppliers often provide discounted pricing for large quantity
purchases. Campbell and Viciera (2002).Epstein and Schneider (2007) observe that
determining individual unit cost can be a complicated process. While variable costs are often
determined on a per-unit basis, applying fixed costs to individual products is less
straightforward. For example, if a company manufactures five different products in one
manufacturing plant how would it distribute the plant’s fixed costs (e.g., mortgage, production
workers’ cost) over the five products? In general, a company will assign fixed cost to
individual products if the company can clearly associate the cost with the product, such as
assigning the cost of operating production machines based on how much time it takes to
produce each item. Alternatively, if it is too difficult to associate to specific products the
company may simply divide the total fixed cost by production of each item and assign it on
percentage basis. (Epstein and Schneider, 2007)

1.2 External Factors

According to Gilboa and Schmeidler (1989), there are a number of factors that influence
company pricing decisions. Understanding these factors requires the marketer conduct
research to monitor what is happening in each market the company serves since the effect of
these factors can vary by market. External factors affecting pricing decisions include the
market and demand, and consumer perception.

1.2.1 The Market and Demand

Understanding how price changes impact the market. Firms have to understand the concept
“elasticity of demand”, which relates to how purchase quantity changes as prices change. Elastic ity
is evaluated under the assumption that no other changes are being made (i.e., “all things being
equal”) and only price is adjusted. The logic is to see how price by itself will affect overall
customers demand.
Obviously, the chance of nothing else changing in the market but the price of one product is often
unrealistic. For example, competitors may react to the marketer’s price change by changing the
price on their product. Despite this, elasticity analysis does serve as a useful tool for estimating
market reaction (Gilboa and Schmeidler, 1989).
Goldstein and Guembel (2008) notes that elasticity deals with three types of demand scenarios:
Elastic Demand – Products are considered to exist in a market that exhibits elastic demand when
a certain percentage change in price results in a larger and opposite percentage change in demand.
For example, if the price of a product increases (decreases) by 10%, the demand for the product is
likely to decline (rise) by greater than 10%.
Inelastic Demand – Products are considered to exist in an inelastic market when a certain
percentage change in price results in a smaller and opposite percentage change in demand. For
example, if the price of a product increases (decreases) by 10%, the demand for the product is
likely to decline (rise) by less than 10%.
Unitary Demand – This demand occurs when a percentage change in price results in an equal and
opposite percentage change in demand. For example, if the price of a product increases (decreases)
by 10%, the demand for the product is likely to decline (rise) by 10%.
For marketers the important issue with elasticity of demand is to understand how it impacts
company revenue. In general the following scenarios apply to making price changes for a given
type of market demand: For elastic markets – increasing price lowers total revenue while
decreasing price increases total revenue.
For inelastic markets – increasing price raises total revenue while decreasing price lowers total
revenue. For unitary markets – there is no change in revenue when price is changed. (Goldstein
and Guembel, 2008).

1.2.2 Consumer Perception of Price and Value

Basically, the consumer will decide whether a product's price is right or not. In this sense, the
marketer should in setting prices, consider the consumers perception of price and how these
perceptions affect the consumers' buying decisions. This is true in the sense that, pricing decisions
like all marketing mix decisions must be buyer oriented. When consumers buy a product, they
exchange something of worth to them (price) to get something of value (benefits). Thus an
effective buyer- oriented pricing involves understanding what value consumers place on the
benefits they receive from the product and service, and setting a price consistent with such value.
Marketers should also try to analyze the consumer's motivations for buying the product and set a
price according to the consumer’s perceptions of the products value. (Gilboa and Schmeid ler,
1989).

1.2.3 Competitors costs, prices and offers

What are the prices of competitors and how is the product competing on quality

1.2.4 Other external factors

Economic conditions (factors such as boom or recession, inflation, rates of interest in the economy,
government policies etc
1.3Pricing Methods / Approaches
In general there are three pricing methods

1.3.1Cost – Based Pricing

- Cost based pricing considers cost to be an important element of the price.

- Under this method Price is decided on the basis of Cost of the product. Following Policies
are used under this strategy.
- Cost plus Pricing / Mark up Pricing – Mark up Pricing involves fixing a price for a product
by adding mark ups/ margins to the cost price.
- Mark ups are decided by trial and error and there is no fixed criteria of reaching the mark
up.

