Define and discuss the difference between value-based pricing and cost-based pricing. What are strengths and weaknesses of each method? Explain in detail.
Describe how your project company currently prices its main products or services. Is this the best method? Why or why not?
Comment on the traditional approaches of skimming and penetrating in your discussion, as they would apply to your product/brand/company.
Market-Skimming pricing (more commonly used)
Initial prices are set high relative to “Economic Value to the Customer (EVC)”
Objective is to skim the “cream” of high value customers
Prices then fall slowly over time
Initial prices are set low relative to EVC
Objective is to penetrate the market by attracting a wider range of customers early in the product life cycle
We recognize that you are marketing an existing product, but at one point the product was new and your current product will certainly experience a revival.
On Distribution –
How does a vertical marketing system differ from a horizontal marketing system? Explain in detail.
Vertical marketing system:
A channel structure in which producers, wholesalers, and retailers act as a unified system. One channel member owns the others, has contracts with them, or has so much power that they all cooperate.
Provides channel leadership
Horizontal (conventional) marketing system:
A channel arrangement in which two or more companies at the same level join together to exploit a new marketing opportunity.
Wal-Mart & McDonalds
What system best describes your project company’s distribution approach?
Identify your company’s primary marketing channel’s strengths and weaknesses?
Include an analysis on where you think your company can cut costs while also providing more value from manufacturing to final retail.
Recall that the many channels along the way are most often separate businesses each trying to maximize value for its own customer while also maximizing profit for itself. Think of this important phenomenon as you shape your discussion on distribution management.
Level-one channel (direct marketing) channel: includes telemarketing, direct mail, door-to-door, TV selling (infomercials), and home parties
Level-two channel: contains one selling intermediary, such as a retailer
Level-three channel: contains two intermediaries
In consumer markets, these are typically a wholesaler and a retailer.
Exclusive distribution: typical of luxury goods retailers
(e.g. Louis Vuitton)
Selective distribution: for more specialized goods that are carried through specialist dealers
(e.g. brands of craft tools, electronic devices, or large appliances)
Intensive distribution: common for basic supplies, snack foods, magazines, and soft drink beverages