Pricing & Distribution Strategies in Marketing

TOPIC 4: PRICING

The Role of Price in Marketing

Price plays a crucial role in generating revenue, establishing a company's desired value proposition, influencing buyer decisions, and reflecting the competitive landscape. It is a dynamic element that can be easily adjusted to define market share and respond to competitor actions. Pricing decisions may involve various levels of management, from executives in small businesses to dedicated teams in larger corporations.

4C's Model of Pricing

The 4C's model considers four key factors that influence pricing decisions:

• Corporation: The company's overall objectives, costs, and profit margins.
• Consumer: Customer demand, price sensitivity, and perceived value.
• Competitors: Competitor pricing strategies and market positioning.
• Channel Distribution: The costs and requirements of different distribution channels.

Steps in Setting Price

1. Select the Price Objective: Determine the desired outcome, such as increasing sales, controlling demand, or maximizing profits.
2. Determine Demand and Elasticity: Analyze how changes in price affect consumer demand.
3. Estimate Costs and Break-Even: Calculate the costs involved in production and distribution, and determine the sales volume needed to cover those costs.
4. Analyze Competitor Price Mix: Understand how competitors are pricing their products and services.
5. Select Pricing Method: Choose a pricing strategy, such as cost-plus pricing, value-based pricing, or competitive pricing.
6. Select Final Price: Set the final price based on the analysis conducted in the previous steps.

Price Objectives

Common price objectives include:

• Increasing sales volume
• Controlling demand and maintaining price stability
• Ensuring the success of new product launches
• Promoting cross-selling of related products or services
• Competing effectively against rivals

Pricing in the Digital Environment

The digital environment offers various pricing strategies and tools, such as:

• Search engine optimization to increase product visibility
• Price comparison websites
• Social or collective purchasing platforms
• Online auctions
• Special promotions and discounts
• Freemium models with basic services offered for free and premium features available for a fee
• Discount coupons and promotional codes

Dynamic Pricing

Dynamic pricing involves adjusting prices in real-time based on factors such as demand, inventory levels, and competitor pricing. This strategy aims to maximize revenue and encourage purchases by offering lower prices during periods of low demand and higher prices when demand is high.

Factors Influencing Dynamic Pricing

• Geographical location
• Weather conditions
• Frequency of customer visits
• Customer origin and demographics

Combating Price Erosion

Companies can employ various strategies to combat price erosion and maintain profitability, including:

• Developing dedicated channel strategies and price park architectures
• Differentiating their product portfolios to offer unique value propositions
• Implementing strategic deal structures and partnerships

Demand Curve and Elasticity

The demand curve illustrates the relationship between price and quantity demanded. Price elasticity of demand measures the responsiveness of demand to changes in price. Different levels of elasticity include:

• Perfectly elastic (E=∞): A small change in price leads to an infinite change in demand.
• Relatively elastic (1<E<∞): Demand is sensitive to price changes.
• Unit elastic (E=1): A change in price results in a proportional change in demand.
• Relatively inelastic (0<E<1): Demand is not very responsive to price changes.
• Perfectly inelastic (E=0): Demand remains constant regardless of price changes.

Break-Even Analysis

Break-even analysis determines the sales volume required to cover all fixed and variable costs. At the break-even point, profit is zero. The formula for calculating the break-even point is:

Break-Even Point = Fixed Costs / (Revenue per Unit - Variable Cost per Unit)

TOPIC 5: PLACEMENT

Distribution Channels

Placement, also known as distribution, involves ensuring that products are available to consumers in the right quantity, at the right time, and in the right place. The choice of distribution channels can significantly impact other marketing decisions and serve as a strategic tool for reaching target markets.

