Pricing and Distribution
The marketing of the development and design for new product has come to a stage; where the new product has already went through the designing factors and have made the beta phase system administration to reach for the end users’ reaction and to undertake the production line-up; as the product gradually takes the market. To meet the future demand, the product must decide on the valuation of the same that the potential customer will avail and how the organization will make the product available to its customers.
Pondering on these two issues, have brought up two major elements of the marketing mix, the pricing and the distribution (place), which need to be applied on the product proposed. On doing so, the paper will set the alternative pricing philosophies that go along with the organizational strategy for the product. And to determine the most effective pricing strategy for the product proposed.
In the next step; the paper will examine the distribution channel for the product accessing the end users, while exploring the possible options and selecting the best suitable distribution process for the product proposed with viable explanation of its potential. As per the microeconomics price allocation theory, the price factor is the key variable of the revenue generation mechanism among all the other factors, which are rather cost centres.
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While determining the alternative pricing philosophies for the proposed product; it important to be specific about the effective price, which the organization will receive after taking into account; the discounts, promotional costs and other incentives. This covers various pricing philosophies, where the Price lining strategy is one of the most tradition ways to set the valuation of products. It started in the old five and dime store, where things were under a flat pricing to make the suitable price points for a set of product to the potential customers.
Though this has the advantage of controlling the product pricing, but the disadvantage lies with times like, inflation and instability. In the low price competition strategy; Loss leader is another kind if pricing set below the operational cost of the organization. Though it can incur loss, but organizations do it hopping to attract more customers making the margin higher; at the introductory stage of a product (Loss Leader, 2000). Promotional pricing strategy is relevant with a product that are totally sustaining on the pricing and that is the key factor of the marketing mix.
In a case like this, the product development happens on the key concept of pricing that addresses the all the other factors like the target segment, demography, market, culture, etc. to response in accordance with it (Mullins, Walker, Boyd and Larreche, 2004). The strategy of Price/Equation relationship is especially for the market, where it driven by the consumers’ psychological effects and the feelings. It is a situation of customers under impression that higher price means higher quality and the vice versa. The strategy is applied to the product under experiment and hard to test without being used.
Nevertheless, a prolong trust on this strategy by the customers tends too raise the price of all the products gradually and uniformly, which includes the low quality products too. Eventually the key factor of this pricing strategy, the trust of the customers on the organization will collapse, leaving the strategy no longer applicable (Johansson and Erickson, 1985). Premium pricing, which is also known as the Prestige pricing is the pricing strategy that set the price at or nearly at the higher end of price range of the similar product category.
The ball game here is to attract the status-conscious segment of the market capsule. This to satisfy certain believes of the customers of that genre like, high like indicates good quality, the sign of self worth, requirement of flawless performance that can cost any high, like; buying a pacemaker. It is also defined as the Psychological pricing (Justin Downey Marketing, 2009). A very peculiar but extremely strategic pricing strategy is known as Goldilocks pricing.
The common practice is to provide the product with a gold platting on it; at a premium price in order to justify the lower priced product more reasonably priced. Though these days it is more common with plastic money and credit cards, but back in Victorian England the railway classes used to follow the same. For instance, the third class carriages used to be with out windows; not to punish the passengers, but to encourage them to afford the second class with windows instead of going for the cheaper class, which will in tern increase number of customer type of product.
This is good tool for price discrimination, where the virgin could have push the other product down to highlight the product proposed, but the aggressive demand product and price relationship can steer the cognitive bias of aversion to it extreme resulting a failure in pricing strategy (Hui, Yoo and Tam, 2008). Demand-based pricing strategy can be applied to any kind of pricing philosophy that considers the consumers’ demand to be the central figure, based on their perceived value. The strategy source: Marketing Management: A Strategic, match the particular requirements Decision Making Approach.
such as, price skimming, price discrimination and yield management, price points, psychological pricing, bundle pricing, penetration pricing, price lining, value-based pricing, geo and premium pricing. The price factors that support the strategy of this pricing are the manufacturing cost, market place, competition, market condition and quality of product (Coulthurst, 2003). This strategy projects the customer value pricing method, which also warns the perils that if the perceived values do not match pricing strategy then there could be low margin on sale of the product and the organization will incur low potential profit.
In a strategy of Multidimensional pricing, the same is set as per the services and products using more number. The pricing is not restricted to one price tag or product, rather to its various version and schemes. According to the research, this kind of pricing policy helps the customers’ ability to understand and process the price information of the product (Estelami, 1999). It is been a plethora of pricing strategies the paper has dealt with. Finally it has reached the most effective pricing strategy for the proposed product.
After evaluating the techniques that can create demand for the product proposed, two are such that promise to create the model to maximize it. One is the strategic pricing technique that follows the organizational objective, while another is the multidimensional pricing, which covers more than one aspect of the product to market and sets the pricing issue according to that. Thus, out of all the definitions of the pricing strategy, the most effective strategy determined is the Strategic pricing strategy.
