In this post we have cover Gauahti University BCom 2nd Semester Principles of Marketing NEP FYUGP Notes Unit- 4: Pricing, Distribution Channels and physical distribution Important Notes. Which can be very useful during your preparation. Use this notes as reference any score good marks in your examination.
UNIT – 4: PRICING, DISTRIBUTION CHANNELS AND PHYSICAL DISTRIBUTION
1. What do you mean by price? What are the various objectives of pricing? Explain the importance of pricing. 2017,2022
ANSWER –Price is the monetary value assigned to a product or service, representing what a consumer must pay to acquire it. It plays a crucial role in the marketing mix and can significantly impact a company’s success.
The various objectives of pricing include:
1. Profit Maximization: Setting prices to maximize profit, often achieved by finding the balance between cost and revenue.
2. Market Share: Pricing strategies can be used to gain or maintain market share by offering competitive prices.
3. Revenue Growth: Increasing sales revenue by setting prices that encourage more purchases.
4. Quality Leadership: Positioning a product as a premium offering by pricing it higher than competitors to reflect higher quality.
5. Survival: Sometimes, businesses may set low prices to survive in highly competitive markets.
6. Skimming: Introducing a product at a high price and gradually lowering it to target different customer segments.
7. Penetration: Setting a low initial price to quickly gain market share and then raising prices.
8. Price Discrimination: Charging different prices to different customer groups based on their willingness to pay.
The importance of pricing lies in its direct impact on a company’s profitability and market positioning. Effective pricing can:
1. Maximize Profit: Pricing strategies can directly influence a company’s profit margins.
2. Competitive Advantage: Proper pricing can help a company gain a competitive edge in the market.
3. Customer Perception: Pricing affects how customers perceive a product’s quality and value.
4. Market Entry: It can facilitate entry into new markets or segments.
5. Revenue Management: Optimizing pricing can help manage demand and revenue effectively, especially in industries like airlines and hotels.
6. Brand Positioning: Pricing can help in positioning a brand as premium or value-oriented.
7. Resource Allocation: Proper pricing guides resource allocation and investment decisions within a company.
2. Write a detailed note on various pricing methods. 2015, 2018
ANSWER – Pricing Methods:
1. Cost Based Pricing
Under cost-based pricing, different methods used are:
– Absorption Cost Pricing
– Target Rate of Return Pricing
– Mark Up Pricing
– Absorption Cost Pricing: This method calculates the selling price based on estimated unit costs, including variable and fixed costs, with the addition of a required profit margin.
– Target Rate of Return Pricing: Similar to absorption cost pricing but uses a rational approach to determine the profit margin, ensuring it meets the firm’s return on investment criteria.
– Marginal Cost Pricing: Aims at maximizing contribution towards fixed costs by considering all direct variable costs.
2. Demand Based Pricing
Methods in this category include:
– What the Traffic can Bear’ Pricing
– Skimming Pricing
– Penetration Pricing
– What the Traffic can Bear’ Pricing: Sets the price at the maximum customers are willing to pay, often used by retail traders.
– Skimming Pricing: Aims for high prices and profits in the early stages, often used for new products with luxury or specialty elements.
– Penetration Pricing: Seeks greater market penetration through lower initial prices, useful for new products with the potential for high sales volume.
3. Competition Oriented Pricing
In a competitive economy, pricing methods include:
– Premium Pricing
– Discount Pricing
– Parity Pricing
– Premium Pricing: Prices above competitors.
– Discount Pricing : Prices below competitors.
– Parity Pricing: Matches competitors’ pricing.
4. Value Pricing
Pricing is based on capturing the perceived value of the product by the customer.
5. Product Line Pricing
Optimizes pricing for a variety of related products within product lines.
6. Tender Pricing
Applicable for industrial and institutional customers who use competitive bidding through sealed tenders.
7. Affordability Based Pricing
Relevant for essential commodities to ensure accessibility for all sections of the population.
8. Differentiated Pricing
Some firms charge different prices for the same product in different zones or based on customer class.
