MKT 571; Social, Ethical, and Legal Implications PowerPoint Presentations

0

Distribution

An interesting thought of the digital world has changed the marketing world as well. “Traditionally, the price has operated as a major determinant of buyer retailers to lower prices. Internet has been changing the way buyers and sellers interact,” (Kotler & Keller, 2016, p. 462) changing the way not only sales occur online between the seller and the buyer but also has been a game changer for businesses that have either gone bankrupt or have had to close stores due to their major online sales demand.

Facebook wishes to leverage its database to introduce a product which allows individuals to order food directly from their website. Facebook hopes to introduce a food service like no other, a service cues from real-time analysis of the data users show interest. For example, Facebook’s algorithms note a spike Pizza among people living in a particular city; it will offer options for people to purchase Pizza from its website. The success of the product depends on the distribution strategy Facebook uses; distribution entails moving the product from the producer to the consumers (Pang & Chen, 2014). The distribution strategy utilized by Facebook is to be flexible because the service anticipates and responds to demand in real time.

An ideal distribution strategy for Facebook is direct distribution. Direct distribution is a distribution strategy where the company sells its products directly to the customer without involving any intermediaries (Hanssens, Pauwels, & Srinivasan, 2014). Facebook’s food service, direct distribution is ideal: it gives the company plenty of control and opportunity to refine its distribution strategy to satisfy customer demand.

Direct distribution eschews the use of intermediaries, enabling Facebook to market the cost of the food its sells through the service. Facebook isn’t traditionally in the food industry; therefore, it will take billions of investment in its distribution channel; however, the company will have obstacles to overcome. Successful fast food franchises like Domino’s spent billions of dollars in research and years to obtain a distribution channel; to where customers in America can order Pizza and have delivered within minutes of placing the order, which is Facebook’s future goal.

A significant amount of capital needed to get a direct distribution channel up and running means Facebook has to find a partner with expertise and fleet to meet the demands of Facebook’s customers. Facebook can deal with its distribution problems if they collaborate with food companies to establish distribution channels, such as Domino’s Pizza.

Facebook’s real-time data analysis predicts demands allows customers to order food directly from the website while the food industry uses their established distribution channels to get the food to the customers. Facebook will roll out the service in particular cities with a large number of Facebook users, for example, New York. The distribution channel used by Facebook for its new service is a mix of direct and selective distribution; the nature of the product only makes it viable in regions with a large number of users due to volume.

Pricing strategy

Facebook new service is entering a space dominated by hundreds of competitors; the pricing philosophy aimed is to capture a significant market share portion as soon as possible. Unlike its competitors, Facebook has deep pockets of cash that can be used to subsidize its products until they have a dominant market position and can achieve profitability. The low pricing enables Facebook to attract customers who are unfamiliar with the food service but find a reasonable price. The aggressive entry into the fast food business can trigger a price war; however, Facebook has the necessary funding to ensure it is successful.

The pricing strategy used is promotional pricing; promotional pricing is a strategy aiming to increase sales by lowering the cost of a product or service (Solomon, 2014). The stable company introduces a new product, promotional pricing to draw attention to the new service and increase demand. Facebook risks losing money in this market, but hoping to attain a dominant market position in a promptly manner to minimize loss by offering food delivery to customers at low average costs; with promotional pricing strategy allowing Facebook to assess the viability of its new business venture.

Graph 1.1 Illustrates low prices correlate with an increase in demand. ("K--K Club", 2003-2017). 

References

1. Hanssens, Pauwels, & Srinivasan. (2014). Consumer attitude metrics for guiding marketing mix decisions. Marketing Science, 33(4), 534-550.

2. K--K Club. (2003-2017). Retrieved from http://k--k.club/?p=54579

3. Kotler, P.T. & Keller, K.L. (2016). Marketing Management (15th ed). Upper Saddle River, NJ: Pearson/Prentice Hall

4. Pang, & Chen. (2014). Coordinating inventory control and pricing strategies for perishable products. Operations Research, 284-300.

