Product Pricing & Distribution Strategies: A Comprehensive Guide
Product Pricing Strategies
Pricing Strategies Based on Product Life Cycle
1. Skimming Strategy: Setting a high initial price for a new product to target early adopters with high purchasing power. Prices are gradually lowered as the product matures.
2. Penetration Strategy: Setting a low initial price to quickly gain market share and attract a large customer base. High sales volume can lead to lower production costs and further price reductions.
Pricing Strategies Based on Brand Image
3. Prestige Pricing: Setting high prices to convey exclusivity and attract status-conscious consumers.
Pricing Strategies Based on Competition
4. Competition-Oriented Pricing:
- Matching Prices: Used when products are similar and competition is high.
- Differentiating with Higher Prices: Conveying a premium image and targeting affluent segments.
- Differentiating with Lower Prices: Attracting price-sensitive customers and stimulating demand.
- Price Maintenance: Keeping prices stable to avoid negative customer reactions.
Pricing Strategies for Product Portfolios
5. Portfolio Pricing Strategies:
- Product Line Pricing: Determining price differences between various products within a product line.
- Optional Product Pricing: Setting prices for add-on products or services to maximize overall profitability.
- Captive Product Pricing: Setting low prices for essential products and higher prices for complementary products.
- Product Bundle Pricing: Offering multiple products at a discounted price to encourage bundled purchases.
Pricing Strategies for Different Geographical Areas
6. Geographical Pricing Strategies:
- FOB Pricing: The seller covers transportation costs to a designated point, and the buyer pays for further transportation.
- Freight Absorption Pricing: The seller absorbs some or all of the transportation costs to attract distant customers.
- Uniform Delivered Pricing: All customers pay the same price, regardless of location.
- Zone Pricing: Dividing the market into geographical zones and setting different prices for each zone.
- Basing-Point Pricing: Selecting a specific location and charging transportation costs from that point to the customer’s location.
Common Pricing Mistakes
- Overemphasis on costs.
- Infrequent price adjustments.
- Ignoring the marketing mix.
- Lack of price differentiation.
Product Portfolio Management
Product Line Strategies
- Product Positioning: Creating a distinct image for a product relative to competitors and other products within the company’s portfolio.
- Product Line Expansion: Adding new products to an existing product line under the same brand name.
- Product Modification: Improving existing products to enhance their appeal and competitiveness.
- Product Line Contraction: Eliminating unprofitable or underperforming products from a product line.
- Trading Up and Trading Down: Adding higher-priced or lower-priced products to a product line to cater to different market segments.
Product Portfolio Analysis
- Profitability Analysis: Identifying the most profitable products within the portfolio.
- Competitiveness Analysis: Comparing the company’s products to those of competitors.
Product Differentiation and Positioning
Differentiation Strategies
- Product Differentiation: Offering unique features, benefits, or quality to distinguish products from competitors.
- Service Differentiation: Providing exceptional customer service, delivery, installation, training, or support.
- Image Differentiation: Creating a strong brand image through symbols, environment, and activities.
Positioning Strategies
- Positioning by Competitor: Directly comparing a product to a competitor’s offering.
- Positioning by Product Class or Attribute: Associating a product with a specific product category or attribute.
- Positioning by Price and Quality: Emphasizing the product’s price or quality relative to competitors.
Distribution Channel Strategies
Types of Distribution Channels
- Direct Channel: Selling directly to end consumers without intermediaries.
- Indirect Channel: Using intermediaries such as wholesalers, retailers, or brokers to reach end consumers.
Types of Intermediaries
- Wholesalers: Buying products from manufacturers and selling them to retailers or other businesses.
- Retailers: Selling products directly to end consumers.
- Brokers: Facilitating transactions between buyers and sellers without taking ownership of the products.
- Service Companies: Providing transportation, storage, or other distribution-related services.
Distribution Intensity
- Intensive Distribution: Making products available through as many outlets as possible.
- Selective Distribution: Choosing a limited number of intermediaries based on specific criteria.
- Exclusive Distribution: Granting exclusive rights to sell products within a specific territory.
Vertical Marketing Systems
- Conventional Systems: Independent channel members with limited coordination.
- Coordinated Systems: Channel members working together to achieve common goals.
- Integrated Systems: A single entity owning and controlling multiple levels of the distribution channel.
Communication Strategies
Effective communication is essential for conveying information, feelings, and experiences between a sender and a receiver. Different types of communication include intrapersonal, interpersonal, group, and mass communication.