Market Skimming: setting an initially high price for a product or service before competitors enter the market.
MARKET SKIMMING
Advantages
Company makes a lot quickly so they can cover their costs quickly - before competition enters the market.
Since the product is new, the company may not be able to produce a lot yet. High prices create prestige but limit demand.
Once development costs are covered, the company can lower prices to compete aggressively with the new competitors
Disadvantages
Competitors benefit from all the work done by the originating company (product development, marketing/consumer awareness, creating distribution networks, etc)
Competitors can launch their product at lower costs because their development costs are lower.
Penetration Pricing: setting a low price for their new product or service to attract customers.
PENETRATION PRICING
Advantages
Floods the market quickly, making it difficult for competitors gain market share.
Creates high consumer demand so the company quickly recoups costs.
Competitors will have difficulty matching prices.
Disadvantages
Consumer demand must be very accurately estimated in order to ensure costs are covered.
Company must be able to meet the demand. This is especially difficult for new companies who don't have the $$$ to produce a lot without established orders.
It is always difficult to raise prices. Customer do not like it and they may switch to the competition.
Competitive Pricing: products in a particular category match or follow the price of their competitors very closely.
COMPETITIVE PRICING Advantages Allows a new product to compete with established products Useful for a new product with unique features. k Disadvantages Consumers may be reluctant to switch or try products they don't know. Smaller companies may be unable to match the production or marketing costs of larger well-established companies. Requires the product to have something unique or distinguishing about it.
Pricing Policies:
Leader Pricing: offering a popular product at a low price to attract customers.
Price Lining: puts all the products that are one price in one place.
iEveryday Low Prices: where the store does not advertise specials or hold sales, but guarantee that their prices are the lowest.ing: puts all the products that are one price in one place.
Super Sizing: adding a low cost to a product to increase its selling price and profitability.
Negotiated Pricing: where the buyer and seller negotiate a price lower than the published price.
Interest-Free Pricing: where companies offer customers a chance to finance their purchase with low or no interest charges.
Combo Pricing: offers the consumer a deal on one part of the sale while making a larger profit on the other parts of the sale.
Psychological Pricing: where consumers will hesitate to pay $10 for a item, but will not hesitate to pay $9.99 for the same item.
What influences a price?
Convenience
Status and image (positioning)
Trends
Competition
Quality
Cost to make and sell it
How much the target customer will spend for it
Profit that a company wants to make
How much a company wants to sell
How quickly they want/need to sell
Selling Price – the actual price paid for a company’s product by the customer.
Cost of Goods Sold – is the actual cost of the product to the selling company.
Operating Expenses – cost of operating a business.
Gross Profit (Margin) – the difference between the selling price and the cost of
goods sold.
Net Profit – the difference between selling price and all the costs and expenses
of the business
Markup – the amount added to the cost of a product to determine its
selling price. Can be expressed as a percentage of the cost or the selling price.
Markdown – any amount by which the original selling price is reduced
before the item is sold.
Variable Costs: Costs that can go up or down depending on the amount of product made or service provided (i.e. packaging).
Fixed Costs: Costs that never change regardless of how many items are produced by a company (i.e. rent, salaries, etc.).
Gross Profit: The amount of $ made by a company after it subtracts the variable costs of that product from its selling price.
Break even point: The point where your costs are exactly the same as your profit, so you are neither losing or gaining money
What is distribution? How a product gets from the producer to the customer.
How to Transport Good Between Channels
Railroad -Large amounts of bulky products -e.g. coal, lumber, livestock -Slow service 2. Containerization -Large, aluminum lightweight boxes -Reduced cost -Fast delivery
3. Parcel Post Ship by mail Good rates Size restrictions by size and weight Difficult with fragile and perishable items
4. Trucking Economical Can carry a wide range of goods Trucks can pickup from railroad and waterways Can be used as a major means of transport New and improved highways has increased speed of this service
5. Pipelines -used for liquids and gases (e.g. crude oil, natural gas, water) Cheaper than rail and road transportation
6.Water Ship Transport Good for bulky raw materials E.g. coal, grain, sugar, cotton
7. Air Transport Fast Carry lightweight, perishables Good to reach isolated areas
Direct Distribution
Direct link between the producer and the consumer
Indirect Distribution
Intermediaries take possession of the goods, add a mark-up, and then resell them to consumers.
Importers
Exclusive rights to sell a product or line of products in another country
Retailers
Final link in the indirect chain. Sells good and services to customer
Wholesalers
Buy products from domestic sources, resell them to retail stores or other businesses
Benefits of wholesalers
Breaking Bulk: meet manufacturer minimum and order large quantities in bulk.
Warehousing: has large amount of storage space where retailers do not.
Risk Bearing: if products don’t sell, retailers might be left with small unsold units, where a W will bear the most inventory to clear.
Financing: the W(wholesaler) invests the $ to carry the inventory for the R(retailer).
Buying: saves R time and effort as they do the initial work finding suppliers of the types of goods it normally carries.
Transporting: many W deliver the goods directly to the R or offer a “cash and carry” service.
Managing: W will offer advice on inventory management.
Promoting: W pass on other promotional material from their suppliers (posters, display materials).
Providing Market Info: W are experts on the products they carry and will pass along any info on new products, mkt trends etc.
Specialty Distribution
Any indirect channel of distribution that do not involve a retail store.