5. Solomon. (2014). Consumer Behavior: Buying, having, and being (Vol. 10). Englewood Cliffs, NJ: Prentice-Hall.

Purpose of Assignment 

This assignment is designed to help students analyze and understand how price setting and go to market (distribution) are interrelated and affects the profitability and growth of the business. It has been designed to be a short overview on purpose: the concepts of pricing and distribution are complex and a general understanding is what should be absorbed in one week of study. 

Assignment Steps 

Construct a minimum 700-word plan for setting price and a distribution model (place/distribution) in Microsoft® Word. This plan should address at least three elements (from the Price and Place/Distribution list below) of the Price and Place/Distribution section of the marketing plan.

• Price and Place/Distribution:

  • Distribution Strategies

  • Channels, Mass, Selective, Exclusive

  • Positioning within channels

  • Dynamic/Static Pricing Strategies

  • Channel tactics (Pricing)

  • Daily pricing, promotion pricing, List pricing

Note: Charts/graphs/tables do not count toward the word count.

The plan will be a continuation of your global or multi-regional business you chose in Week 1. This will be incorporated into your overall marketing plan for Week 6.

Cite a minimum of three peer-reviewed references. As stated in the course guidelines, all assignment should include insight from the chapter readings.

Format your assignment consistent with APA guidelines. 

Click the Assignment Files tab to submit your assignment.

Grading Guide

Good introduction as it outlines what will be covered based on the description in the syllabus.

Good start with the target audience profile and be sure this is only mentioned once in the final assignments and covers all elements such as demographic, psychographic and buyer behavior along with more detailed based demographics.

Good information related to the steps used in defining the pricing strategy outlined below my grading guide.

How are returns handled, is there a full refund?

Review details below related to the process in establishing the pricing for the plan. Be sure recommendations are justified including any changes in currency exchange rates for international pricing.

This strategy can change pending the geographic location.

How are they compensated and does this impact the final pricing of the product? What other role do they have throughout the distribution strategy?

Be sure to define and give recommendations on all elements of the Placement which may include intermediaries, distributors along with suppliers and retailers. What issues and challenges are you expecting with these various parts of the placement strategy?

Consider using tables and other illustrations to describe domestic and international placement strategies. See example below for illustration ideas.

Below is information to review and consider using to update each section for your final week 6 assignment.  

Identify all pricing options and justify what your recommended pricing strategy will be including various policies.

Below are some notes related to establishing a pricing strategy.

According to (Kotler,P. & Keller, K.L., 2007, p.230) ‘Companies usually do not set a single price but, rather, a pricing structure that reflects variations in geographical demand and costs, market-segment requirements, purchase timing, order levels, delivery frequency, guarantees, service contracts, and other factors.”

Also, I want to reiterate some points from the readings related to pricing that may have already been cited but should be considered for use within your team papers:

1. Kotler and Keller (2007) discuss that each price factor leads to different levels of demand and thus varying impact on marketing objectives (Kotler,P. & Keller, K.L., 2007, p.220). As such, the most important factor in price setting typically is selecting the pricing objective. Notice that I said typically, as the answer can vary depending on the scenario or situation.

2. Whether the company’s objective is survival, maximizing current profit, maximizing market share, maximizing market skimming, or product-quality leadership, this factor will determine the actions related to the remaining factors (Kotler,P. & Keller, K.L., 2007, p.220).

3. Adapting of the price is also important because of differences in the consumers geography, income, market segments, etc (Kotler,P. & Keller, K.L., 2007, p.230).

4. For example, a company in Texas may charge local consumers enough to just hit the profit margin; however, if the same company sends it product to California, it may charge enough not only to break even, but also additional to cover the price of shipping/transporting the product (Kotler, & Keller, 2007, pg. 230).

