Introduction to Marketing Unit 6

 

DISTRIBUTION AND PRICING

Distribution

As part of marketing plan, every business must decide what amount to charge and how to get goods and services to customers. This gives the need for pricing and distribution.

A distribution channel is the part taken by a good or service to get from the producer to the final user. Several parties are involved when selling goods across borders. An intermediary is any person or organization in the distribution channel that moves goods and services from the producer to the consumer. The most common intermediaries are agents, wholesalers and retailers.

Agents: An agent, also referred to as a broker, brings buyers and sellers together but does not take part in ownership of the products.

Wholesalers: A wholesaler is a business that buys large quantities of an item and resells them to a retailer. They do not usually sell to final users of a product. They have five (5) main functions:

  1. Providing information: communicating between manufacturers and retailers.
  2. Processing orders: providing needed products for retailers to sell.
  • Storing and transporting: maintaining warehouse and shipping capabilities.
  1. Financing and taking possession: accepting ownership of finished goods and extending credit to customers.
  2. Promotion: advertising and selling to retailers and helping retailers promote to their customers.

Retailers: A retailer is a store or anther business that sells directly to the final user. Each day, hundreds of millions of shoppers make purchases from retailing businesses. Retailing businesses attempt to serve customers in five (5) main ways:

  1. Product selection: variety of sizes, styles and brand.
  2. Convenience: location, hours of operation, parking availability and ease of making purchases.
  • Product quality: product excellence and reputation.
  1. Sales staff assistance: information about product features, uses and store policies
  2. Special services: delivery, ease of exchanging or returning items, and special sales.

Global Intermediaries

The distribution channel used for international trade are different from those used in domestic trade. They ones earlier mentioned are particular to domestic trade. Common international intermediaries include;

Export Management Company (EMC): Provides complete distribution services for businesses that desire to sell in foreign markets. They make it easier to sell in other countries since they have access to established buyers. They are small firms that specialize in specific products or in a certain foreign market. They provide exporters with reliable global distribution channels.

Export Trading Company (ETC): An ETC is a full-service global intermediary. An ETC buys and sells products, conducts market research, and distributes goods abroad. They may also be involved in banking, financing, and production activities.

Freight forwarder: A freight forwarder ships goods to customers in other countries.

Customs broker: An intermediary that specializes in moving goods through the customs process. This process involves inspection of imported products and payment of duties.

Pricing

Price is the monetary value of a good or service. Everything has a price. There are three main factors that influence the price a company charges for goods and services. They are cost, consumer demand and competition.

Factors that Influence Price

  • Cost

A company cannot sell an item for less than its costs the company to make or for the company to buy. Production and other operating costs must be covered by the price of an item. Besides incurring ordinary business expenses, organizations involved in international marketing will incur other costs, such as;

  1. The cost of modifying a product to meet cultural or legal restrictions.
  2. Tariffs and other taxes that must be paid when selling to customers in another country.
  • Fees to acquire export or import licenses.
  1. Expenses for the preparation of export documents.
  2. Changes in the exchange rate for a nation’s currency.
  3. Transportation costs due to selling to buyers at a greater distance.
  • Consumer demand

When prices are high, consumers tend to buy less of an item than when prices are low. Lower incomes, higher prices and need for other items result in reduced demand for a good or service. The economic conditions, cultural preferences, and legal restrictions in a foreign market also are likely to affect potential demand and the price that is charged.

  • Competition

If many companies are selling a similar or identical product, consumers have more choices than if only one company or a few companies were selling the item. Competition tends to keep prices lower. Competition forces companies to maintain lower prices and other means of attracting and keeping customers.

Pricing Methods

There are a variety of methods used to determine prices. Some of them include;

  • Mark-up pricing

Mark-up is an amount added to the cost of a product to determine the selling price. It includes operating cost and a profit on the item. Mark-ups are commonly stated in percentages. Competition affects mark-up, like many other marketing decisions. Products in competitive markets with constant demand, such as food products, tend to have low mark-ups. On the other hand, products with inconsistent demand – such as high fashion clothing items and jewelry – will usually have higher mark-ups to cover the carrying cost of those items.

  • New product pricing

The pricing strategy adopted for a new product is affected by the product image desired, the amount of competition and sales goals. Three common methods are used under this. They include;

  1. Competitive pricing: if the new product has competition already in the market, a company may decide to sell its new product at a comparable price.
  2. Skim pricing: when a new product is introduced, managers may decide to charge as much as possible. Under this, managers set relatively high introductory prices. Skim pricing attempts to attract buyers who are not concerned with price while also quickly covering the research and development costs of the new product. Managers face two potential problems under this. One, the high price may quickly attract competitors to the market. Two, the company faces the risk of setting the price too high and selling few items.
  • Penetration pricing: unlike skim pricing, this is the setting of a relatively low introductory price for a new product. The attempt is to gain strong acceptance in the market. This strategy can help a company take sales from competitors. Penetration pricing can be effective when competing against existing companies in other countries and when selling in nations with low economic development.
  • Psychological Pricing

In an attempt to persuade consumers to purchase a product or service, companies may use pricing to create an image. For instance, certain prices can communicate that an item for sale is a bargain. Or another item may be priced to portray an image of high quality. The following are common psychological pricing approaches; Promotional pricing, Odd-even pricing, Prestige pricing and Price lining.

  • Discount Pricing

Price reduction is one of the most common actions taken by companies to attract and keep customers. Four major types of discounts are seasonal, cash, quantity and trade.

  1. Seasonal pricing: at various types of the year, companies may reduce prices to sell the remaining items in stock.
  2. Cash discounts: companies may reduce the price charged for items to encourage customers to pay their bills quickly.
  • Quantity discounts: to encourage customers to purchase more of an item, business may offer a quantity discount.
  1. Trade discounts: manufacturers commonly sell to distributors and stores based on a percentage of the list price, also called suggested retail price.

 

Course credits:

An Introduction to Services Marketing Athens University of Economics and Business

Chhabra & Grower, Marketing Management.

Kazmi. S.H.K., Marketing Management.

Kumar & Mittal, Marketing Management.

Leonard Walletzký, Market Segmentation, Targeting, and Positioning Masarykova Univerzita.

Levitt, T., (1981), “Marketing Intangible Products and Product Intangibles”, Harvard Business Review, May-June, pp. 94-102.

Lovelock, C.H., (1983), “Classifying Services to Gain Strategic Marketing Insights”, Journal of Marketing, Vol.47, Summer, pp. 9-20.

Market Segmentation and Targeting Chapter 6 (Tuckwell Think Marketing).

  1. Kotler. Marketing Management: Analysis, Planning and Control, 8th ed. (Englewood Cliffs, NJ: Prentice Hall, 1994: 381-407.

Philip Kotlar., Marketing Management

Ravilochan P., Marketing Management

Saxena Rajan., Marketing Management

Sherverlekar, Marketing Management

Shostack, L.G., (1977), “Breaking Free from Product Marketing”, Journal of Marketing, Vol. 41, April, pp. 73-80.

Sonatakki C.N, Marketing Management

Varshney & Gupta, Marketing Management

William Perrault, Marketing Management

Zeithaml, V.A., Parasuraman, A. and Berry, L., (1985), “Problems and Strategies in Services Marketing”, Journal of Marketing, Vol. 49, Spring, pp. 33-46

 
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