Module 7
Managing Distribution Channels and
Designing Price Strategies
Kotler’s Chapters 15, 16, and 17
Chapter 15: Designing Price
Strategies and Programs
• Learning Objectives
– 1. Describe/apply the six step procedure for
how price setting works.
– 2. Discuss the different strategies involved
with adapting prices.
Chp 15/Obj 1: Describe/apply the six step
procedure for how price setting works.
•
•
•
•
1. Selecting the Price Objective.
2. Determining Demand.
3. Estimating Costs.
4. Analyzing Competitors’ costs, prices,
and offers.
• 5. Selecting a Pricing Method.
• 6. Selecting the Final Price.
Chp 15/Obj 1: Describe/apply the six step
procedure for how price setting works.
• 1. Selecting the Price Objective.
– 5 Major Objectives Through Pricing:
•
•
•
•
Survival - SR, cover at least variable costs
Maximum Current Profit - but may hurt in LR
Maximum Market Share - market penetration price
Maximum Market Skimming - set high prices but
may attract competition
• Product-Quality Leadership - focus on nonprice
issues
Chp 15/Obj 1: Describe/apply the six step
procedure for how price setting works.
• 2. Determining Demand - demand sets
ceiling on price the firm can charge
– Demand curve - illustrates the relation between
alternative prices and the resulting current
demand; typically inversely related
– Must address price sensitivity
– Must estimate demand curves
– Consider the price elasticity of demand - note
that SR elasticity may differ from LR
Chp 15/Obj 1: Describe/apply the six step
procedure for how price setting works.
• 3. Estimating Costs - costs set the floor
– Must consider types of costs and how levels of
production impact cost
– Consider effects of accumulated production but
experience-curve price can be risky
– Consider differentiated marketing offers utilize activity-based costs to determine
profitability of different retailers
– Can consider target costing - look at each
element of cost to bring to desired range
Chp 15/Obj 1: Describe/apply the six step
procedure for how price setting works.
• 4. Analyzing Competitors’ costs, prices, and
offers - anticipate possible price reactions.
• 5. Selecting a Pricing Method.
–
–
–
–
Markup pricing - ignores demand, value, competition but easiest
Target return pricing -focuses on ROI, same problems as above
Perceived-value pricing - research what customers think its worth
Value pricing - fairly low price for high quality, reengineer to
become low cost producer; utilize EveryDayLowPricing
– Going-rate pricing - price based on competition
– Sealed-bid pricing - bids set based on what think competition will
bid but maximize expected profit
Chp 15/Obj 1: Describe/apply the six step
procedure for how price setting works.
• 6. Selecting the Final Price
– Psychological pricing - consider price/quality
relationship, reference price, status
– Influence of other marketing-mix elements charge higher prices if advertise more
– Be consistent with company pricing policies
– Impact of price on other parties - consider sales
force, channel members, government
Chp 15/Obj 2: Discuss the different
strategies involved with adapting prices.
• Geographical Pricing - Cash, Countertrade - offer other items
for payment, Barter - direct exchange of goods
• Price Discounts and Allowances - Cash, quantity,
functional (trade), seasonal, allowances (ex. promotional allowances
for participating in ads)
• Promotional Pricing - Loss leader, special event, cash rebate,
low-interest financing, longer payment terms, warranties/service
contracts, psychological discounting
• Discriminatory Pricing - customer segment, product form,
image, location, time - yield pricing, predatory pricing illegal
• Product-Mix Pricing - product-line pricing, optional-feature
pricing, captive-product (cheap razors/expensive blades), two-part
Chapter 16: Managing
Marketing Channels
• Learning Objectives
– 1. Describe/apply what is involved in
designing a channel.
– 2. Describe/apply the issues involved in
channel-management decisions.
– 3. Describe vertical, horizontal, and multichannel marketing systems and the issues that
surround them.
Chp 16/Obj 1: Describe/apply what is
involved in designing a channel.
• Marketing Channels
– Sets of interdependent organizations involved in the
process of making a product available for
use/consumption
– Use of channels involves some sacrifice of control and
compromising, but may be cost effective and efficient
• Channel Design Decisions
– Calls for analyzing customers’ needs, establishing
channel objectives, identifying and evaluating major
channel alternatives
Chp 16/Obj 1: Describe/apply what is
involved in designing a channel.
• Customers’ Desired Service Output Levels
– What customers want: Lot size, waiting time, spatial convenience,
product variety, and service backup; with more service - more
costs and higher prices.
• Objectives and Constraints
– Need to arrange tasks to minimize costs given desired output level
and real world constraints.
• Major Channel Alternatives
– Consider the types of business intermediaries, the number needed
(exclusive, selective, or intensive distribution), and the
terms/responsibilites (ex. distibutors territory) of each channel
member. Make decision based on economic, control, and adaptive
(ability to change - but channel decisions often LT) criteria.
Chp 16/Obj 2: Describe/apply the issues
involved in channel-management decisions.