5. Another important part of adapting pricing is the ability to offer discounts for such things as quantity (pay less for buying more), paying early (paying your bill quicker than the negotiated due date), seasonal discounts (Kotler,P. & Keller, K.L., 2007, p.231). This adaptation allows the company to maximize profit potential.

6. How will the three C's related to setting a pricing method seen in Figure 14.4 be used in establishing the pricing strategy?

“Pricing decisions are complex and must take into account many factors—the company, the customers, the competition, and the marketing environment. Holistic marketers know their pricing decisions must also be consistent with the firm’s marketing strategy and its target markets and brand positions.” (Kotler & Keller 2016 p 461)

Also, when setting a price the following is a six step process that should be adhered to based on

1) Selecting The Pricing Objective

2) Determining Demand

3) Estimating Cost

4) Analyzing Competitors’ Cost, Prices, and Offers

5) Selecting A Pricing Method

6) Selecting The Final Price

Within these steps, the five major objectives of pricing are survival, maximum current profit, maximum market share, maximum market skimming, or product-quality leadership (Kotler, P. & Keller, K.L., 2007, p.220).

Finally, payment methods that are accepted and refund policies should conclude this section.

Describe your placement strategy including both inbound and outbound distribution channels. 

This section should cover both placement and channel distribution strategies. The focus of a placement strategy is making goods and services available in the right quantities and locations, when customers want them and most important where they expect to find the product for purchase. The strategy may differ when different target markets such as geographic location have different needs, thus the number of place tactics maybe required. The placement should also cover the various distribution channel options which focus on when and how a product goes from the manufacturer, to the supplier using various intermediaries or vendors to reach the consumer. Thus any series of firms or individuals who participate in the flow of products from producer to final user or consumer is the focus of this section.

Questions to consider for this section are:

1. What resources are used for both placement and distribution strategies.

2. Describe any pertinent inbound, outbound, direct, indirect, push and pull distribution and channels strategies.

3. What logistics are needed to support the various channel strategies for both inbound and outbound?

4. How does geographical location affect your selection of distribution channels and what is your placement strategy for each location?

5. Identify any technology that maybe used to support the logistics of your strategies such as CRM/MRP or ERP systems and how does it play in managing distribution channels in your company or for your team project?

6. How might these strategies be modified over the course of the PLC?

Option 1 Distribution Strategies:

1. Describe inbound and outbound process

2. Identify resources

3. Develop terms, policies and procedures

Page 501

A one-level channel contains one selling intermediary, such as a retailer. A two-level channel contains two intermediaries, typically a wholesaler and a retailer, and a three-level channel contains three. In the meatpacking industry, wholesalers sell to jobbers essentially small-scale wholesalers, who sell to small retailers.

Option 2 Channels, Mass, Selective, Exclusive

The three strategies are shown below with key issues too focus your application on.

(Kotler & Keller, 2016, p. 506).

Page 494

In managing its intermediaries, the firm must decide how much effort to devote to push and to pull marketing. A push strategy uses the manufacturer’s sales force, trade promotion money, or other means to induce intermediaries to carry, promote, and sell the product to end users. This strategy is particularly appropriate when there is low brand loyalty in a category, brand choice is made in the store, the product is an impulse item, and product benefits are well understood.

In a pull strategy the manufacturer uses advertising, promotion, and other forms of communication to persuade consumers to demand the product from intermediaries, thus inducing the intermediaries to order it. This strategy is particularly appropriate when there is high brand loyalty and high involvement in the category, when consumers are able to perceive differences between brands, and when they choose the brand before they go to the store.

Page 505

NUMBER OF INTERMEDIARIES

Three strategies based on the number of intermediaries are exclusive, selective, and intensive distribution.

Page 506

TERMS AND RESPONSIBILITIES OF CHANNEL MEMBERS

Each channel member must be treated respectfully and be given the opportunity to be profitable. The main elements in the “trade relations mix” are price policies, conditions of sale, territorial rights, and specific services to be performed by each party.

