Pricing Strategies and Marketing Channels Overview

Price

Indicates the money or other considerations (including other products and services) exchanged for the ownership or use of a product or service.

Value pricing

The practice of simultaneously increasing product benefits while maintaining or decreasing price.

Skimming pricing

Setting the highest initial price that customers who really desire the product are willing to pay when introducing a new or innovative product.

Penetration pricing

Setting a low initial price on a new product to appeal immediately to the mass market.

Prestige pricing

Setting a high price so that quality- or status-conscious consumers will be attracted to the product and buy it.

Odd-even pricing

Setting prices a few dollars or cents under an even number.

Bundle pricing

Marketing two or more products for a single package price.

Standard markup pricing

Adding a fixed percentage to the cost of all items in a specific product class.

Cost-plus pricing

Calculating the total unit cost of providing a product or service and adding a specific amount to the cost to arrive at a price.

Target return-on-sales pricing

Setting prices to achieve a profit that is a specified percentage of sales revenue.

Target return-on-investment pricing

Setting prices to achieve an annual target return on investment (ROI).

Competition-oriented pricing approaches

Methods for setting price that focus on competition.

Customary pricing

Setting a price that is dictated by tradition, a standardized channel of distribution, or other competitive factors.

Above-, at-, or below-market pricing

Setting a market price for a product or product class using the average market price as the benchmark—pricing above, at, or below market level.

Loss-leader pricing

Selling a product below its customary price, not to increase sales, but to attract customers' attention to it in hopes that they will buy other products with large markups as well.

Demand curve

A graph that relates the quantity sold and price, showing the maximum number of units that will be sold at a given price. A change in price results in movement along the demand curve (either up or down).

Price elasticity of demand

The percentage change in quantity demanded relative to a percentage change in price.

Breakeven Point

The quantity at which total revenue and total cost are equal.

Total revenue (TR)

The total money received from the sale of a product—the product of price and quantity.

Fixed cost (FC)

The sum of the expenses that do not change with the quantity sold. Examples: Rent, executive salaries, insurance.

Variable cost (VC)

The sum of the expenses that vary directly with the quantity of a product that is produced and sold. Examples: Direct labor and direct materials used in production; sales commissions tied directly to the quantity sold.

Unit variable cost (UVC)

Variable cost expressed on a per unit basis.

Total cost (TC)

The total expense incurred to produce and market a product, XXXXXX = FC + VC.

Break-even analysis

A technique that analyzes the relationship between total revenue and total cost to determine profitability at various levels of output.

Price fixing

A conspiracy among firms to set prices for a product.

Price discrimination

The practice of charging different prices to different buyers for goods of like grade and quality.

Deceptive pricing

Price deals that mislead consumers.

Bait and switch

When a firm offers a very low price on a product (the bait) to attract customers to a store and then tricks the customer into purchasing a higher-priced (the switch).

Predatory pricing

Charging a very low price for a product with the intent of driving competitors out of business.

Return on Investment (ROI)

The ratio of the firm's sales revenues or unit sales to those of the industry (competitors plus the firm itself)

Marketing channel

Network of individuals and firms that make a producer's product available to end users.

Intermediary (or middleman)

An individual or firm that assists manufacturers in distributing products to end users by helping promote, sell, and distribute its products

Wholesaler

An intermediary who sells to other intermediaries, usually retailers.

Retailer

An intermediary who sells to consumers.

Agent or broker

An intermediary with the legal authority to act on behalf of the manufacturer—their role is to bring buyers and sellers together.

Direct channel

A marketing channel with no intermediaries between the producer and the end user.

Indirect channel

A marketing channel with at least one intermediary between the producer and the end user.

Dual distribution

Strategy of using two or more channels to reach different buyers of the same product.

Multichannel marketing (or omnichannel marketing)

Strategy of combining mutually reinforcing communication and delivery channels to attract, retain, and build relationships with consumers who shop traditional and online channels.

Channel conflict

Conflict that arises when one channel member believes another channel member is engaged in behavior that prevents it from achieving its goals.

Vertical conflict

Conflict between different levels in a channel.

Horizontal conflict

Conflict between intermediaries at the same level in a marketing channel.

Logistics

The activities required to move product inputs and finished products through the supply chain—including order processing, inventory management, materials handling and warehousing, transportation, and return products handling.

Bullwhip effect

The tendency for buyers at different levels of the supply chain to exaggerate the need to increase or decrease inventory in response to variation or lack of predictability in customer demand.

Reverse logistics

The process of reclaiming recyclable and reusable materials, returns, and reworks from the point of consumption for repair, remanufacturing, redistribution, or disposal.

Intensive distribution

Distribution density where a firm tries to place its products and services in as many outlets as possible. Used for convenience products.

Selective distribution

Distribution density where a firm selects a few retailers in a specific geographic area to carry its products. Used for shopping products.

Exclusive distribution

Distribution density where only one retailer in a specific geographic area carries the firm's products. Used for specialty products.

Forward Integration

A producer owns an intermediary at the next level down in the marketing channel.

Backward Integration

A retailer produces some of its own products.

Channel of communication

Medium used to transmit the message from the sender to the receiver—professional selling, advertising, public relations, sales promotions, or direct marketing.