1.3.2 Market based pricing / Value based pricing

- Under this method Price of a Product is determined keeping the demand concept into the
mind :
- Following Policies are popular under this strategy :
- What the Market can Bear Pricing: The highest price that the consumers are willing to pay
for the product under a specific situation, that price is fixed.
- Skimming Pricing (For New Products): Keeping high initial Prices to skim the high end
customers and then settle to low prices later on. Penetration Pricing (For New Products):
Seeks penetration in the Market with Low Prices. Appropriate for large sales of no frill
products.

1.3.3 Competition – Oriented pricing

- Under this Pricing approach Firm fixes it price Keeping the price of the Competitor in the
mind :
- Following Policies are majorly used :
- Premium Pricing: Charging a Price above the Price of the competitor.
- Discount Pricing: Charging the Price below the Prices charged by the Competitor.
- Going Rate Pricing: Charging the same price as the competitor.
1.3.4 Other pricing methods

Price Skimming
If the objective of pricing strategy is to build market share, low penetration pricing is often
recommended however, if the goal is to capture as much of the customer perceived value as
possible, “price skimming” might be the method of choice. Price skimming relies on the
assumption that different customers value an offering at different prices. The technique involves
introducing a new offering at a high price and lowering the price over time, so that as much as
possible of each consecutive level of valuation is captured. Price skimming can be a brief
process, but sometimes premium prices are drawn out over years.
Customized prices
While customized pricing in consumer markets is at best slow, and at worst, illegal, it is common
practice in markets. Clients may have such large differences in needs that a firm must provide a
different solution to every customer. Due to this reality, the use of customized prices is also
widely accepted, even expected, of firms. When the usage of the offering is what provides the
value, a customized price can be built which reflects this unique value.
Group/ Segment based pricing
Buyer grouping or segmentation allows a company to offer an appropriate price to groups of
customers with differing willingness to pay. Each level is carefully separated using a number of
different tactics. If taken to an extreme segmentation can be illegal, but many legal methods are
available. Segments do not separate themselves, but require careful consideration by the firm to
distinguish differences in what customers value and how.
 Chapter two

2. Placing the product

A distribution channel (also called a marketing channel) is the path or route decided by the company to
deliver its good or service to the customers. The route can be as short as a direct interaction between the
company and the customer or can include several interconnected intermediaries like wholesalers,
distributors, retailers, etc.
Distribution channel:- is the movement of goods and services between the point of production and the
consumption trough organization that performs a variety of marketing activities. (Bagavthi. 2005; 297)
Channels of distribution are of vital importance to all types of firms producer, wholesaler and retailer. Each
type of channel is a link in a distribution network of organizations extends from producer to the end users
of products or services.( Gupta, 1999:18) On top of that a distribution channel consist of the set of people
and firm involved in the transfer of title to a product as the product moves from producer to ultimate
customer or a business user. A channel of distribution always includes both the producer and the final
customer for the product in its present forms as well as any middlemen such as retailer and wholesaler
(Etezel M. and others, 2004;390).
Moreover a channel of distribution is a path way composed of intermediaries also called middlemen, who
perform such functions as needed to ensure smooth flow of goods and services from the manufacturing
ends to the consuming ends in order to achieve marketing of the produce of a company (Bacavathi p ,
2005:296).

Hence, a distribution channel can also be referred to as a set of interdependent intermediaries that help
make a product available to the end customer.

2.1 Functions of Distribution Channels

In order to understand the importance of distribution channels, you need to understand that it
doesn’t just bridge the gap between the producer of a product and its user.

According to Guepta (1999:190) distribution objective are defined for a product market I terms
of availability of the product (for example, percentage of total outlets reached).
Most Companies do not explicitly set distribution objectives of those that do, distributio n
objectives often have no linkage to end customer requirements.

To develop objective that support the organization’s overall marketing goals. How can distributio n
work with the other elements of the marketing mix to increase profits? To increase market share?
To increase volume of sales? In general, the overall objective of and in the quantities customers
want at the minimum cost. More specific distribution objectives, however, depend on the
characteristics of the product and the market. (Stuart and other 2006:437)

Distribution channels provide time, place, and ownership utility. They make the product available
when, where, and in which quantities the customer wants. But other than these transactiona l
functions, marketing channels are also responsible to carry out the following functions.