• • Price policy calls for the producer to establish a price list and schedule of discounts and allowances that intermediaries see as equitable and sufficient.

• • Conditions of sale refers to payment terms and producer guarantees. Most producers grant cash discounts to distributors for early payment. They might also offer a guarantee against defective merchandise or price declines, creating an incentive to buy larger quantities.

• • Distributors’ territorial rights define the distributors’ territories and the terms under which the producer will enfranchise other distributors. Distributors normally expect to receive full credit for all sales in their territory, whether or not they did the selling.

• • Mutual services and responsibilities must be carefully spelled out, especially in franchised and exclusive-agency channels. McDonald’s provides franchisees with a building, promotional support, a record-keeping system, training, and general administrative and technical assistance. In turn, franchisees are expected to satisfy company standards for the physical facilities, cooperate with new promotional programs, furnish requested information, and buy supplies from specified vendors, as well as pay monthly franchisee fees.

Option 3 Positioning within channels

Channel positioning refers to how the company views its relationships with the reseller or customers. Narus and Anderson said that for a company to gain “a strong, competitive presence in the final-customer marketplace, manufacturers must reward, cajole, and coax their distributor to take marketing actions” (Narus & Anderson, 1988, para. 2). The steps required for channel positioning are (Narus & Anderson, 1988, para. 12):

Determine performance expectation for distributors

Select and advantageous channel position

Construct a secure partnership advantage

Communicate and promote the channel position to distributors

Page 501

A zero-level channel, also called a direct marketing channel, consists of a manufacturer selling directly to the final customer. The major examples are mail order, online selling, TV selling, telemarketing, door-to-door sales, home parties, and manufacturer-owned stores. Traditionally, Franklin Mint sold collectibles through mail order; Red Envelope sold gifts online; Time-Life sold music and video collections through TV commercials or longer “infomercials”; nonprofits and political organizations and candidates use the telephone to raise funds; Avon sales representatives sold cosmetics door to door; Tupperware sold its containers via in-home parties; and Apple sold computers and other consumer electronics through its own stores. Many of these firms now sell directly to customers online and via catalogs. Even traditional consumer-product firms are considering adding direct-to-consumer e-commerce sites to their channel mix. Kimberly-Clark launched an online Kleenex Shop in the United Kingdom.27

A one-level channel contains one selling intermediary, such as a retailer. A two-level channel contains two intermediaries, typically a wholesaler and a retailer, and a three-level channel contains three. In the meatpacking industry, wholesalers sell to jobbers essentially small-scale wholesalers, who sell to small retailers.

Option 4 Dynamic/Static Pricing Strategies

“Market leaders often face aggressive price cutting by smaller firms trying to build market share” (Kotler & Keller, 2016, p. 487).

Dynamic pricing is the “adjustment of prices to charge customers over time to maximize total revenues” (Gayon, Talay-Degirmenci, Karaesmen, & Ormeci, 2009, para, 2). Many companies vary their prices for both their on-line sales and in-store sales depending on the location of the customers (Kotler & Keller, 2016, p. 485). Static pricing is “one price is used at all times” (Gayon, Talay-Degirmenci, Karaesmen, & Ormeci, 2009, para, 1). Static pricing gives the consumers one price regardless of their location.

The phenomenon of offering different pricing schedules to different consumers and dynamically adjusting prices is exploding. Merchants are adjusting process based on inventory levels, item velocity or how fast it sells, competitor’s pricing, and advertising. Even sports teams are adjusting ticket prices to reflect the popularity of the competitor and the timing of the game.

Page 484

DIFFERENTIATED PRICING

Companies often adjust their basic price to accommodate differences among customers, products, locations, and so on. Lands’ End creates men’s shirts in many different styles, weights, and levels of quality. In March 2014, a men’s white button-down shirt could cost as little as $19.99 or as much as $70.00.73

Price discrimination occurs when a company sells a product or service at two or more prices that do not reflect a proportional difference in costs. In first-degree price discrimination, the seller charges a separate price to each customer depending on the intensity of his or her demand.