Market Skimming: setting an initially high price for a product or service before competitors enter the market.
MARKET SKIMMING
Advantages
Company makes a lot quickly so they can cover their costs quickly - before competition enters the market.
Since the product is new, the company may not be able to produce a lot yet. High prices create prestige but limit demand.
Once development costs are covered, the company can lower prices to compete aggressively with the new competitors
Disadvantages
Competitors benefit from all the work done by the originating company (product development, marketing/consumer awareness, creating distribution networks, etc)
Competitors can launch their product at lower costs because their development costs are lower.
Penetration Pricing: setting a low price for their new product or service to attract customers.
PENETRATION PRICING
Advantages
Floods the market quickly, making it difficult for competitors gain market share.
Creates high consumer demand so the company quickly recoups costs.
Competitors will have difficulty matching prices.
Disadvantages
Consumer demand must be very accurately estimated in order to ensure costs are covered.
Company must be able to meet the demand. This is especially difficult for new companies who don't have the $$$ to produce a lot without established orders.
It is always difficult to raise prices. Customer do not like it and they may switch to the competition.
Competitive Pricing: products in a particular category match or follow the price of their competitors very closely.
COMPETITIVE PRICING Advantages Allows a new product to compete with established products Useful for a new product with unique features. k Disadvantages Consumers may be reluctant to switch or try products they don't know. Smaller companies may be unable to match the production or marketing costs of larger well-established companies. Requires the product to have something unique or distinguishing about it.
Pricing Policies:
Leader Pricing: offering a popular product at a low price to attract customers.
Price Lining: puts all the products that are one price in one place.
iEveryday Low Prices: where the store does not advertise specials or hold sales, but guarantee that their prices are the lowest.ing: puts all the products that are one price in one place.
Super Sizing: adding a low cost to a product to increase its selling price and profitability.
Negotiated Pricing: where the buyer and seller negotiate a price lower than the published price.
Interest-Free Pricing: where companies offer customers a chance to finance their purchase with low or no interest charges.
Combo Pricing: offers the consumer a deal on one part of the sale while making a larger profit on the other parts of the sale.
Psychological Pricing: where consumers will hesitate to pay $10 for a item, but will not hesitate to pay $9.99 for the same item.
What influences a price?
Convenience
Status and image (positioning)
Trends
Competition
Quality
Cost to make and sell it
How much the target customer will spend for it
Profit that a company wants to make
How much a company wants to sell
How quickly they want/need to sell
Selling Price – the actual price paid for a company’s product by the customer.
Cost of Goods Sold – is the actual cost of the product to the selling company.
Operating Expenses – cost of operating a business.
Gross Profit (Margin) – the difference between the selling price and the cost of
goods sold.
Net Profit – the difference between selling price and all the costs and expenses
of the business
Markup – the amount added to the cost of a product to determine its
selling price. Can be expressed as a percentage of the cost or the selling price.
Markdown – any amount by which the original selling price is reduced
before the item is sold.
Variable Costs: Costs that can go up or down depending on the amount of product made or service provided (i.e. packaging).
Fixed Costs: Costs that never change regardless of how many items are produced by a company (i.e. rent, salaries, etc.).
Gross Profit: The amount of $ made by a company after it subtracts the variable costs of that product from its selling price.
Break even point: The point where your costs are exactly the same as your profit, so you are neither losing or gaining money
What is distribution? How a product gets from the producer to the customer.
How to Transport Good Between Channels
Railroad -Large amounts of bulky products -e.g. coal, lumber, livestock -Slow service 2. Containerization -Large, aluminum lightweight boxes -Reduced cost -Fast delivery
3. Parcel Post Ship by mail Good rates Size restrictions by size and weight Difficult with fragile and perishable items
4. Trucking Economical Can carry a wide range of goods Trucks can pickup from railroad and waterways Can be used as a major means of transport New and improved highways has increased speed of this service
5. Pipelines -used for liquids and gases (e.g. crude oil, natural gas, water) Cheaper than rail and road transportation
6.Water Ship Transport Good for bulky raw materials E.g. coal, grain, sugar, cotton
7. Air Transport Fast Carry lightweight, perishables Good to reach isolated areas
Direct Distribution
Direct link between the producer and the consumer
Indirect Distribution
Intermediaries take possession of the goods, add a mark-up, and then resell them to consumers.
Importers
Exclusive rights to sell a product or line of products in another country
Retailers
Final link in the indirect chain. Sells good and services to customer
Wholesalers
Buy products from domestic sources, resell them to retail stores or other businesses
Benefits of wholesalers
Breaking Bulk: meet manufacturer minimum and order large quantities in bulk.
Warehousing: has large amount of storage space where retailers do not.
Risk Bearing: if products don’t sell, retailers might be left with small unsold units, where a W will bear the most inventory to clear.
Financing: the W(wholesaler) invests the $ to carry the inventory for the R(retailer).
Buying: saves R time and effort as they do the initial work finding suppliers of the types of goods it normally carries.
Transporting: many W deliver the goods directly to the R or offer a “cash and carry” service.
Managing: W will offer advice on inventory management.
Promoting: W pass on other promotional material from their suppliers (posters, display materials).
Providing Market Info: W are experts on the products they carry and will pass along any info on new products, mkt trends etc.
Specialty Distribution
Any indirect channel of distribution that do not involve a retail store.
