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

Module 7

Managing Distribution Channels and Designing Price Strategies

Kotler’s Chapters 15, 16, and 17

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.

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.


• 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


• 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


• 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


• 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


• 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

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

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.

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

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.

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.

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.

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.

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.

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).


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


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.

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.

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)

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.

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?

Documents

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