In second-degree price discrimination, the seller charges less to buyers of larger volumes. With certain services such as cell phone service, however, tiered pricing results in consumers actually paying more with higher levels of usage. With the iPhone, 3 percent of users accounted for 40 percent of the traffic on AT&T’s network, resulting in costly network upgrades to AT&T and causing the firm to set higher prices for those users.74

In third-degree price discrimination, the seller charges different amounts to different classes of buyers, as in the following cases:75

Page 481 Fixed (Static) Pricing

Given that list prices stay fixed, they may understate the degree of price inflation. They also make it harder for consumers to compare competitive offerings. Although various citizens’ groups have tried to pressure companies to roll back some fees, they don’t always get a sympathetic ear from state and local governments, which use their own array of fees, fines, and penalties to raise necessary revenue.

Companies justify the extra fees as the only fair and viable way to cover expenses without losing customers. Many argue that it makes sense to charge a premium for added services that cost more to provide and that only some customers use. Thus, basic costs can stay low. Companies also use fees to weed out unprofitable customers or get them to change their behavior.

EDLP

A retailer using everyday low pricing (EDLP) charges a constant low price with little or no price promotion or special sales. Constant prices eliminate week-to-week price uncertainty and the high-low pricing of promotion-oriented competitors. In high-low pricing, the retailer charges higher prices on an everyday basis but runs frequent promotions with prices temporarily lower than the EDLP level.56

Option 5 Channel tactics (Pricing)

Page 483

Channel tactics (Pricing)

E-commerce uses a Web site to transact or facilitate the sale of products and services online. Online retail sales have exploded, and it is easy to see why. Online retailers can predictably provide convenient, informative, and personalized experiences for vastly different types of consumers and businesses. By saving the cost of retail floor space, staff, and inventory, they can also profitably sell low-volume products to niche markets. (Kotler & Keller 2016 p 514)

In the United States, marketing channels account for between 30% and 50% of the selling price (Kotler & Keller, 2016).

Option 6 Daily pricing, promotion pricing, List pricing

“Market leaders often face aggressive price cutting by smaller firms trying to build market share” (Kotler & Keller, 2016, p. 487).

. “A retailer using everyday low pricing (EDLP) charges a constant low price with little or no price promotion or special sales. Regular prices eliminate week-to-week price uncertainty and the high-low pricing of promotion-oriented competitors” (Kotler & Keller, 2016, p. 478).

Page 482

PRICE DISCOUNTS AND ALLOWANCES

Most companies will adjust their list price and give discounts and allowances for early payment, volume purchases, and off-season buying (see Table 16.4).70 Companies must do this carefully or find their profits much lower than planned.71

EDLP

A retailer using everyday low pricing (EDLP) charges a constant low price with little or no price promotion or special sales. Constant prices eliminate week-to-week price uncertainty and the high-low pricing of promotion-oriented competitors. In high-low pricing, the retailer charges higher prices on an everyday basis but runs frequent promotions with prices temporarily lower than the EDLP level.56

References

Gayon, J., Talay-Degirmenci, I., Karaesmen, F., & Ormeci, E. L. (2009). Optimal pricing and production policies of a make-to-stock system with fluctuating demand. Engineering and Informational Sciences, 23(2), 205-230. Retrieved from http://search.proquest.com.contentproxy.phoenix.edu/docview/213039908?pq-origsite=summon&accountid=458

Kotler, P. T., & Keller, K. L. (2016). Marketing Management (15th ed.). Upper Saddle River, NJ: Pearson/Prentice Hall.

Narus, J. A., & Anderson, J. C. (1988). Strengthen distributor performance through channel positioning. Sloan Management Review, 29(2), 31. Retrieved from http://search.proquest.com.contentproxy.phoenix.edu/docview/224965853?pq-origsite=summon&accountid=458