Pricing Strategy and Channel Distribution Essay

Marketing Plan – Pricing Strategy and Channel Distribution for the Note Phone 1. Determine and discuss a pricing strategy (Penetration or Skimming). Pricing is an important strategic issue because it is related to product positioning and furthermore, pricing affects other marketing mix elements such as product features, channel decisions, as well as promotion. Per Marketing Management, Chapter 8 in Review, “Pricing strategies don’t vary much from low, medium or high”. For new products, the pricing objective often is either to maximize profit margin or to maximize quantity (market share).

To meet these objectives, skim pricing (Skimming is a strategy used to pursue the objective of profit margin maximization) and penetration pricing (to pursue the objective of quantity maximization by means of a low price) strategies often are implemented therefore our product will be using comparable pricing as we are not the market leader, we will have to price our product comparably to our competitors. It is most appropriate for our product as we are expecting: * Demand is expected to be highly elastic; that is, customers are price sensitive and the quantity demanded will increase significantly as price declines. Large decreases in cost are expected as cumulative volume increases. * The product is of the nature of something that can gain mass appeal fairly quickly. As the product lifecycle progresses, there likely will be changes in the demand curve and costs so as such, the pricing policy will be reevaluated over time to assure we are maximizing our marketing strategies. 2. Determine and discuss pricing tactics (Product line pricing, Value pricing, Differential pricing, or Competing against private brands) to be used for your product.

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Pricing strategies need to also consider the price elasticity of demand: if price goes up, will sales go down; will sales stay the same; or will sales go up (if buyers equate price with value, sales might go up). Setting a price that is too high or too low will – at best – limit our business growth and at worst, it could cause serious problems for our sales and cash-flow therefore when setting our prices we must make sure that the price and sales levels we set will allow our business to be profitable. We must also take note of where our product and service stands when compared with our competition.

The difference between cost and value can increase profitability by us knowing the cost (the amount we spend to produce it), the price (our financial reward for providing), and the value (what our customer believes the product and service is worth to them). Pricing should be in line with the value of the benefits that our business provides for its customers, while also bearing in mind the prices our competitors charge. Therefore we will be using Value-based pricing which focuses on the price we believe customers are willing to pay, based on the benefits our business offers them.

Value-based pricing depends on the strength of the benefits we can prove to our customers so by having clearly-defined benefits that give us an advantage over our competitors, we can charge according to the value we offer customers. While this approach can prove very profitable, it can alienate potential customers who are driven only by price and can also draw in new competitors but it should reach our target market. It’s important to find out what our competitors offer and what they charge. It’s unwise to set our prices too much higher or lower without a good reason.

The perception of our product and service is also important as in many markets a high price contributes to the perception of our product as being of premium value which is what we want. 3. Identify any legal and ethical issues related to the pricing tactics. Companies often spend copious amounts of time and effort developing a business pricing strategy therefore there are legal restrictions related to pricing, that we need to keep in mind. We have listed a few per US Legal: * Price discrimination which is the practice of charging different persons different prices for the same goods or services.

Price discrimination was made illegal under the Sherman Antitrust Act. 15 U. S. C. §2, the Clayton Act, 15 U. S. C. §13, and by the Robinson-Patman Act, 15 U. S. C. §§13-13b, 21a, when engaged in for the purpose of lessening competition, such as tying the lower prices to the purchase of other goods or services. Now if different prices are charged to different customers for a good faith reason, such as effort by the seller to meet the competitor’s price or a change in market conditions, it is not illegal price discrimination, when there is no intent to harm competitors. Price fixing is an arrangement in which several competing businesses make a secret agreement to set prices for their products to prevent real competition. It is a criminal violation of federal antitrust statutes. Price fixing also includes secret setting of favorable prices between suppliers and favored manufacturers or distributors to beat the competition. * Horizontal price fixing, which would involve competitors colluding to set prices, remains illegal. * Vertical price fixing pertains to arrangements between a manufacturer, distributor, supplier or retailer.

Courts have held that vertical maximum price fixing, like the majority of commercial arrangements subject to the antitrust laws, should be evaluated under the rule of reason. Therefore, suppliers of goods and services don’t necessarily violate antitrust laws by setting maximum prices their retailers can charge. * Price gouging statutes seek to stem opportunistic behavior, which is designed to take advantage of an unforeseen opportunity to charge a monopoly price by threatening to withhold output. It is often defined as a 10 to 25 percent increase over prices during the month before an emergency.

