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Principles of Marketing
Chapter 8
PRICING STRATEGIES
Learning Outcome
8.1
8.2
8.3
8.4
8.5
8.6
Introduction
Factors affecting pricing
Types of wholesalers
Types of retailers
Selection of Distribution Channel
The nature of physical Distribution
Dr V -Principle of Marketing
What is Pricing?
Method adopted by a firm to set selling price.
PRICE
Price is one of the factors that affects buyers purchasing
decision.
Important indicator of quality and image
Provides customers with a way of making a judgement
about value for money
Importance of price can vary tremendously depending on the
product.
Marketing mix
Price PROFIT CENTER
Product, Place and Distribution COST CENTER.
jw
marketing - price
Setting of Pricing
Considerations
1. Marketing objectives
2. Marketing mix strategy
3. Costs
4. Organization for pricing
5. The nature & demand of the market
6. Competition
7. Other environmental factors (economy, resellers, government)
Dr V -Principle of Marketing
3. Costs
4. Competition
5. Consumer perceptions i.e JukeBox
6. Legal constraints i.e Subsidized items
PRICING STRATEGIES
Company can choose to set the
price of a product (numbers of
pricing strategies or policies it
might choose from)
LONG TERM SHORT TERM
jw
marketing - price
15 Pricing Strategies
Penetration Pricing
Penetration Pricing
Price set to penetrate the market
Low price to secure high volumes
Typical in mass market products chocolate
bars, food stuffs, household goods, etc.
Suitable for products with long anticipated life
cycles
Market Skimming
Market Skimming
Value Pricing
Value Pricing
Price set in accordance
with customer
perceptions about the
value of the
product/service
Examples include
status
products/exclusive
products
Loss Leader
Loss Leader
Goods/services deliberately sold below cost to
encourage sales elsewhere
Typical in supermarkets, e.g. During Hari Raya,
selling raw chicken at RM3/kg in the hope that
people will be attracted to the store and buy
other things
Purchases of other items more than covers loss
on item sold
e.g. Free mobile phone when taking on contract
package
Psychological Pricing
Psychological Pricing
Used to play on consumer perceptions
Classic example RM 9.99 instead of
RM10.99!
Links with value pricing high value
goods
priced
according
to
what
consumers THINK should be the price
Tender Pricing
Tender Pricing
Many contracts awarded on a tender basis
Firm (or firms) submit their price for carrying out the
work
Purchaser then chooses which represents best value
Mostly done in secret
Price Discrimination
Price Discrimination
Destroyer/Predatory Pricing
Deliberate price cutting or offer of free
gifts/products to force rivals (normally
smaller and weaker) out of business or
prevent new entrants
Anti-competitive and illegal if it can be
proved
Contribution Pricing
Contribution Pricing
Contribution = Selling Price Variable (direct costs)
Target Pricing
Target Pricing
Setting price to target a specified profit
level
Estimates of the cost and potential
revenue at different prices, and thus the
break-even have to be made, to determine
the mark-up
Mark-up = Profit/Cost x 100
Cost-Plus Pricing
Cost-Plus Pricing
Calculation of the average cost (AC) plus
a mark up
AC = Total Cost/Output
Influence of Elasticity
Influence of Elasticity
Any pricing decision must be mindful of the
impact of price elasticity
The degree of price elasticity impacts on the
level of sales and hence revenue
Elasticity focuses on proportionate (percentage)
changes
Influence of Elasticity
Price Inelastic:
% change in Quantity < % change in Price
5% increase in price would be met by a fall in
sales of something less than 5%
Revenue would rise
Influence of Elasticity
Price Elastic:
% change in quantity demanded > % change
in price
Malaysia Airlines
DISTRIBUTION
STRATEGIES
What is Wholesaler?
Person
or
firm
that buys large quantity of goods from
various producers or vendors, warehous
es them, and resells to retailers.
Wholesalers who carry only noncompeting
goods
or
lines
are
called
distributors.
Read
more: http://www.businessdictionary.com/definition/wholesaler.html#ixzz290
0U4JQz
Types of Wholesaler
1. Merchant wholesaler
2. General Merchandise
3. Single-line
4. Specialty wholesalers
5. Cash and carry wholesalers
6. Drop shippers
7. Truck wholesalers
8. Mail order wholesaler
9. Producers cooperatives
10.Rack Jobbers
What is Retailer?
A business or person that sells goods to
the consumer, as opposed to
a wholesaler or supplier, who
normally sell their goods to another
business.
Read
more: http://www.businessdictionary.com/definition/retailer.html#ixzz28zzAHP
76
Types of Retailer
1.
2.
3.
4.
5.
6.
7.
Department Store
Supermarkets
Warehouse retailers
Specialty Retailers
E-tailer (Internet based)
Convenience retailer. i,e 7-Eleven
Discount retailer
PHYSICAL DISTRIBUTION
STRATEGIES
Physical distribution
Takes place when a company decides the
channels of distribution to get their products to
the consumer
Comprises all the activities that help to ensure
that the right amount of product is delivered to
the right place at the right time. (Also known
as logistics)
Logistics
Involves order processing, transporting,
storing, stock handling, and inventory control
Involves moving products
Support physical distribution
What is Storage
The marketing function of holding goods until
they are sold
The amount of goods is called an inventory
Each member of the channel of distribution
needs to store its products until orders are
received from customers
Types of Storages
1. Private
Warehouse
2. Public
Warehouse
3. Distribution
Center
4. Bonded
Warehouse
Private Warehouse
A facility designed to meet the specific needs of
its owner
Valuable for companies that, over a large volume
of products
Costly to build and maintain
Consider using when there is a significant
amount of products to move and the cost is
cheaper than using a public warehouse.
Private Warehouse
Public Warehouse
Offers storage and handling facilities to
individuals or companies
Provide services such as space, shipment
consolidation, receiving, unloading, inspecting,
reshipping, order filling, and terminal operating
services
Advantage low volume businesses or seasonal
production
Commodity warehouses
Bulk Storage warehouses
Distribution Centers
A warehouse designed to speed delivery of goods and to
minimize storage costs
Main focus is to move products not to store them (cross
docking)
Planned around markets not transportation requirements
(Wal-Mart in coldwater serves MI)
Cut costs by reducing the number of warehouses and cutting
excessive inventory
Used in process-in-transit
Consolidate and redistribute products
Bonded Warehouse
public or private, store products that require
payment of a federal tax
Imported or domestic products cannot be
removed until the required tax is paid
Group Assignment
Perform a price comparison strategies
used by the following companies : Malindo
Air, Air Asia and KLM.
If one of the companies decides to
establish a cargo business subsidiaries,
what are the facilities that they need to
develop?. Explain your answer.
References
Distribution strategy. (2010, November 25). Slide Share. Retrieved October 11, 2012,
from http://www.slideshare.net/SlidesPresentation1/distribution-strategy
Distribution strategy. (2010, November 25). Slide Share. Retrieved October 11, 2012,
from http://www.slideshare.net/SlidesPresentation1/distribution-strategy