3. What are the factors affecting price of a product or service? 2016, 2017, 2019,2021,2022
ANSWER – Factors affecting pricing may be categorized into two categories- internal factors and external factors. In each of these categories some may be economic factors and some may be psychological factors. Some factors may be quantitative and some others may be qualitative. Some of the important factors affecting pricing are given below:
A. Internal Factors:
As regards pricing, the firm has certain objectives -long term as well as immediate. For example, the firm has certain costs of manufacturing and marketing; and it seeks to recover these costs through the price and thereby earning a profit. In respect of all the products, the firm may have a basic philosophy on pricing. The pricing decisions of the firm have to be consistent with this philosophy. Pricing also has to be consistent with the overall objectives of the firm. These objectives could be achieving market share, short term or long term profit. The firm may be interested in seeking a particular public image through its pricing policies. All these constitute the internal factors that influence pricing. From the above, it appears that pricing is influenced by objectives and marketing strategy of the enterprise, pricing philosophy, pricing objectives and policy. More specifically, the internal factors are:
1. Corporate and marketing objectives of the firm: All pricing objectives emanate from the corporate and marketing objectives of the firm. A business firm will have a number of objectives in the area of pricing. Some of these objectives are long-term, while others are short-term. Profit is one of the major objectives in pricing. Firms may not be interested in profit maximization as such, they may be more interested in long term survival and growth.
2. The image sought by the firm through pricing: If a firm offers high quality goods at high prices, the firm will develop a premium image.
3.The characteristics of the product: Sophisticated, complex and new to the world products normally carry high prices. Products having more features carry higher prices.
4. Price elasticity of demand of the product: If price increases, demand decreases and if price decreases demand increases. Marketers may decide on pricing based on ‘what the traffic can bear’. The marketer takes the maximum price which the customers are willing to pay for the product under the given circumstances.
5. The stage of the product on the product life cycle: When a product is introduced for the first time it carries a higher price. Gradually with increasing consumer acceptance and competition price decreases.
6. Use pattern and turn around rate of the product: Price of newspaper and magazines may be different for the immediacy factor, permanence and the pass along readership. Newspapers are having a short life, while magazines enjoy a pass along readership.
7. Costs of manufacturing and marketing: Costs determine price to a great extent. Marketers will have to cover the cost and earn a profit.
8. Extent of distinctiveness of the product and extent of product differentiation practised by the firm: Products having uniform size, shape and compositions can be manufactured at a lesser cost compared to products having differentiation.
9. Other elements of the marketing mix of the firm and their interaction with pricing: Amount spent on product research, advertising, dealer development etc. are some factors which influence price of a product.
10. Composition of the product line of the firm: A firm may sell a number of products in the same product line. In that case , the products are likely to be sold under different prices depending on their quality, features etc.
B. External Factors:
In addition to the internal factors mentioned above, any business firm has to encounter a set of external factors while formulating its pricing decisions. An enterprise exists in an environment and is influenced by environmental factors. The external factors are:
1. Market characteristics: Some markets are having very stiff competition and some are having less. The number of players in a market could be more or less. Market leadership factors also may be different. Different characteristics of the market have a bearing on price.
2. Buyer behaviour in respect of the given product: Value conscious buyers are likely to be interested in low prices. Image conscious buyers may be more attracted by product image rather than low price of the product.
3. Bargaining power of major customers: In industrial buying situations major buyers have a bargaining power. They are in a better position to negotiate prices.
4. Bargaining power of major suppliers: Similar is the case with major suppliers. They are in a better position to supply bulk quantities. They are also in a better position to negotiate terms.
5. Competitors’ pricing policy: Firm’s decision to set a price is heavily influenced by the price set by the competitors. In case of highly unique product having a niche market, a firm can have its own price. In most of the cases, competitive reactions to the price set by the firm have to be seriously studied for future programmes.
6. Government controls/regulations on pricing: As stated earlier the Governmental measures like import duties, excise, subsidy, sales tax etc. influence pricing decisions.
7. Social considerations: Firms have a responsibility to society and to its customers. Firms are not expected to exploit consumers by unnecessarily charging high prices.
4. What do you mean by distribution channel? What are the different factors that need to be considered while selecting a distribution channel? 2014, 2016, 2019,2021,2022
ANSWER – A distribution channel, also known as a marketing channel, refers to the path or route through which products or services travel from the producer or manufacturer to the end consumer or user. It encompasses all the intermediaries and steps involved in the process of getting products to the market.
When selecting a distribution channel, several factors need to be considered:
1. Product Nature: The characteristics of the product, such as its perishability, size, weight, and fragility, can significantly impact the choice of distribution channel. For example, fragile or perishable goods may require more direct and controlled distribution.
2. Target Market: Understanding your target audience’s preferences, behavior, and location is crucial. Different distribution channels may be more effective for reaching specific market segments.
3. Geographic Reach: Consider the geographic scope of your market. If your market is local, you may opt for a shorter, local distribution channel, while a global market may require international distribution partners.
4. Costs: Evaluate the cost-effectiveness of various distribution channels. This includes costs associated with transportation, warehousing, and intermediaries. Sometimes, a longer distribution channel with more intermediaries may be cost-effective due to economies of scale.