2.1.1 Logistics and Physical Distribution: Marketing channels are responsible for
assembly, storage, sorting, and transportation of goods from manufacturers to
customers.
2.1.2 Facilitation: Channels of distribution even provide pre-sale and post-purchase
services like financing, maintenance, information dissemination and channel
coordination.
2.1.3 Creating Efficiencies: This is done in two ways: bulk breaking and creating
assortments. Wholesalers and retailers purchase large quantities of goods from
manufacturers but break the bulk by selling few at a time to many other channels
or customers. They also offer different types of products at a single place which is
a huge benefit to customers as they don’t have to visit different retailers for differe nt
products.
2.1.4 Sharing Risks: Since most of the channels buy the products beforehand, they also
share the risk with the manufacturers and do everything possible to sell it.
2.1.5 Marketing: Distribution channels are also called marketing channels because they
are among the core touch points where many marketing strategies are executed.
They are in direct contact with the end customers and help the manufacturers in
propagating the brand message and product benefits and other benefits to the
customers.
2.2 Types of Distribution Channels
Channels of distribution can be divided into the direct channel and the indirect channels. Indirect
channels can further be divided into one-level, two-level, and three-level channels based on the
number of intermediaries between manufacturers and customers.

According to Anderson and Vincze (2000:286), the distribution system is composed of channel
intermediaries (wholesalers, retailers and other merchants or agents) that provide a link between
producers and final customers. The ideal marketing system uses channels that maximize efficie nc y
and effectiveness, minimize costs, and deliver the greatest customer exchange payment,
information; titles and ownership. Channels are structured differently for consumer and
organizational goods because of the nature of transactions and customer needs

2.2.1 Direct Channel or Zero-level Channel (Manufacturer to Customer)

Direct selling is one of the oldest forms of selling products. It doesn’t involve the inclusion of an
intermediary and the manufacturer gets in direct contact with the customer at the point of sale.
Some examples of direct channels are peddling, brand retail stores, taking orders on the company’s
website, etc. Direct channels are usually used by manufacturers selling perishable goods,
expensive goods, and whose target audience is geographically concentrated. For example, bakers,
jewellers, etc.

2.2.2 Indirect Channels (Selling Through Intermediaries)

When a manufacturer involves a middleman/intermediary to sell its product to the end customer,
it is said to be using an indirect channel. Indirect channels can be classified into three types:

One-level Channel (Manufacturer to Retailer to Customer): Retailers buy the product from
the manufacturer and then sell it to the customers. One level channel of distribution works best for
manufacturers dealing in shopping goods like clothes, shoes, furniture, toys, etc.

Two-Level Channel (Manufacturer to Wholesaler to Retailer to Customer): Wholesalers buy

the bulk from the manufacturers, breaks it down into small packages and sells them to retailers
who eventually sell it to the end customers. Goods which are durable, standardized and somewhat
inexpensive and whose target audience isn’t limited to a confined area use two-level channel of
distribution.

Three-Level Channel (Manufacturer to Agent to Wholesaler to Retailer to Customer): Three

level channel of distribution involves an agent besides the wholesaler and retailer who assists in
selling goods. These agents come handy when goods need to move quickly into the market soon
after the order is placed. They are given the duty to handle the product distribution of a specified
area or district in return of a certain percentage commission. The agents can be categorized into
super stockists and carrying and forwarding agents. Both these agents keep the stock on behalf of
the company. Super stockists buy the stock from manufacturers and sell them to wholesalers and
retailers of their area. Whereas, carrying and forwarding agents work on a commission basis and
provide their warehouses and shipment expertise for order processing and last mile deliver ies.
Manufacturers opt for three-level marketing channel when the user base is spread all over the
country and the demand of the product is very high.

2.2.3 Dual Distribution

When a manufacturer uses more than one marketing channel simultaneously to reach the end user,
he is said to be using the dual distribution strategy. They may open their own showrooms to sell
the product directly while at the same time use internet marketplaces and other retailers to attract
more customers.

A perfect example of goods sold through dual distribution is smartphones.

