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Module5:Pricing,Placeand
Retailing

Price

Typicaldefinition,thedollaramounttheconsumerpays.

Inreality,itincludesmanycosts

Money
Time
CognitiveEffort(thinking,planning)
BehavioralEffort(doing)
AffectiveEffort(feeling)
Commitment

Hiddensignalofquality
Often,thereisatradeoff amongdifferentelementsoftheprice,for
thesamelevelofbenefit.

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TriggeringtheExchange
Tradeoffintheconsumerscosts:

timeformoney(longqueuebutless$$$)
moneyfortime(shortqueuebutmore$$$)
moneyforeffort(getlawnmowedfor$$$)
effortformoney(makeyourownpizza)
effortforvalue(shoparoundspendingallweekend)
valueforeffort(buythefirstcaryousee).

Resultsindifferentmarketsegments.

SomeConceptsinvolvingPrice
Demand
PriceelasticityandDemand
BreakevenAnalysis
Referenceprice
Priceperception
Pricecompetition

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PriceandDemand

Priceincreases,demandgoesdown?
Priceincreases,quantitydemandedgoesdown?
Incomeincreases,demandgoesup?
Concepts:
Demand
Changeinquantitydemanded
Changeindemand.

DriversofDemand

Tasteorpreferences.
Totalnumberofcustomers.
Availabilityofsubstitutes.
Income
Priceexpectationsforfuture

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BreakEvenPoint
Contributionmargin(CM)
=Pricevariablecost

Breakevenvolume
=ContributionMargin/Fixedcost

Complications:
Variablecostbeingnotconstant.
Fixedcostnotbeingconstant.
Quantitydemandedoutsidebreakevenpoint.Needtoshift
demand.Pricechangewonthelp.

ReferencePriceandPricePerception
Theaggregateconsumerbeliefaboutwhat
thepriceshouldbeforaparticularoffering.
Whyshouldwecare?
Priceperceptionisasubjectivejudgment
aboutaparticularmarketoffering(product).

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CommonPricingGoals

Maximizeprofits.
Maximizeunitsales.
Marketshare.
Discouragecompetitors.
BrandImage
Traffic.
Trialpurchases.

PricingStrategies
Costplus
(Variablecost+allocatedcost)*(1+%markup)

Skimming
Highlow.Usuallyfirsttomarket.

PenetrationPricing
Low.Usuallyexpectthatcostsgodownovertime.

ExperienceCurve
Loweringwithtime.

Prestige
BaitandHook
Lowbase,aggressiveaddons.

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PricePromotions
Usuallyshortterm,andaggressive.
Donefor:
Newintroductions.
Inventorymanagement.
Getcompetitorscustomerstotrytheproduct.

ProductLifeCycleandPricing
Strategies
Phase
Introduction

CostPlus

Growth
Maturity
Decline

Skimming

Penetration Experience
Curve
X

Reverse?

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Note
Easytochangeprices,buthardtochange
priceperceptions.
Productmixandpricingpoliciescansynergize.
Pricingcanbesourceofinformationand
positioningandfacilitateexchangeasmuchas
itisadragontheexchange.

Inthelongrun,pricehastobelower
thantheperceivedcustomervalue
andhigherthanthecosttofirm.

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Place
a.k.a.distribution,orhowtogetthe
productstoaplacewhereconsumers
canengageintheexchange

ChannelUtilities
FormUtility:Convertraw/bulkgoodstoa
consumableproduct/quantity.
PlaceUtility:Makingthephysicalexchange
possiblewheretheconsumerwantsit...
TimeUtility:...atatimewhentheconsumer
wantsit.
Possession:Actualtransferofownership.

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Whatisretailing?
Thepointofexchange
Servingtheendcustomerforpersonal
consumption.
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AlternateDefinitionofRetailing
Retailingisthesetofactivitiesthatcreateand
delivervaluetocustomersbymakingthe
exchangelesscostly.Retailingdoesthisby:
helpingconsumersbuyproductsmanufacturedby
otherorganizations.
creatingservicesreadyforconsumption
orboth.
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TheRoleofRetailing

Manufacturer

Wholesaler

Retailer

Consumer

Levyand Weitz2007
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HowValueisCreatedinRetailing

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MajorRetailActivitiesImpact
BothWTPandCost
BulkBreaking

Information
Provision

Spatial
Convenience

Customer
Service

Waitingand
DeliveryTime

ProductVariety
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RetailsFormats
Retail
Formats

Aretailformatrepresentsaspecific
configurationoftheretailmarketing
mixwhichismaintainedconsistently
overtime:

natureofmerchandise
servicesoffering
pricingpolicy
advertisingandpromotionmix
storedesignanddisplay
location
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Channel/RetailConcepts
Expansioncanbeeitherto
Sameneedsindifferentgeographies.
Easier,onlysupplychainconsiderationsdominate.
Cutandpaste
Highlydependentonretailbubble.
Themaximumdistanceaconsumeriswillingtotraveltoengageinthe
transaction.

Differentneedsfromsame/differentgeographies
Harder,typicallyinvolvestheentireSTP,4Psandmostof5Cs.

Differentchannelstodifferentcustomers
Internetversuslowendretailversushighendretailofteninvolvesproduct
mix,customerbehaviorconsiderations.

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