Steers has been known for years for their leading burger and chips brand selling in about 505 outlets across the world. The firm is using customer-based pricing as they believe that customers will pay as long as they uphold the quality of their products and services. They offer state of the art dining areas and provide a comfortable and clean environment, thus customers are willing to pay for this complete package.
Shell, a petroleum provider, on the other hand, sets its prices based on competitor pricing. Their price margin is very small in comparison to that of their competitors, and in some countries, the price is exactly the same. In an effort to attain and retain customers, Shell has to use a different approach, other than the pricing factor, like the provision of better services and increase the availability of their products to consumers. The product has to be readily available to prevent consumers from using competitor products.
Pricing Tactics in Retail Outlets
Retail outlets, like supermarkets, employ different pricing tactics to attract customers. These include discount pricing, whereby the company either offers a certain percentage of reduction on the normal retail price, or offers promotional markdown like “buy 2 items and get 1 for free” coupons, or even encourages customers to buy a product where another product is attached to it at a usual price of the main product.
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Retailers use multiple pricing whereby they combine several products and sell them at one price. In most cases, combination selling reduces the cost due to the bulk purchase, pushing buyers to buy more of these products. Psychological pricing is also a commonly used technique to make consumers perceive the price as being relatively lower than competitors’ price. An example is pricing a product at $ 1299 instead of $ 1300.
Price Differentiation Works Well if?
Price differentiation involves pricing the same product or service of the same provider differently depending on factors such as different target markets. This works well if the provider of products or services operates in a monopoly market. A monopoly in the market ensures that the provider can dictate the price due to lack of competition and absence of readily available substitutes.
Provision of a unique service, such as a massage after a haircut, at a given time, will boost the effectiveness of price discrimination. Depending on the demand for the service or product, some firms will price their products higher when the demand is high. In this case, the consumer will pay any price to get the service. For example, hotels in a coastal region will hike their prices when the number of tourists is too big for the rooms they have.
Marketing Channels and Selling Price
Marketing channels account for 30% – 50% of the ultimate selling price as this is the process by which products and services reach the consumer. The cost of pushing the product through a number of intermediaries to the consumer reflects heavily on the end price of the product or service itself.
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The higher the number of intermediaries, the more expensive the product is likely to be as opposed to a situation where there is a lower number of intermediaries for delivering the same product. A situation where a product requires intense advertising will also reflect on the end price of the product.
Functions of Channel Members (Darling Hair Company)
Darling Hair is well known for their weaves, braids, wigs, extensions, and additions across the world. Darling’s marketing channel consists from the producer, the distributor, wholesaler, the retailer, and finally the end user. To ensure that products reach the end user on time and that stocks are always available, channel members need to frequently stock products, and thus the flow of production has to be constant to prevent diversion to other brands. They have “only Darling outlets” that only sell company’s products, thus ensuring that they can collect required information from users and also offer advice on how to take care of the products to ensure they get the desired effect. These outlets are relatively cheaper too. Wholesalers distribute the products from distributors to retailers. End users can obtain their products from wholesalers or retailers at different prices.
The Role of the Internet as a Market Channel
The Internet is the most modern market channel. The Internet reaches billions of people at the same time at an affordable price. It has a significant impact as people are able to interact from anywhere in the world more actively from the comfort of their homes or offices. Users can purchase items through the Internet, and products are usually delivered as required.
Steps in Developing a Pricing Strategy
The first step is to identify the objectives to be obtained as they act as a guideline as to what the company needs to meet. Factors to be taken into consideration, such as production and marketing costs, are laid out. It is important to identify the target market in question as different people/markets will pay differently. Next, it is necessary to identify and create a competitive advantage for the product. It is also important to carry out research to test the possibility of consumption, which will help identify if anything should be done differently, which reflects on cost and identifies which markets will be the highest bidders. Finally, with all factors put in place, the final price with profit margins is set.
Some of the pricing tactics include charm/ psychological pricing which makes the buyer feel like they are paying less, for example, pricing a product $12.99 instead of $13.00. Offering discounts is another price tactic used to capture consumers making the product seems cheaper. Distributors allow wholesalers to negotiate to make them feel like they actually brought down the price for themselves.
What is a Market Channel?
A market channel is a specified set of activities that enables a product or service to move from its point of production to the required target market for purposes of consumption. A market channel can be direct (from the supplier straight to the consumer) or indirect, which involves the use of intermediaries to deliver products to the end user.
Functions of a Channel Member
Channel members may include distributors, wholesalers, and retailers or agents and brokers where services are involved. Their main functions are related to the distribution of goods from the producer to the end user. Thus, it acts as a link. They also act as a promotion aspect, where they communicate with the end user and also with prospective buyers, including some of lower channel members in the chain. Channel members also set relevant prices at the level of the distribution. This implies that wholesalers will agree upon a certain price for a product, while retailers will provide their own price range. Risks involved in carrying out the channel work are borne by channel members. Channel members involve themselves in after-sales services as it is their role to ensure that their products are moving. Most importantly, channel members’ aid in the research and help get the information to ensure that the end user gets the product as expected.
Channel alternatives are brought about to reach new customers and increase sales. They help in advertising with the aim of increasing brand awareness (Kotler & Philip, 2010). These may include affiliates, such as promoters, who better relate with the target market the firm wishes to explore.
Formation of partnerships with already successful firms is an alternative channel that helps reach new consumers. An advantage of using channel alternatives is that costs are spread between the mother company and the affiliate company.
Channel Management through Integration and Systems
It is essential to ensure that the marketing channel is not broken. The link between one member and the next should remain strong to ensure that products are pushed (Hochbaum et al., 2011). On-time deliveries should be made and as per orders required by channel members. A suitable system that monitors sales and the number of orders made for a product should be put in place to act as a reminder, which ensures that there are constant sales meeting firms’ objectives.
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Managing Channel Conflict
In the effort to manage channel conflict, channel members should agree on pricing depending on the stage of the channel so as to reduce disagreements and ensure that fake products are not put out into the market. Producers should provide a price margin for their products. In case of a successful conflict management, products are readily provided to all channel members.
Possibilities and Challenges of the Internet as a Channel
The Internet with all its efficiency has its challenges, which include the inability to connect to the supplier due to Internet failures. The Internet can lead to failures due to network problems and may interrupt an on-going purchase leading to loss of the purchase at that time. The Internet does not allow the buyer to check the product for any faults before it is shipped to them. This in its turn creates uncertainties among customers.