5. Competitive Landscape: Analyze how your competitors are distributing similar products. Understanding their strategies can help you make informed decisions about your distribution channels.
6. Control: Consider the level of control you want over your product’s distribution. Direct channels allow more control, while indirect channels involve relinquishing some control to intermediaries.
7. Customer Expectations: Different customers may have varying expectations regarding how they access products or services. Meeting or exceeding these expectations can be critical for success.
8. Legal and Regulatory Considerations: Different regions or countries may have specific laws and regulations that affect distribution. Compliance with these rules is essential.
9. Product Lifecycle: The stage of the product lifecycle (e.g., introduction, growth, maturity, or decline) can impact the choice of distribution channel. New products may require more direct marketing and control, while mature products might benefit from efficient indirect channels.
10. Brand Image: The distribution channel can influence your brand’s image. Direct channels may convey exclusivity, while mass distribution in discount stores may affect brand perception differently.
11. Technology and E-commerce: The rise of e-commerce and digital technology has created new distribution options, such as online sales platforms and direct-to-consumer models. These should be considered in the context of your business.
12. Channel Partner Capabilities: If you’re working with intermediaries or partners, assess their capabilities, reliability, and reputation, as they can directly affect your product’s journey to the end consumer.
13. After-sales Service: If your product requires post-sales support or service, consider how the chosen distribution channel can provide these services to customers.
5. What are various types of Distribution channel? Explain them with examples. Explain the role of distribution channel and how it can be improved. 2014, 2015, 2016, 2018, 2019,2021
ANSWER – Types of Channels of Distribution:-
A. Zero-level channel (producer to consumer): It is also called as direct marketing or direct selling. This channel consists of the producer who directly sells his products to the ultimate consumers. This is the shortest, simplest, & cheapest form of distribution. Producers are benefited by increased profit, whereas consumers are benefited by reduced price. This is possible because it eliminates the middleman completely. With the development of sophisticated & efficient retailing like supermarkets, chain-stores, automatic selling machine is financially sound follow this channel of distribution. For products like jewelry & industrial goods like machinery, this is the best channel.
B. One-Level Channel (Producers Retailers Consumers or producers Wholesalers Consumers): This is a short channel where the manufacturer may himself perform some of the wholesaler. This is considered to be the best channel as it eliminates some of the marketing intermediaries & at the same time gets advantages of inclusion of retailers. In case of perishable goods, this is the best channel. When there is large scale promotion, inelastic demand & when manufactures are financially sound this channel is preferred.
C. Two-Level Channel (Manufactures Wholesalers Retailers Consumers): This is the traditional channel. It is more useful in the case of buyers, sellers, & manufactures who operate in small scale. The manufacturer sells his products in large quantities to a wholesaler who in turn sells in small quantities to retailers & finally retailers sell to ultimate consumers. Products which have low unit value & which are purchased frequently may be distributed through this channel.
D. Three Level Channel (Manufactures Wholesalers Agents Retailers Consumers): In this method manufactures appoint agent such as consignees to sell their products. It is preferable for exporters or MNCs.
A distribution channel plays a crucial role in getting products from manufacturers to end consumers. It includes all the intermediaries involved in the process, such as wholesalers, retailers, and logistics providers. The primary functions of a distribution channel are:
1. Product Distribution: Ensuring products reach the right place at the right time.
2. Market Access: Providing access to a wider customer base by utilizing the reach of various intermediaries.
3. Customer Support: Offering after-sales services, warranty support, and product information.
4. Market Information: Collecting data on customer preferences and market trends.
To improve a distribution channel, consider these strategies:
1. Efficiency: Streamline the distribution process to reduce lead times, minimize stockouts, and cut costs. This can be achieved through better inventory management and optimized logistics.
2. Channel Partners: Carefully select, evaluate, and collaborate with channel partners who understand your brand and target market. Establish clear contracts and expectations.
3. Technology: Implement modern software and systems for inventory management, order tracking, and data analysis. This can enhance transparency and coordination.
4. Market Research: Continuously gather and analyze market data to adapt your distribution strategy based on changing consumer preferences and competition.
5. Customer-Centric Approach: Align your distribution channels with your customers’ preferences. For instance, if they prefer online shopping, strengthen your e-commerce presence.
6. Communication: Ensure effective communication with channel partners. Regular meetings and open dialogue can lead to better cooperation and problem-solving.
7. Quality Control: Monitor the quality of products at each stage of the distribution process to maintain customer satisfaction.
8. Feedback Loop: Establish mechanisms to collect feedback from end consumers, channel partners, and intermediaries. Use this input to make necessary improvements.
