Module 7

1. Module 7 Managing Distribution Channels and Designing Price Strategies Kotler’s Chapters 15, 16, and 17

2. 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.

3. 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.

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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 (fixed fee + variable use fee), by-product, product-bundling

10. 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 multi-channel marketing systems and the issues that surround them.

11. 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

12. 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.

13. 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 strategy after researching target customers values, perceptions, needs.

14. 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.

15. 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.

16. 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.

17. 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).

18. 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

19. 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.

20. 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.

21. 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)

22. 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.

23. 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?