2.2.4 Distribution Channels for Services

Unlike tangible goods, services can’t be stored. But this doesn’t mean that all the services are
always delivered using the direct channels. With the advent of the internet, online marketplaces,
the aggregator business model, and the on-demand business model, even services now use
intermediaries to reach to the final customers.
2.3 Factors Determining the Choice of Distribution Channels
The choice of marketing channel will be affected by the sales and profit objectives of the firm,
the resources it has available and its positioning strategy. A business which is willing to sacrifice
short term profit for the sake of ambitions long-term market share force involves minimal fixed
cost but a high variable cost element because of the discounts paid for a company satisfied with a
small market share, using a distributor is Cheaper than setting up own sales force companies
aiming at a high share well that the company sales force is more efficient that using a distributor.
Selling direct normally requires a higher resource commitment thus; the firm’s resources will
constrain the firms positioning strategy. (Doyle, 2002:316)

Selection of the perfect marketing channel is tough. It is among those few strategic decisions
which either make or break your company.

Even though direct selling eliminates the intermediary expenses and gives more control in the
hands of the manufacturer, it adds up to the internal workload and raises the fulfilment costs.
Hence these four factors should be considered before deciding whether to opt for the direct or
indirect distribution channel.

2.3.1 Market Characteristics

This includes the number of customers, their geographical location, buying habits, tastes and
capacity and frequency of purchase, etc.

Direct channels suit businesses whose target audience lives in a geographically confined area, who
require direct contact with the manufacturer and are not that frequent in repeating purchases.

In cases of customers being geographically dispersed or residing in a different country,

manufacturers are suggested to use indirect channels.

The buying patterns of the customers also affect the choice of distribution channels. If customers
expect to buy all their necessaries in one place, selling through retailers who use product
assortment is preferred. If delivery time is not an issue, if the demand isn’t that high, the size of
orders is large or if there’s a concern of piracy among the customers, direct channels are suited.
If the customer belongs to the consumer market, longer channels may be used whereas shorter
channels are used if he belongs to the industrial market.

Understanding consumer behavior is essential for deciding the most effective marketing channel
for the business.

2.3.2 Product Characteristics

Product cost, technicality, perishability and whether they are standardized or custom-made play a
major role in selecting the channel of distribution for them.

Perishable goods like fruits, vegetables and dairy products can’t afford to use longer channels as
they may perish during their transit. Manufacturers of these goods often opt for direct or single
level channels of distribution. Whereas, non-perishable goods like soaps, toothpaste, etc. require
longer channels as they need to reach customers who reside in areas which are geographica lly
diverse.

If the nature of the product is more technical and the customer may require direct contact with the
manufacturer, direct channels are used. Whereas, if the product is fairly easy to use and direct
contact makes no difference to the number of sales, longer channels are used.

The unit value of the product also decides whether the product is sold through a direct channel or
through an indirect channel. If the unit value is high like in the case of jewellery, direct or short
channels are used, whereas products like detergents whose unit value is low use longer channels
of distribution.

2.3.3 Company Characteristics

Financial strength, management expertise, and the desire for control act as important factors while
deciding the route the product will take before being available to the end user.

A company having a large amount of funds and good management expertise (people who have
sufficient knowledge and expertise of distribution) can create the distribution channels of its own
but a company with low financial stability and management expertise has to rely on third-party
distributors.

The companies who want to have tight control over the distribution prefer direct channels.
Whereas, those companies to whom such control doesn’t matter or those who are just interested in
the sales of their products prefer indirect channels.

2.4 Channels Strategy Decision

According to kumar and Meenakshi, (2006:342) channel strategy decision involve,
1. The selection of most effective distribution channel
2.The appropriate level of distribution intensity and
3. Degree of channel integration.

A company has consider many factors related to the market and customers. It shown situation, the
product and the competitive environment. All these factors have a strong bearing on the type of
distribution selected. A company should be very deliberate in deciding up on a distribution channel
once it is established because interests of independent intermediaries are involved. Gupta
(1999:20) argued that, marketing managers face two sets of decisions when considering marketing
channels. The first set of decisions leads to a selection of one or more channels. The second set
deals with the selection criteria and examines the three level of distribution. The final step is plan
finalization. Havaldar and Cavale, (2007: 8.11) recommended that, the distribution channel
strategy could by looking at some of these factors.