9. Risk Management: Develop contingency plans for potential disruptions, such as supply chain interruptions or natural disasters.
10. Sustainability: Consider sustainable practices in your distribution channel, including eco-friendly packaging and transportation options.
or
Explain the significance of channels of distribution in marketing. 2022
ANSWER – Channels of distribution are a critical component of marketing, playing a significant role in a company’s success. Their significance lies in several key aspects:
1.Market Access: Distribution channels provide a means for products to reach a broader customer base. They bridge the gap between manufacturers and end consumers, making products accessible to a wider audience.
2. Customer Convenience: Channels of distribution make it more convenient for customers to access products. Whether through physical stores, e-commerce platforms, or other intermediaries, they provide options for customers to purchase where and when they prefer.
3. Cost Efficiency: Efficient distribution channels help reduce costs related to inventory management, transportation, and order fulfillment. This cost-saving aspect is crucial for maintaining competitive pricing.
4. Expertise and Specialization: Different channel partners often possess specialized knowledge and expertise in their specific domains. For example, retailers understand local market trends, while wholesalers excel at bulk distribution. Leveraging these strengths can enhance the marketing process.
5. Market Information: Distribution channels can serve as valuable sources of market information. They provide feedback on customer preferences, demand fluctuations, and emerging trends, which can inform marketing strategies and product development.
6. Risk Management: Distributing products through multiple channels can help mitigate risks. If one channel faces disruptions (e.g., supply chain issues), others may remain operational, ensuring a more stable flow of products to consumers.
7.Brand Visibility: Distribution channels can increase brand visibility by placing products in various locations. This enhances brand recognition and can lead to increased sales and customer loyalty.
8. After-Sales Support: Channels can offer after-sales services, warranty support, and assistance to customers. This helps build trust and customer satisfaction, which are vital in marketing.
9. Local Adaptation: Distribution channels can adapt marketing strategies to suit local market conditions and cultural preferences. This localization is often necessary for successful marketing in diverse regions.
10. Competitive Advantage: An effective distribution strategy can be a source of competitive advantage. The way a company delivers its products can set it apart from competitors and attract customers.
6. What is physical distribution of goods? Explain its significance. Discuss various components of transportation mix.
ANSWER – Physical distribution of goods refers to the process of efficiently and effectively moving products from manufacturers to consumers. It plays a crucial role in supply chain management and has several key components, including transportation, warehousing, inventory management, order processing, and packaging. The significance of physical distribution lies in its ability to:
1. Reduce Costs: By optimizing transportation and inventory management, it can minimize storage and transportation costs, ultimately leading to cost savings.
2. Improve Customer Service: Efficient distribution ensures that products are available when and where customers need them, leading to higher customer satisfaction.
3. Enhance Competitive Advantage: Effective distribution can give a company a competitive edge by providing faster delivery, better product availability, and improved customer experiences.
4. Minimize Stockouts and Overstock: Proper management of inventory levels can prevent both stockouts (which can lead to lost sales) and overstock situations (which tie up capital).
5. Support Market Expansion: It allows companies to reach new markets and customer segments by ensuring products reach diverse locations.
Regarding the components of the transportation mix, this typically includes various modes of transportation such as road, rail, air, sea, and sometimes pipelines. Companies often combine these modes to create a transportation strategy that optimally meets their specific needs. Each mode has its advantages and disadvantages in terms of speed, cost, capacity, and suitability for different types of goods. The choice of the transportation mix depends on factors like the type of product, distance, urgency, and budget.
7. What is retailing and e-retailing? What are its various types?
ANSWER – Retailing is the process of selling goods or services directly to consumers for their personal use. It encompasses a wide range of activities involved in getting products from manufacturers or wholesalers to end-users. Retailers play a crucial role in the distribution chain.
E-retailing, or electronic retailing, is a subset of retailing that involves selling products or services online through the internet. It’s also commonly referred to as e-commerce. E-retailing has become increasingly popular due to the growth of the internet and online shopping.
Various types of retailing include:
1. Brick-and-Mortar Retailing: This is the traditional form of retailing where customers purchase products from physical stores. Examples include department stores, grocery stores, and boutiques.
2. Online Retailing: This is e-retailing, where businesses sell products or services through websites or online marketplaces like Amazon and eBay.
3. Mobile Retailing: This involves selling products or services through mobile devices, such as smartphones and tablets, often using dedicated mobile apps.
4. Catalog Retailing: In this type of retailing, businesses distribute catalogs showcasing their products, and customers can place orders via phone or mail.
