PRICING AND DISTRIBUTION

Pricing Strategy and Channel Distribution

Pricing Strategy and Channel Distribution

Introduction

Pricing strategy and channel distribution play a vital role in the success of a company's products and services. The most significant bit is to identify the best pricing strategy for the company. The strategy acts as an essential tool for the company's pricing manager. The company should be able to recognize the lifecycle of its products and services. There are greater returns for companies that have the right mix of pricing and distribution. The distribution channel includes the wholesaler, retailer and distributor.

Discussion

Pricing Strategy

There are three pricing strategies to choose from, but only one will be discussed here; skimming. Skimming is the process of assigning higher prices, while keeping value as the basis of identification. The strategy does not use competition as the basis of price determination. The skimming price is obtained from the financials of a company or from within a company. Therefore, it is based on the value that a product or service is to provide (Thomas and Reed, 2002).

Skimming can be adopted by emerging markets, where people are always looking for new and innovative products. Even in a mature market, skimming is beneficial as people are aware of the value a product of service provides. Customers are willing to pay a high price for products and services that provide value in their eyes. The main point to understand is that the perception of the product or service should be excellent, and customers should not feel that it is over-priced. Ironically, skimming has proved to work in markets where there is a decline. In declining markets, the factor in play is customer loyalty. Loyal customers will pay big bucks for products and services that they see as established and superior.

A skimming strategy does not aim to target the mass market and focuses on the segment that will pay a higher price for quality products and services. Once the product or service has gained values in the eyes of customers, companies using skimming tend to lower the price to cater another segment. Even then they do not target the mass market and only create a slightly larger customer base. The company is actually involved in sequentially "skimming off the top" the segment of customers that are willing to pay the highest price. This segment has yet to buy the product or service. Examples of business to consumer skimming can be seen in iPhones and HDTV. Furthermore, examples of business to business are present in premium services like inventory management.

A business chooses their pricing strategy according to the market dynamics. It also takes into consideration the ability of the segmentation of customer base and the differences in the segment's willingness to pay. In addition to this, they consider the product being offered and the number of different features that can be offered, and the competition.

Pricing Tactics

The pricing tactic that goes well with skimming is differential pricing. According to the downward sloping demand curve, there are some customers who will pay more for ...