The Pricing Strategy and Channel Distribution
Price is among the four elements of the market mix which also include product features, promotion and channel decisions. It is therefore very important to determine the price of a product as it is very important in the determination of the product position. Although there is no single set way which can be used in the determination of the product price, there are set steps and standards which can be used in the developing of the product price. Some of these steps include;
Developing and creating a market strategy- the market strategy should cover the following sub topics analysis of the market, market segmentation, positioning and finally market targeting
Coming up with decisions regarding marketing mix –this entails with coming with tactics that will address promotion, product definition and its distribution
Determining the demand curve of the product- this entails determining how the price of a product determines the quantity demanded
calculate the cost – includes calculating the variable and fixed costs of the product
Getting to know more about the environmental factors- you should determine and evaluate the behavior of the customer and also understand the legal constraints surrounding the product
Determining the pricing objectives- some of the pricing objectives includes; profit maximization and price stabilization or also revenue maximization
Finally determine the price- through the use of the steps which have been outlined above you can therefore come up with a suitable method which can be used in the pricing of the product. Also come up pricing structure which can help you to determine the discounts that will be offered to the product
There are various pricing methods which include the skim pricing and penetration pricing. Skim pricing is a method of pricing whereby the seller decides to set a high price for those customers who are not price sensitive and the main objective of this pricing method is to maximize on the profits. Penetration pricing’s main objective is to maximize on the quantities being sold by selling the goods at a very low price. This is done mostly for coming which are new in the market so as to enable them secure a market niche in addition to the goodwill.
There are different tactics and they can help an organization to attract more and more customers and also maximize the company’s profits and they may include old value pricing, discounting, and the use of loss leader, skimming and penetration pricing
Product line pricing- this method of pricing is used when a product is offered for sale with different benefits or various features hence creating numerous products or services. This method is essentially used in the maximizing of profits since the more the features are offered the more the product becomes expensive. Its main goal is not to make individual products to make profit but the whole product line to make profit for the company. For instance, a car in itself can be termed as a primary product but the addition of other parts like sunroof, navigation systems e.t.c will increase the profit of the primary product as they will be priced accordingly
Value based pricing- in this mode of pricing the commodity is priced based on the value at which an individual customer perceives and not the actual incurred in making the product, the market price, its historical price or the price at which the competitors are selling their products. The main goal of this method is to align the products price with its market price.
Differential pricing- this is a pricing method in which the trader selling same product at different submarkets and to different customers. Differential pricing is important to a company since it enables them to maximize the profits of the company. There are different differential tactics and can be grouped as follows: characteristics of the customer, the selling characteristics, the selling strategies and finally the requirements of the customer to jump hurdles.
Competing against private brands- growth in the private brands compared to some of the leading national brands in the country due to the quality of the products that they sell and also an improvement in the packaging system of the private brands. Advertisement has also been a factor for their growth since the packaging of the private is better and the visuals on their products is more appealing
Legal and ethical pricing has been there for a very long time. Ethical pricing tactics is being promoted by the government so as to avoid conflicts in the business entities. Due to this various price control laws are being introduced by the government so as to ensure that there is a sound and fair environment for the companies to operate in. such laws ensure that those companies that are monopolies don’t over price their goods for the purpose of making profits. Some pricing tactics are very dangerous to the overall market as some of the firms may be forced out of business due to the cut throat competition
A channel of distribution move products and services from the supplier to the consumers and is one type of the marketing mix and there are various distribution channels which include selling goods to the customers or selling them to retailers and finally selling them to the wholesalers. From research we can easily know that the distribution channel heavily depend on some factors which include the product that is being sold and its place within the productive process. There also various factors that determine the relationship between a wholesaler and a retailer. The core thing within their relationship is satisfaction. The retailers can only be satisfied if the following exists; good service provided during the distribution of the goods, the quality of service that may be provided by the supplier’s staff, the lack of conflict between the retailer and the wholesaler and finally the extent at which a new supply source can be substituted by the retailer during seasons of high prices. A simple channel of distribution is one which constitutes of one source of supply, demand or having both and it has routes of transportation which connect the supplier to the other networks. The relationship between the producer, retailer and wholesaler is vital as it ensures continuous communication between them hence the wholesaler is be able to acquire information from the retailer on the performance of his product in the market. Good relationship between them facilitates the ultimate performance of the company as the retailer will promote the wholesalers goods
Channels of distribution range from a maximum of five to a minimum of two whereby in the level distribution system there is the direct distribution of goods to the consumer from the supplier whereas in a three level system there is the inclusion of intermediaries who are the retailers. In a four level system there is the inclusion of manufacturer’s agent who acts as an intermediary between the manufacturer and the wholesaler. A five level system includes jobbers who are small retailers who are not found within the large wholesalers industry
The distribution strategies are vital when it comes to the maximizing the sales and profits of a company. There are various distribution strategies that can be adopted by a company in the distribution of its goods and services. Some of the distribution strategies include: intensive method of distribution which is commonly used in the distribution of those products that are of low prices, exclusive method of distribution which limits the distribution of goods to a single outlet and usually the product is of high prices, finally we have the selective distribution which entails the distribution of goods and services to a few chosen retail outlets and this is most common in the sale of electronics. The distribution strategies greatly impact on the product performance in the market since if the product is well distributed and readily available in the market then its sales are likely to be higher. The market strategies should concentrate on determining the demand and supply of the product in the market this may enable the company to access if there are any shortages in the market which may require to be addressed. Distribution strategies should be formulated to address the target market of its product so as to ensure that goods are available to the consumers when they are required. Through distribution of goods there is the flow of goods to the final consumer
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