Chat with us, powered by LiveChat Write 3 pages on the Pricing issues in channel management of Apple. Add graphs and charts (not included in 3 pages) Create - School Writers

Write 3 pages on the Pricing issues in channel management of Apple. Add graphs and charts (not included in 3 pages) Create

Write 3 pages on the Pricing issues in channel management of Apple. Add graphs and charts (not included in 3 pages) Create a couple slides that reflect what was included in 3 pages. Can use research from online but include where it was found.

Chapter 11

Pricing Issues in

Channel Management

  • THE AMOUNT OF MONEY AND SERVICES (OR GOODS) THE BUYER EXCHANGES FOR AN ASSORTMENT OF PRODUCTS AND SERVICES PROVIDED BY THE SELLER (Kent B Monroe, 1979)
  • More than simply the amount that is shown on the sales invoice
  • List prices
  • Discounts and allowances

DISCOUNT AND ALLOWANCES

  • Cash Discount 2/10 net 30
  • Trade Discounts
  • Promotional Allowances
  • Quantity Discounts
  • Seasonal Discounts
  • Product Allowances

The Importance of Pricing

11

Objective 1:

Pricing decisions cause top-level marketing

executives more concern than any other

strategic marketing decision area.

Pricing is viewed as having a more direct

link to the firm’s bottom line.

>>Channel Pricing Structure: Channel participants each want a part of the total price sufficient to cover their costs and provide a desired level of profit.

11

The “Golden Rule”
of Channel Pricing

It is not enough to base pricing decisions solely on

the market, internal cost considerations, and

competitive factors. Rather, for those firms using

independent channel members, explicit consideration

of how pricing decisions affect channel member

behavior is an important part of pricing strategy.

=>

Pricing decisions can have a

substantial impact

on channel member performance.

11

Influencing Pricing Strategy

Objective 3:

The major challenge for the channel manager:

To help foster pricing strategies that

promote channel member cooperation and

minimize conflict

11

Channel Manager’s Role

Major areas of consideration in a

manufacturer’s pricing decision

Internal

cost

considerations

Channel

considerations

Competitive

considerations

Target

market

considerations

Channel manager must focus

on the channel considerations

and work to incorporate them

into the firm’s pricing decisions

11

Channel Manager’s Role

To find out about channel member views

and to appraise their

effects on channel

member performance

11

Channel Manager’s Role

Have

channel members’

viewpoints on pricing issues included as an integral part of the manufacturer’s price-making process

Such action anticipates

and hopefully avoids

problems that may

arise after pricing

decisions have

taken effect

Channel Pricing Guidelines

11

Objective 4:

1. To help those involved in pricing decisions to

focus more clearly on the channel implications

of their pricing decisions

Why?

To provide general prescriptions on how to

formulate pricing strategies that will help promote

channel member cooperation and minimize conflict

11

Profit Margins

Guideline #1: Each efficient reseller must obtain

unit profit margins in excess of unit operating costs.

OR

Channel members who believe that the manufacturer is not allowing them sufficient margins are likely to seek out other suppliers or establish and promote their own private brands.

Different Classes of Resellers

11

Guideline #2: Each class of reseller margins should vary

in rough proportion to the cost of the functions the

reseller performs.

Do channel members hold inventories?

Do they make purchases in large or small quantities?

Do they provide repair services?

Do they extend credit to customers?

Do they deliver?

Do they help train the customers’ sales force?

11

Guideline #3: At all points in the vertical chain

(channel levels), prices charged must be in line with

those charged for comparable rival brands.

Channel managers should attempt to weigh any margin differentials between their own and competitive brands in terms of what kind of support their firms offer and what level of support they expect from channel members.

Rival Brands

11

Guideline #4: Special distribution arrangements—

variations in functions performed or departures

from the usual flow of merchandise—should be

accompanied by corresponding variations in

financial arrangements.

The margin structure should reflect any changes in the usual allocation of distribution tasks between the manufacturer and the channel members.

Special Arrangements

11

Guideline #5: Margins allowed to any type of

reseller must conform to the conventional

percentage norms unless a very strong case can be

made for departing from the norms.

Exceptions are possible if they can be justified in the eyes of the channel members. However, it is the job of the channel manager to attempt to explain to the channel members any margin changes that deviate downward from the norm.

Conventional Norms in Margins

11

Guideline #6: Variations in margins on individual

models and styles of a line are permissible and

expected. However, they must vary around the

conventional margin for the trade.

Channel members are often amenable to accepting the lower margins associated with promotional products so long as they are convinced of the promotional value of the product in building patronage.

Margin Variation on Models

11

Guideline #7: A price structure should contain

offerings at the chief price points, where such

price points exist.

Price points are specific prices, usually at the retail level, to which consumers have become accustomed. Failure to recognize retail price points can create problems for the manufacturer as well as its channel members if consumers expect to find products at particular price points and such products are not offered.

Price Points

11

Guideline #8: A manufacturer’s price structure

must reflect variations in the attractiveness of

individual product offerings.

If the price differences are not closely associated with visible or identified product features, the channel members will have a more difficult selling job.

Product Variations

11

Guideline Caveat

Objective 5:

There is no

Guarantee

Particular circumstances and situations exist

in which these guidelines will not apply or

will be irrelevant.

11

Other Channel Pricing Issues

Objective 6:

Exercising control in channel pricing

Changing price policies

Passing price increases through the channel

Dual channel pricing

Using price incentives in the channel

Dealing with the gray market & with free riding

11

Exercising Control in Pricing

Because channel members typically view pricing

as the area over which they have total control. . .

First: Rule out any type of coercive approaches

to controlling channel member pricing policies.

Second: The manufacturer should encroach on the

domain of channel member pricing policies only if

the manufacturer believes that it is in his or her

vital long-term strategic interest to do so.

Finally: If the manufacturer believes that it is necessary to

exercise some control over member pricing, he or she

should do so through “friendly persuasion.”

11

Channel members fear such changes because they have

become accustomed to the strategy, or their own pricing

strategies may be closely tied to those of the manufacturer.

Changing Price Policies

Changes in

manufacturer pricing policies

or related terms of sale cause

reactions among

channel members.

11

First: Manufacturers should consider the long- and the

short-term implications of such increases versus

maintaining the current prices.

Second: Manufacturers should do whatever possible if

passing on the price increase is unavoidable.

Finally: Manufacturers could change their strategies in

other areas of the marketing mix to help offset

the effects of such increases.

Passing Price Increases Through the Channel

Strategies for channel members to use in order

to avoid simply passing along price increases

through the channel:

11

Possible Solutions:

• Make pricing promotions as simple and

straightforward as possible.

• Design price-promotion strategies to be at least as

attractive to retailers as they are to consumers.

Manufacturers face difficulties gaining strong

retailer acceptance and follow-through on

pricing promotions.

Using Price Incentives in the Channel

11

Channel design decisions that result in closely controlled channels and selective distribution as well as changing buyer preferences may help limit the growth of the gray market and free riding.

Gray Market

The sale of brand-name products at very low prices by unauthorized distributors or dealers

Gray Market & Free Riding

Free Riding

Describes the behavior of distributors & dealers who offer extremely low prices but little service to customers

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