Marketing for MOST
Module 08 – Pricing and Distribution Strategies
技術経営コンソーシアム
開発担当者 ：Ritsumeikan Asia Pacific University 教授: Takamoto, Akihiro
更新日 October, 2003
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Pricing and Distribution Strategies
1. Price
2. Factors Affecting Pricing Decisions
3. Pricing Approaches
4. Pricing Strategies
5. Place (=Distribution)
6. The Nature of the Distribution Channel
7. Discussion
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Price
Marketing Mix =
P1 (Product)
P2 (Price)
P3 (Place)
P4 (Promotion)
•
Q: Why is P2 so important?
•
Q: How is it different from the other 3 P’s of
the Marketing Mix?
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Price
Marketing Mix =
P1 (Product)
P2 (Price)
P3 (Place)
P4 (Promotion)
•
A: Only P2 earns Money!!
•
The others are Spenders!
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Price
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Price
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Price
•
Internal Factors
1. Marketing Objectives
•
market share leadership
•
product quality
•
current profit maximization
•
customer satisfaction
•
survival
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Price
•
Internal Factors
2. Marketing Mix Strategy ensures:
Price < Product + Place + Promotion
Q: What does this inequality mean?
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Price
•
Internal Factors
2. Marketing Mix Strategy ensures:
Price < Product + Place + Promotion
A:The price (i.e. cost to the customer) of a product
has to be lower than the total amount of benefits
the customer gains from the product, the
distribution of the product, and the
communication for the product.
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Price
•
Internal Factors
3. Cost
TC = FC + VC
Because
TC =
c*Q
VC =
v*Q
Then
c
=
v + FC / Q
TC
:
Total cost
FC
:
Fixed cost
VC
:
Total variable cost
c
:
Unit cost
v
:
Unit variable cost
Q
:
Production volume
Where
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Price
•
External Factors
1. Demand
Movement along the Demand Curve
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Price
•
External Factors
1. Demand
Shift of the Demand Curve
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Price
•
External Factors
1. Demand
Unusual Demand Curve
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Price
•
Price elasticity of Demand
ε=
% change in q
Δq/q
% change in p
Δp/p
Note: ε is usually negative
If | ε | > 1 : elastic demand
If | ε | < 1 : inelastic demand
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Price
•
Inelastic Demand
Elastic Demand
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Price
•
Demand is likely to be less elastic if:
•
The Product is a necessity
•
There are few or no substitutes or competitors
•
There are not comparative products
•
The expenditure for the price is low
•
The product is perishable
•
The product is very rare and has a special value
•
Q: What else?
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Price
•
Factors affecting price sensitivity according
to T.T Nagle
1. Unique Value
2. Substitute awareness
3. Difficult comparison
4. Ratio of total expenditure
5. Ratio to total cost
6. Shared cost
7. Sunk investment
8. Price for Quality
9. Inventory
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Price
Market Demand Curve as an aggregate of
Individual demand curves.
Consumer A
Consumer B
Market
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Price
1. Necessities tend to be price inelastic, while
luxuries tend to be price elastic. Do you
agree?
2. Draw your own demand curves for such daily
use items as coffee, beer, hair cut, telephone
and compare them with your friends.
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Price
Another external factor affectring the pricing
decision:
COMPETITION
Q: How does the prisoners’ dilemma affect the
pricing decision, in the face of stiff
competition?
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Price
Expected Jail time in the prisoners’
Prisoner 2
dilemma.
Confess
Don’t Confess
Prisoner 1’s
Confess
5,5
0,10
10,0
1,1
Prisoner 1
Don’t Confess
Prisoner 2’s
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Price
Cost-based pricing
•
Cost-plus pricing
•
•
Setting price by adding a standard mark up to
the cost of the product
Break-even pricing
•
•
Q*
=
Where
p
:
FC / (p-v)
Q*
:
price
breakeven volume
Target profit pricing
•
Setting price to make a target profit
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Price
•
Valued-based pricing
•
•
Setting a price based on buyers’ perceptions of
value rather than on the seller’s cost.
Value pricing
•
•
Offering just the right combination of quality and
good service at a fair price.
Target costing
•
Pricing that starts with an ideal selling price, then
targets costs that will ensure that the price is
met.
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Price
Product
Cost
Price
Value
Customer
Cost
Product
Cost Based Pricing
Customer
Value
Price
Value Based Pricing
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Price
Price & Quality Value Curve
Ref: Alexander Hiam and Charles D. Schewe
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Price
Case Study: Honda motor fights rival on factory floor
(see attached – honda-rivals.pdf)
Q: What impact did Honda’s pricing strategies have on
its competitors?
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Price
Case Study: Pricing as a Strategy
•
King Gillette
•
Xerox Machine
•
GE’s Steam Turbine
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Price
Competition-based pricing
•
Setting prices based on the prices that competitors
charge for similar products (i.e. going-rate prices)
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Price
New Product Pricing Strategies
•
Market-skimming pricing
•
•
Setting a high price for a new product to skim
maximum revenues layer by layer from the
segments willing to pay the high price; the
company makes fewer but more profitable sales.
Market-penetration pricing
•
Setting a low price for a new product in order to
attract a large number of buyers and a large
market share.
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Price
Product Mix Pricing Strategies
•
Product line pricing
•
•
Setting the price steps between various products in a
product line based on cost differences between the
products, customer evaluations of different features and
competitors’ prices.
Optional-product pricing
•
•
The pricing of optional or accessory products along with a
main product.
Captive-product pricing
•
Setting a price for products that must be used along with a
main product, such as blades for a razor and film for a
camera.
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Price
Product Mix Pricing Strategies
(continued…)
•
By-product pricing
•
•
Product bundle pricing
•
•
Setting a price for by-products in order to make
the main product’s s price more competitive.
Combining several products and offering the
bundle at a reduced price.
PRACTICE: Find at least one real-life
example corresponding to each of the
above mix pricing strategies
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Price
Price-adjustment Strategies
•
Discount and allowance pricing
•
•
Promotional money paid by manufacturers to retailer in
return for an agreement to feature the manufacturer’s
products in some way.
Segmented pricing
•
•
Selling a product or service at two or more prices, where
the difference in prices is not based on differences in
costs.
Psychological pricing
•
A pricing approach that considers the psychology of prices
and not simply the economic; the price is used to say
something about the product.
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Place (=Distribution)
•
Question:
•
Why is Place so important?
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
The Nature of Distribution Channel
•
Distribution channel
•
A set of interdependent organizations involved in the
process of making a product or service available for
use or consumption by the consumer or business user.
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
The Nature of Distribution Channel
•
Why are Marketing intermediaries used?
3 * 6 = 18 (number of transactions) 3 + 6 = 9
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Distribution Channel Functions
•
The primary function of distribution channels is
to fill in the three gaps that separate producers,
and customers / business users.
•
These gaps are geographical, temporal, and
proprietary.
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Distribution Channel Functions
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Distribution Services
•
Number of Channel Levels
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Distribution Services
•
Practice
1. Compare the main characteristics of retailing
and wholesaling
2. Discuss how the wall between retailing and
wholesaling is crumbling with innovations in
distribution (i.e.. Supply chain management)
3. How is IT affecting distribution?
Marketing for MOST: Module 8 – Pricing & Distribution Strategies
Distribution Services
•
Discussion:
•
A) Review the students comments on pricing and
distribution in the attached file.
•
(student-pricing.pdf)
•
How would you respond to them?
•
B) What are your own comments or questions
concerning pricing and distribution strategies?