Under this pricing strategy the firm operates the products in its target market to reap the objectives and the expectation from the product. The strategy incorporates the business strategy, the target market and the positioning of the product. As the said factors get well placed under this strategy, the marketing policies including the price factor becomes more simple and easy (Mullins, Walker, Boyd and Larreche, 2004). As the product proposed has entered in the beta phase and is ready for further extension, it is time to evaluate the reason for the existence of the new product.
As the organization has been through the turmoil of merger and buy-out following the affected confidence of the stakeholders; this is the most effective philosophy as the organization is trying to cover up the gap in the revenue by introducing new product and by making strategic partnerships with other IT companies to create buffer and back up plan for the success of the product. So, in case of pricing too, it is of outmost important to address the organization objective for making this new product has been made and to formulate the pricing accordingly; as per the elements of the marketing it has considered.
Doing this, the organization can do justice to the product, customers and of course to the stakeholders, who can feel and see effective selling and acceptance. This phenomenon will certainly swing the curve incline with the generation of revenue helping the company to gain back the market share and the stakeholders’ confidence. Like the way price plays a major role in a product development, distribution is the final key factor of the marketing mix that places the product or services through the right transits creating the maximum accessibility for its end users.
The task of distribution is carried out through chains known as channels. Before the product finally reaches the end-users there comes the chain of intermediaries, which is known as the distribution chains or the channels. As the modern system identifies it as the logistics and the supply chain management, it has many elements that give a holistic support to its complicated operation to make the goods available in the market and to take care of the transits. To make this process a success, each of the elements have to be taken under consideration for their very own specific needs.
It is only when the producers will take the due responsibilities for each of their needs; the organization will be in a position to evaluate the appropriate distribution option for its product. Source: Marketing Management: A Strategic, Decision Making Approach. Producers might distribute the good directly to the end users through the mail order catalogue or the internet service. This generally comes under the Non-store retailing service as the distribution is taking place without any physical set up or store.
But mainly the Marketing channel is the widely used official set up, followed by the organizations involved interdependently in the system to make the product or services available to the customers. Like, Virgin Mobile appointing the IT retail channels to distribute the data-cards covering the maximum target segment. Merchant wholesalers are the one who buy goods from the manufacturer and sell it to the institutional buyer or other retailers for maximum coverage. Agent middlemen are the representatives of the company who do not carry the product physically, but are expert in the buying and selling function.
They are further divided into Manufacture’s agent and sales agent. Brokers are another concept; who do not have any perpetual relationship with the company, but bring together the buyer and seller. This can take place with the seasonal products. The electronic version of the brokers is the E-Hubs. These are the business-to-business internet sites linking the potential buyer and seller on its platform and charge commission from the parties through their payment gateways. Retailers, the most commonly and widely platform used for distribution of the products at its maximum.
They can resale the same to end-users for their personal use. Since they are widely expanded they have the luxury to know and use the local culture better (Mullins, Walker, Boyd and Larreche, 2004). Now, out of this array of distribution channels, it is to identify the most appropriate one for the product proposed. In doing so, it must be understood the type of product, reason it has been introduced and the target segment. On evaluating the product from its inception, the most appropriate distribution option is the channel of Agent middlemen.
Since data-card or assembling in-built data-card with the notebook manufacturers is a known product or concept, an initial introduction in the retail channel will miss the attention of the early buyers. Thus, the help of the agent with their expertise at the corporate and the channel level will create awareness and solve the questions about product and organization on-spot. This will help to get corporate orders and tenders, which will fetch a quantum revenue generation to the organization.
This is a product with extended concept that is extensively used by the corporate, but the usage of the same is equally increasing sectors like household, students, researchers, etc. This suggests a further transition that as the organization gain the market capital with a steady existing market, it can expand the agent’s activity at the sales level, where it can approach the retail outlets including Virgin retail stores to cater the service to the other latter half of the target segment as well. Reference Coulthurst, N. (2003).
Demand based pricing. Retrieved April 19, 2009, from http://www. accountancy. com. pk/articles_students. asp? id=50 Estelami, H. (1999). The computational effect of price endings in multi-dimensional price advertising. Journal of Product & Brand Management, 8(3), 244 – 256. Hui, W. ; Yoo, B. and Tam, K. Y. (2008). The Optimal Number of Versions: Why Does Goldilocks Pricing Work for Information Goods? Journal of Management Information Systems, 24(3), 167-191. Johansson, J. K. and Erickson, G. (1985). PRICE-QUALITY RELATIONSHIP AND TRADE BARRIERS.
International Marketing Review, 2(3), 52 – 63. Justin Downey Marketing (2009). The "Price Premium" Campaign Strategy. Retrieved April 19, 2009, from http://www. marketinghasevolved. com/Campaign-Strategy-Price-Premium. php Loss Leader. (2000). The American Heritage Dictionary of the English Language (4 Ed). Houghton Mifflin Company. Mullins, J. W. ; Walker, O. C. ; Boyd, Jr. , H. W. and Larreche, Jr. , J. C. (2004). Marketing Management: A Strategic, Decision Making Approach. New York: The McGraw-Hill Companies.
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