• Selecting Channel Members - chose best members you can
• Training Channel Members - will represent your company
so must understand products/customers
• Motivating Channel Members - to shape behavior - must
understand needs, use power to elicit cooperation: coercive, reward,
legitimate, expert, and referent; but need to create an atmosphere of
mutual trust that understands the mutual goals of network, partnerships
• Evaluating Channel Members - evaluate channel members
regularly to see if meeting expectations; also evaluate fit between
product and channel as may change over PLC
• Modifying Channel Arrangements - may be able to
make incremental changes but may need to revise entire channel
Chp 16/Obj 3: Describe vertical, horizontal,
and multi-channel marketing systems and the
issues that surround them.
• Vertical Marketing Systems - for control issues
– 1 channel member (channel captain) owns, franchises,
or otherwise controls all others; forms include
corporate, administered, and contractual
• Horizontal Marketing Systems
– 2 or more unrelated firms put together resources or
programs to exploit an emerging marketing opportunity
• Multichannel Marketing Systems
– Single firm uses 2 or more marketing channels to reach
different market segments. Gain more market coverage
lower costs, and customized selling, but more conflict.
Chp 16/Obj 3: Describe vertical, horizontal,
and multi-channel marketing systems and the
issues that surround them.
• Issues include Conflict, Cooperation,
Competition, and Legal/Ethical
– Conflict can be vertical, horizontal or multi-channel (particularly
when 1 member gets a lower price due to volume). Can be caused
by incompatible goals and unclear roles/rights.
– To address conflict need communication, strong relationships in
which everyone benefits and has confidence in the overall
desirability of the channel, and in which there are clear, common
goals.
– Major legal issues are that channel arrangement does not lessen
competition or create a monopoly and that all parties entered in the
agreement voluntarily.
Chapter 17: Managing Retailing,
Wholesaling, and Market Logistics
• Learning Objectives
– 1. Describe the types of retailers, the marketing
decisions they have to make, and the trends in
retailing.
– 2. Describe the types, decisions, and trends
involved in wholesaling.
– 3. Describe the issues involved with market
logistics.
Chp 17/Obj 1: Describe the types of retailers,
the marketing decisions they have to make,
and the trends in retailing.
• Retailing includes all activities involved in selling goods or
services directly to final consumers for personal,
nonbusiness use.
• New retail types emerge as marketplace changes per the
wheel of retailing hypothesis. Growth of nonstore retail.
• Retailers can position themselves based on level of service
offered and different assortment breadths.
• Types include specialty store, department store,
supermarket, convenience store, discount store (includes
WalMart etc.. and category killers), off-price retailer,
superstore, and catalog showroom (See Table 17-1).
Chp 17/Obj 1: Describe the types of retailers,
the marketing decisions they have to make,
and the trends in retailing.
• Decisions retailers have to make include:
– Target market - must be defined/profiled
– Product assortment and procurement - determine
breadth and depth
– Service/store atmosphere - service a key means to
differentiate but must manage expectations, address
service mix
– Price and Promotion
– Place - location, location, location
Chp 17/Obj 1: Describe the types of retailers,
the marketing decisions they have to make,
and the trends in retailing.
• Trends include:
–
–
–
–
–
–
–
–
–
–
New retail forms and combinations
New retail forms facing a shorter life span
Electronic age increases nonstore retailing
Competition is intertype (between dif types of stores)
Retailers either mass merchandisers or specialty
Supercenters now doing what department stores/malls used to do 1 stop shopping convenience
Marketing channels more professionally managed/programmed.
Technology is a critical competitive tool.
Retailers going global.
Retailers provide means to congregate/socialize.
Chp 17/Obj 2: Describe the types, decisions,
and trends involved in wholesaling.
• Wholesaling (distributors) - all activities involved in
selling goods or services to those who buy for resale or
business use.
• Types include merchant, full-service, limited-service,
brokers, agents, manufacturers and retailers
branches/offices, and miscellaneous - specialists types (see
Table 17-4)
• Decisions include target market, product assortment and
service, price, promotion, place.
• Trends include adapt service to meet suppliers and target
customers needs; add value to channel; reduce costs.
Chp 17/Obj 3: Describe the issues
involved with market logistics.
• Physical Distribution - process of getting goods to
customers
• Supply Chain Management - seeks to improve
physical distribution by taking input procurement and
suppliers into account - stretches chain backwards but still
only sees markets as only destination points.
• Market Logistics - involves planning, implementing,
and controlling the physical flow of materials and final
goods from points of origin to points of use to meet
customer requirements at a profit (examines demand chain)
Chp 17/Obj 3: Describe the issues
involved with market logistics
• Marketing Logistics calls for integrated logistics systems
(ILS) abetted by information technology (IT). Aims to
make goods delivery a value-added process and reduce
costs.
• Have to set clear, not conflicting objectives (recognize
trade-offs have to be made).
• Decide how to handle order processing, where to locate
stocks (warehousing) and how much (inventory), and how
to transport goods.
• Need to address from a systems approach.
Module 7 Conclusion
• Price, while the most flexible variable marketing mix, is
often poorly addressed.
• Need to consider costs, objectives, rest of marketing mix,
competition and target market when setting price.
• A marketing network is only as strong as its weakest
member - the real competition is between marketing
networks. Balance services needed versus cost and control.
• In making any place decision (channel) have to consider it
from final customer perspective and how to best meet
firm’s objectives.
• Any Questions?