- Defining customer service levels. This is critical factor in designing the channel strategy.
The customer’s service level is what the customer is most interested in and hence requires
extra case in defining
- Defining the distribution objectives to achieve this service level.
- Outlining the steps or activates required to achieve the distribution channel objectives.
- Deciding one the structure of the network to implement these activities to achieve the
distribution objectives.
- Clearly defined policy and procedure for the network to carry out its daily activities to
achieve objectives to achieve objectives.
 - Stating the key performance indications.
- Understanding the critical success factors to make the distribution strategy effective.

Moreover Doyle (2002:317), recommended that two aspects of strategy should be central in
selecting channels: the market segments targeted by the supplier and differential advantage it seeks
to exploit. First, it is crucial to choose a channel that experience and creditability in dealing with
the target markets that the supplies seek to serve. The channel selected should have the capability
to understand the needs of target customers, and the sales personnel and distribution facilities to
match their requirements properly. Second, the channel must be capable of effectively presenting
and supporting the supplier’s differential advantage
 Chapter three
3. Case study

To get the industry experience of pricing decisions and placing the product, the company that our
group has chosen is DASHEN BREWERY SHARE COMPANY DEBRE BIRHAN PLANT.

3.1 Objective of the study

3.1.1 General objective

- The main objective of this study was to assess the product pricing and distribution
channel practice of Dashen Brewery Share Company and compare with the theories.

3.1.2. Specific objective

- To evaluate the distribution strategy being used by the company.
- To evaluate the company pricing method
- To know the factors affecting the company in pricing decision
- To identify the extent to which the company evaluates the Channel efficiency and
effectiveness.
- To evaluate the company performance in terms of delivering its products.
- To compare the theory with the company practice in terms of product pricing and
product placing.
3.2 Significance of the Study
- It create good opportunity for the student researcher to get more practical knowledge
about product pricing decision and the area of distribution channel also help to learn
the practical research process and techniques and techniques

3.3 Methods of Data Collection

- The primary data was collected by distributing questionnaire to the responsible
mangers in the company. The secondary data was collected from company published
document such as company profile and different books.

3.4 company profile

Below is a brief introduction about the company and the product which has been continued with
the interview taken of the manager?

- Business type –manufacturer

- Location –Amhara region, Debre Birhan
- Year established- 2007EC
- No of employees-more than 350
- Vision- to be number one brewery in terms of quality, customer satisfaction and
employee choice by the year 2020.
- Standard certification-ISO 9000
- Product manufacturing-Dashen beer (330ml RGB), Balageru beer (330mlRGB), Dashen
drought(30L keg), Balageru drought (30Lkeg) ,Balageru drought (50L keg)
- Export products = Dashen beer
- Countries of export – Israel, South Sudan, Eritrea, Djibouti

Currently, the Company has state-of-the-art manufacturing facilities in DEBRE BIRHAN and
GONDER. All these incorporate latest automated machines manned by some of the best in the
business. This invariably leads to technologically upgraded products.
A strong marketing network is the key to any successful business. At the core, DASHEN
BREWERY has a team of professionals in Sales and Marketing who work towards set goals. Over
the years, DASHEN BREWERY has developed an extensive and tangible network of dealers,
distributors and sales agents. This network spread over ETHIOPIA makes the products available
from north to south and from east to west.
As a part of its marketing strategy, DASHEN BREWERY has developed a force of After Sales
Service professionals as well. Qualified engineers are at the back and call of consumers, who face
even the slightest worry with DASHEN BREWERY products.
DASHEN BREWERY has become synonymous with Quality and has won certificates like ISO
9000. The products are comparable with the best international brands. Each of the products is
subjected to a series of rigid quality control tests before it reaches the consumer.

3.5 Data presentation and Analysis

For the study we prepare 18 questions and distributed the questioners for managers, direct
interview who we assume are appropriate for the questions raised.