Price gouging is often hard to define, and is often described vaguely as charging “unconscionably” high prices. * Predatory pricing is a practice in which a company attempts to gain control of a market by cutting its prices to levels well below those of competitors, so that those competitors go out of business because they cannot match those prices, or they cannot sustain lowered prices because they lack capital, so it can be very difficult to prove that a company is really engaging in predatory pricing.

These tactics are all illegal in many regions of the world, as well as here. Unethical business practices are often front-page news in today’s market. Maintaining high ethical standards, particularly in a bottom-line driven business, is challenging. However, keeping these standards is important to help manage risks and to a company’s reputation. Business ethics is the key to the behavior that a business adheres to in its daily dealings with the world. The ethics of a particular business can be diverse.

Ethics is important not only in business but in all aspects of life because it is the vital part and the foundation on which the society is build. A business/society that lacks ethical principles is bound to fail sooner or later. We must remember that “GOOD ETHICS IS GOOD BUSINESS”. 4. Prepare a marketing distribution channel analysis identifying the wholesaler, distributor, and retailer relationships. A good distribution strategy will identify the best sales channels for our firm and tell us how to exploit them.

It can open up new opportunities, fuel growth and dramatically boost our market share and profits. So by focusing on marketing distribution channels it will let us invest in the one that will build strong relationships with key intermediaries for our product. A strategic approach to distribution will also help us to identify conflicts and minimize them. For example, if we sell your product directly online and through other offline retailers, we will find ourselves in competition with our own distributors. Efficient logistics and effective communication are vital if we want to maximize our sales.

Therefore whatever distribution channels we use, we need to manage it properly and this means investing in in-house systems and staff, as well as building good working relationships with agents and distributors. We need to understand our customers before considering which sales channels to put our resources into. Sales channels are usually divided into direct channels, such as sales reps, shops, websites, mail order and exhibitions; and indirect channels, such as sales agents, distributors and franchisees.

Direct to the customer is the best way for us to get on the market with our product and by using E-commerce is an effective way for us to attract customers as well as cut costs. If we’re the retailer, we can sell through an online shop without the costs of a building and in-store sales staff. A single e-commerce website can serve our entire target market, and even if our customers sometimes need face-to-face meetings, it enables them to make repeat purchases online. The level of distribution will be selective. 5.

Discuss how the distribution strategy fits the product/service, target market, and overall marketing objectives for the company. Our target segment of 16 to 28 male and female those are young innovative fashion setters, and the marketing position we want is high price, high quality, exclusive availability, light promotions. Also the type of product that this company will be offering will be a shopping product, as we are not the market leader, so we will have to price our product comparably to our competitors. Therefore with value-based ricing as our focuses and a selective level of distribution, direct, we will create a premium value product for our customer and a streamline distribution channel. While there is no single recipe to developing the pricing and distribution of a new product it is still important to develop marketing strategy – perform marketing analysis, segmentation, targeting, and positioning. Make marketing mix decisions – define the product, distribution, and promotional tactics. Estimate the demand curve – understand how quantity demanded varies with price. Calculate cost – include fixed and variable costs associated with the product.

Understand environmental factors – evaluate likely competitor actions, understand legal constraints. Set pricing objectives – for example, profit maximization, revenue maximization, or price stabilization (status quo). Determine pricing – using information collected in the above steps, select a pricing method, develop the pricing structure, and define discounts. Yes, these are interrelated and are not necessarily performed in the above order but nonetheless, the above list serves to present a starting framework for setting up a distribution strategy.

Distribution channels are the pathways that companies use to sell their products to end-users. Conclusion: Pricing strategies will not sell your product and service but they will help to support your selling strategies (building a strong relationship with your customer will help you sell). Remember, the primary goal of the marketing is to get people to buy your products or services and the distribution is the part that details how this is going to happen.

References
Iacobucci, D. (2011). Marketing management: 2010 custom edition. Mason, OH: South-Western Cengage Learning. Marketing [m.o.] (2006-2010). Distribution Channels. Retrieved February, 13, 2011 from website: http://www.marketingmo.com/ More-for-small-business (2002-2011). Marketing. Retrieved February 12, 2011, from website: http://www.more-for-small-business.com/index.html NetMBA (2002-2010). Pricing Strategy. Retrieved February 11, 2011, from website: http://www.netmba.com/marketing/pricing/ USLegal, Inc. (2001 – 2011). Retrieved February, 12, 2011 from website: http://definitions.uslegal.com/

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