5. Discount Retailing: These stores offer products at lower prices than traditional retailers, often with a focus on cost-cutting and bulk buying. Examples include dollar stores and outlet malls.
6. Specialty Retailing: These stores specialize in a particular category of products, such as electronics, books, or luxury goods.
7. Department Stores: These stores offer a wide range of products under one roof, often organized into different sections or departments.
8. Supermarkets and Hypermarkets: These stores primarily sell groceries and other household items. Hypermarkets are larger and offer a wider variety of products.
9. Convenience Stores: Typically open 24/7, these stores provide quick access to essential items like snacks, beverages, and basic groceries.
10. E-tailers: These are online-only retailers that exclusively operate on the internet, such as Amazon or eBay.
11. Pop-Up Stores: Temporary retail spaces that appear for a short period, often to promote new products or seasonal items.
12. Franchise Retailing: Individuals or businesses operate stores under the branding and guidelines of a larger franchisor.
13. Direct Selling: Companies use a network of sales representatives who sell products directly to consumers, often through in-home demonstrations.
Each type of retailing caters to different customer needs and preferences, and businesses may choose the one that best suits their products and target market.
8. Explain the role of retailer and wholesalers in marketing management.
ANSWER –
1. Retailers:
– Product Distribution: Retailers purchase goods from wholesalers or directly from manufacturers and make them available to the end consumer through various sales channels, such as physical stores, e-commerce websites, or mobile apps.
– Merchandising: Retailers decide how to display and present products to attract consumers. They often create appealing in-store or online environments to encourage purchases.
– Customer Service: Retailers interact directly with consumers, offering assistance, resolving issues, and providing a personalized shopping experience.
– Pricing and Promotion: Retailers may set their own prices and run marketing promotions to entice consumers to buy their products.
2. Wholesalers:
– Bulk Purchasing: Wholesalers buy products in large quantities from manufacturers, benefiting from economies of scale.
– Warehousing and Storage: They store products in distribution centers and manage inventory, ensuring a steady supply for retailers.
– Order Fulfillment: Wholesalers break down bulk shipments and deliver smaller quantities to retailers as needed, reducing handling for manufacturers.
– Risk Mitigation: Wholesalers can help manufacturers mitigate risk by spreading products across multiple retailers and regions.
– Market Information: They often gather market insights and share them with manufacturers, helping them adjust production and marketing strategies.
9.Explain the distribution policies which generally adopted by the manufacturers. 2022
ANSWER – Manufacturers typically adopt various distribution policies to get their products to customers efficiently. Some of the common distribution policies include:
1. Intensive Distribution: This policy involves making a product available through as many outlets as possible. It is often used for products with high demand and low price points, like snacks or everyday household items.
2. Selective Distribution: Manufacturers select specific retailers or outlets to carry their products. This strategy is common for products that require special handling or have specific target markets, such as high-end electronics or cosmetics.
3. Exclusive Distribution: Under this policy, a manufacturer grants exclusive rights to specific retailers or distributors. This is often used for luxury brands or high-end products to maintain a premium image and control over the distribution process.
4. Direct Distribution: Some manufacturers sell their products directly to consumers, bypassing intermediaries. This can be done through company-owned stores, e-commerce websites, or direct sales representatives. It allows for better control over the customer experience and pricing.
5. Dual Distribution: In this approach, a manufacturer uses a combination of direct and indirect distribution channels. For example, they may sell directly to consumers online while also distributing through retailers. This can help reach a broader customer base.
6. Vertical Integration: Some manufacturers choose to own or control the entire distribution chain. This may involve owning the production, distribution, and retail aspects of the business. This strategy offers greater control but can be capital-intensive.
7. Franchising: Manufacturers may use a franchising model where independent business owners (franchisees) operate outlets that sell the manufacturer’s products. This approach can expand the distribution network rapidly.
8. Online Marketplaces: Many manufacturers leverage online marketplaces like Amazon, eBay, or Alibaba to reach a global customer base. These platforms offer a wide reach and customer trust.
9. Cooperative Distribution: Manufacturers may collaborate with other complementary companies to distribute products together. For example, a manufacturer of smartphones might partner with a mobile carrier for joint distribution.
10. What is the skimming price? 2022
ANSWER – Skimming price, also known as price skimming, is a pricing strategy where a company initially sets a relatively high price for a product or service and then gradually lowers it over time. This strategy is often used for new and innovative products to target early adopters and maximize profits. As time passes, the price is reduced to attract a broader customer base. Skimming is typically employed when there is limited competition and a company believes customers are willing to pay a premium for the unique features or benefits of the product.