3.5.1 Participants on the questioners

NAME: salamilak afre DESIGNATION: warehouse and distribution manager
NAME: yishak sahile DESIGINATION: logistic and supply manager
NAME: Tatek adane DESIGINATION: reginal sales &marketing manager

3.5.2 Questions and answers

1. What are the raw materials needed for your product??
-Malt
-Yeast
-Water
-Hop
2. At what price do you purchase it??
- Market price
 - Form sister companies and yearly based contract from international companies

3. What are the discount applied??

-When we buy in bulk we get a discount

4. How do you price your product? On what basis??

-company KPI
-beverage manufacturing association
-competitors price

5. How do you reduce the costs incurred??

- By improving company KPI

6. At what percent you get profits??

- Different from year to year
7. Do you apply your profits anywhere??
-Yes, annual bonus for employees
- Dividend for share holders

8. Which pricing method is followed to decide the price of your product?

- Competition – Oriented pricing
-product cost-based pricing
9. Do you conduct a market survey before deciding the price of the product?
-Yes, it depends on the demand in the market and competitor analysis.

10. How do u distribute your product direct/indirect or both

-We distributed our product using agents and Wholesaler
11. Where do u sell your product?
All over Ethiopia
12. Who/Where are your loyal customer?
-adults (above 21 years)
13. What is the distribution strategy being used by the company?
-Indirect distribution (agents and wholesalers)
14. What factors affect you in selecting the above distribution channel?
-large market size
-storage
- Geographical location of consumers
-nature of our product (high shelf life)
15. How does the company evaluate the channel efficiency and effectiveness?
-Through Sales representatives
-customer compliance
- Sales volume
16. Is there a product price difference in different regions?
- Yes
17. If no 15 is yes what are the reasons for the price difference
-Transportation cost (main factory – depots)
18. What are the problems that affect the company’s performance in terms of delivering it’s
products to meet the order, time and needed quantity?
- Political instability in the country
-economic instability in the country
-government policies
-badmouth and sabotage about our products
-false information and rumors about the product and the company

3.6 THEORY VS DASHEN PRACTISE COMPARISON

Considering pricing decision and product placing DASHEN BREWERY SHARE COMPANY
practices are mostly related to the theory explained in chapter one and two. DASHEN BREWERY
pricing decisions are characterized by a number of internal and external factors. Before setting
prices, DASHEN BREWERY decide what it wants to accomplish with its product.
DASHEN BREWERY pricing methods are Competition – Oriented and product cost-based
pricing. The distinction between competitive pricing and competition based on pricing should be
made clear. Competitive pricing, or the pricing of an offering based on what the competition is
charging is most common in markets where many substitutes are available. Competitive pricing is
simply setting prices relative to what competitors are charging. Competition based on price is the
practice of undercutting prices offered by competitors, and is not a sustainable growth strategy.
Product Cost pricing is the practice of adding some percentage to known costs to arrive at the
offering price .while cost must be taken into account in pricing decisions, the product cost often
uses an inefficient chronology of steps in the pricing process. The DASHEN BREWERY
PRACTICE involves setting a volume first, and constructing a cost based price from that.
A more efficient method is to begin by determining a value that customers can accept and building
the market and quantity numbers from there.
DASHEN BREWERY SHARE COMPANY distribution strategy is indirect distributio n through
agents and wholesalers. This strategy is suitable for DASHEN .According to the theory, in cases
of customers being geographically dispersed or residing in a different country, manufacturers are
suggested to use indirect channels. Non-perishable goods like beer require longer channels as they
need to reach customers who reside in areas which are geographically diverse. Since DASHEN
BEER is fairly easy to use and direct contact makes no difference to the number of sales, using
indirect channel is appropriate.
According to the theory applying indirect channel distribution has a benefit of Facilitatio n,
Creating Efficiencies, Sharing Risks and marketing. Which also benefits DASHEN BREWERY
SHARE COMPANY.
DASHEN BREWERY SHARE COMPANY has a market segment but the price of its product for
the final consumer is the same for all market segments. There is a price different for its agents for
different market segments but theory says” Buyer grouping or segmentation allows a company
to offer an appropriate price to groups of customers with differing willingness to pay”.

3.7 conclusion and recommendation

DASHEN BREWERY is one of the leading beverage manufacturing company in the country.it
has an exemplary practice in terms of pricing decision and product placing. The company should
maintain these practices and should improve the pricing method especially it should consider the
current buying ability of its customers during pricing its product.
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