Types of Distribution

• Extensive Distribution: Aims to maximize brand exposure and consumer convenience by making products widely available through numerous outlets. (e.g., chewing gum sold in various stores)
• Intensive Distribution: Similar to extensive distribution, but with a focus on high-traffic locations and prominent shelf space.
• Selective Distribution: Involves partnering with a limited number of retailers or distributors, often in the luxury or specialty goods market. (e.g., luxury car dealerships)
• Exclusive Distribution: Grants exclusive rights to a single retailer or distributor within a specific geographic area, providing greater control over branding and pricing. (e.g., Maserati dealership)

Types of Channels

• Direct Channel: Products are sold directly from the manufacturer to the consumer without intermediaries.
• Retailer/Short Channel: Involves one intermediary, typically a retailer, who purchases products from the manufacturer and sells them to consumers.
• Wholesaler/Long Channel: Includes two intermediaries, a wholesaler and a retailer, who distribute products from the manufacturer to the consumer.

Sale Through Retailers

Retailers play a vital role in the distribution process by:

• Assisting manufacturers in reaching a wider customer base
• Providing financial support through inventory purchases
• Offering convenient locations for consumers

Multichannel and Omnichannel Distribution

Multichannel distribution involves using two or more channels to interact with potential customers on various platforms. Omnichannel distribution takes a more integrated approach, providing customers with a seamless shopping experience across all channels, whether online, in-store, or through mobile devices.

Retail 2030

The future of retail is expected to involve a combination of physical and online channels, with a focus on personalization and customer experience. While e-commerce will continue to grow, physical stores will remain relevant, offering unique experiences and opportunities for customer engagement.

E-commerce Models

• Brick and Mortar: Traditional retail stores with at least one physical location.
• Brick and Click: Businesses with both online and offline presence.
• Click and Collect: Customers purchase products online and pick them up at a physical store.
• Pure Player: Online-only retailers with no physical stores. (e.g., Amazon)

Choosing a Distribution Channel

Factors to consider when choosing a distribution channel include:

• Economic Criteria: Costs, profit margins, and return on investment.
• Control Criteria: The level of control desired over branding, pricing, and customer experience.
• Adaptive Criteria: The ability to adapt to changing market conditions and consumer preferences.

Channel Selection for Different Products

• Perishable Products: Direct channels or short channels with efficient logistics to minimize spoilage.
• Bulky Products: Channels that minimize handling and shipping distance.
• Non-Standard and Specialized Products: Company sales representatives or specialized distributors with technical expertise.
• Products with Installations or Maintenance: Franchised dealers or the company's own service network.
• High-Unit Value Products: Company sales force or exclusive distributors.
• Low-Value, Fast-Moving Consumer Goods: Retailers and mass merchandisers.

Trade Marketing

Trade marketing involves collaboration between manufacturers and distributors to strengthen relationships and develop joint marketing initiatives that benefit both parties and stimulate consumer demand. It focuses on executing point-of-sale strategies and optimizing product placement within retail environments.

Shopper Marketing

Shopper marketing aims to understand the behavior and habits of consumers at the point of purchase. It involves analyzing shopping patterns, identifying purchase triggers, and developing strategies to influence buying decisions.

Efficient Consumer Response (ECR)

ECR is a collaborative approach that aims to optimize the supply chain by improving efficiency, reducing costs, and meeting consumer demand effectively. It involves sharing information and coordinating efforts among manufacturers, distributors, and retailers.

Category Management

Category management is a retailing and purchasing concept that groups products into categories based on how consumers perceive them as complementary or substitutes for satisfying a particular need. It involves managing product assortments, pricing, promotions, and shelf space allocation within each category.

Leadership in Category Management

Traditionally, manufacturers held leadership in category management. In the 1970s, distributors gained more influence. Today, a collaborative approach is often adopted, with manufacturers and distributors working together to optimize category performance.

New Store Formats

Emerging store formats include:

• Flagship Store: A large, prominent store that showcases a brand's full product range and offers a premium customer experience.
• Showroom: A store that displays products but may not carry inventory, allowing customers to experience products before ordering them online or through other channels.
• Concept Store: A store that focuses on a specific theme or concept, often with a curated selection of products and a unique atmosphere.
• Pop-up Store: A temporary retail space that creates a sense of urgency and exclusivity.

Logistics

Logistics encompasses various activities related to the movement and storage of goods, including:

• Inventory location and warehouse management
• Transportation and distribution
• Packaging and labeling
• Logistics management systems and technologies

Effective logistics management is essential for ensuring that products are delivered to customers efficiently and cost-effectively.