Unit 4 IP
Pricing Strategies and Distribution Channels
Pricing strategies to adopt
Launching a new product in the market is a challenge to businesses. Understanding the results afterwards or the response of the customers becomes difficult. It is difficult to know how the target market will respond (Lancioni, 2005). Therefore, it is important to use pricing strategies for purposes of widening customer base and increasing the sales. In this case, Michelle has options to undertake to penetrate the market. First, the pricing strategy should be that of market penetration. When undertaking the strategy, it is necessary to lower the prices of the products or services below the market pricing levels. Lower prices will attract more customers: other potential customers may shift their demands from other companies, and purchase the product. The strategy aims at penetrating the competitive environment despite being attributed to initial loss of income that otherwise would have increased the sales. This method is one of the strategies used to increase awareness. Over time, many people know the product and the business can maximize on this opportunity to increase their profits.
Secondly, price skimming would be the best method to employee in scenarios where the new product has no competitors (Schindler, & Schindler, 2011). Meaning, the prices of the products and services are set at high levels in the initial stages since the company utilizes the powers of a monopoly. Moreover, the decision will be determined by the nature of the product. That is, if the product is a unique and no other producer’s deal in the same product or if the product exists in the market but the company produces a substitute. Monopoly power never lasts for long due to competition room. Other entrepreneurs may take advantage of the case and introduce a similar market that may dilute the customer base. Due to this reason, it is necessary to price the new products and services at high prices at the initial stages. In case competitors emerge, you can lower prices to allow take advantage of the competitive environment. Therefore, the choice of pricing strategy is critical.
A distribution channel selected determines whether a product can reach the customer or not. To increase the customer base, it is important to encompass methods that link the product directly to the market. In this case, using intermediaries is more advantageous since the new product may require advertisement and market costs (Weitz, & Jap, 1995). Increased cost to create awareness reduces the profit margin. Hence, engaging the intermediaries will assist reduce the advertising and promotion costs. Michelle can involve the retailers as part of the distribution channel. Retailers sell the products to the end-user. This means they are a viable link between the customer and company. Through the use of retailers, the product will cover a larger market because retailer’s locations is distributed all over the country. Unlike engaging in direct selling, the retailers will capture the unoccupied demand in the remote areas. The cost in this case will relate to transportation and giving the retailers products and services to sell at a discount. This is the only cost that is attributed to sales and marketing when engaging retailers.
On the other hand, engaging wholesalers is necessary because of the nature of the operations. The wholesaler links the retailers with the business (Stern, & Reve, 1980). This is crucial as the most retailers obtain goods from the wholesalers to meet the demand of the end-user. Wholesalers get the goods at a discounted rate that will allow them make a profit and be motivated to continue in business. Similar to retailers, the link between the wholesalers reduces the costs attributable to marketing of a product especially in cases where the firm has insufficient finances. Therefore, the choice of distribution channels will depend on the customer base and the cost attributable.
Lancioni, R. (2005). Pricing issues in industrial marketing. Industrial Marketing Management, 34(2), 111-114.
Schindler, R. M., & Schindler, R. (2011). Pricing strategies: a marketing approach. Sage.
Stern, L. W., & Reve, T. (1980). Distribution channels as political economies: a framework for comparative analysis. Journal of marketing, 44(3), 52-64.
Weitz, B. A., & Jap, S. D. (1995). Relationship marketing and distribution channels. Journal of the academy of Marketing Science, 23(4), 305-320.
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