Field of experience

Frame of reference including attitudes, values, and beliefs that influence the way a source encodes a message or the way a receiver decodes a message.

Noise

Extraneous factors that can work against effective communication by distorting a message or the feedback received during the communication process.

Promotional mix

The combination of communication tools to (1) inform prospective buyers about the benefits of the product, (2) persuade them to try it, and (3) remind them later about the benefits they enjoyed by using the product.

Elements of the promotional mix

(1) advertising, (2) personal selling, (3) sales promotion, (4) public relations, and (5) direct marketing.

Integrated marketing communications (IMC)

The concept of designing marketing communications programs that coordinate all promotional activities to provide a consistent message across all audiences.

Advertising

The two-way flow of communication between a buyer and seller, often in a face-to-face encounter, designed to influence the purchase decision of a person or group.

Personal selling

A form of communication management that seeks to influence the feelings, opinions, or beliefs held by customers, prospective customers, stockholders, suppliers, employees, and other publics about a company and its products or services.

Public relations

A nonpersonal, indirectly paid presentation of an organization, product, or service.

Publicity

A short-term inducement of value offered to arouse interest in buying a product or service.

Sales promotion

A promotional alternative that uses direct communication with consumers to generate a response in the form of an order, a request for further information, or a visit to a retail outlet.

Direct marketing

Directing the promotional mix to channel members to gain their cooperation in ordering and stocking the product.

Push strategy

Directing the promotional mix at ultimate consumers to encourage them to ask the retailer for a product.

Pull strategy

The group of prospective buyers toward which a promotion program will be directed.

Target audience

The sequence of stages a prospective buyer goes through from initial awareness of a product to eventual action including awareness, interest, evaluation, trial, and adoption of the product.

Hierarchy of effects

Loyal consumers recommending brands to others.

Advocacy (Consumer)

Spending is set as a percentage of past or anticipated sales.

Percentage of sales budgeting

Spending is set to match competitors absolute spending or spending relative to market share.

Competitive parity budgeting

Spending on promotion occurs only after all other expenses are covered.

All-you-can-afford budgeting

Budget is determined by setting promotion objectives, outlining the tasks needed to accomplish those objectives, and then determining the cost of performing those tasks.

Objective and task budgeting

The outcome of a direct marketing offer designed to motivate people to visit a business.

Traffic generation

The result of a direct marketing offer designed to generate interest in a product and request additional information.

Lead generation

The result of direct marketing offers that contain all the information necessary for a prospective buyer to decide about a purchase and complete the transaction.

Direct orders

A promotional alternative that uses direct communication with consumers to generate a response in the form of an order, a request for further information, or a visit to a retail outlet.

Product advertisement

Advertisement that focuses on selling a product.

Institutional advertisement

Advertisement designed to build goodwill or a positive image for an organization rather than to promote a specific product.

Pioneering (or informational) advertisement

Advertisement used to launch a new product category by informing people what a product is, what it can do, and where it can be found.

Competitive (or persuasive) advertisement

Advertisement used to promote a specific brand based on that brand's features and benefits.

Comparative advertisement

Form of a competitive advertisement that shows a brand's strengths relative to those of competitors.

Reminder product advertisement

Advertisement used to reinforce previous knowledge of a product.

Reinforcement advertisement

Form of reminder advertisement used to assure users of the product that they made the right choice.

Advocacy (Institutional) advertisement

Advertisement that states a company's position on an issue.

Pioneering institutional advertisement

Advertisement that promotes the advantages of one product class over another.

Competitive institutional advertisement

Advertisement used to reinforce previous knowledge of a company or organization.

Reminder institutional advertisement

Sales tools used to support a company's advertising and personal selling directed to ultimate consumers. Include deals, coupons, rebates, loyalty programs, samples, premiums, contests, sweepstakes, point-of-purchase displays, and product placements.

Consumer-oriented sales promotions (or consumer promotions)

Short-term price reductions used to increase trial among potential customers, increase repeat purchases, or respond to competitive actions.

Deals

A voucher entitling the holder to a discount on a particular product at the time of purchase.

Coupon

A partial refund on a product purchase after the purchase is made by submitting proof of purchase.

Rebate

Product—usually a smaller, trial-size version—offered for free or at a greatly reduced price.

Sample

Promotion that offers a premium as a customer accumulates purchases.

Loyalty Program

Game requiring analytical or creative effort to win a prize.

Contest

Games of chance (with no analytical or creative effort required) to win a prize.

Sweepstake

Signage or a fixture that displays products in areas where customers make purchase decisions.

Point-of-purchase (POP) display

A consumer sales promotion tool that features the use of a brand-name product in a movie, television show, video game, or other media.

Product placement

An approach to communication that suggests consumers can avoid some negative experience through the purchase and use of a product, a change in behavior, or a reduction in the use of a product.

Fear appeal

An approach to communication that suggests a product will increase the attractiveness of the user.

Sex appeal

An approach to communication that implies the product is more fun or exciting than competitors' offerings.

Humorous appeal

The number of different people or households exposed to an advertisement.

Reach

The percentage of households in a market that watch a particular TV show or listen to a particular radio program.

Rating

The average number of times a person in the target audience is exposed to an advertisement.