Pricing+and+Distribution+Channel

· Skimming: When the price is much more than the actual production cost and you are commanding this price because of the value you provide to the market. Market segment : For Innovative people who are willing to pay high prices (Fashion Industry) -this often times encourages competition unless you have a proprietary advantage
 * __ Pricing over product life cycle: __**

· Single segment: Charge a reasonable high price with all the additional value we are providing, but the overall cost of ownership is much lower. Eg. energy saving heat furnaces

· Penetration: Identify long term mass production costs and price the products above that. Market segment : Mass market -Often used to discourage competition

· Multiple-segment: Keep the same benefits as penetration but market to a different customer profile

Example: Cell phone plan Three segments: o Survival- use only in emergencies, low initial cost but high rise in price for usage o Use as needed- use all the time, charge high initial price but nothing for additional calls o Staying connected- lower initial plan, rise in price less quickly than survival · Plus one: This applies to mature markets. This applies when a business' product is equal to that of competitors in every area of product and service quality except for one area of performance in which the business' product is clearly superior. The company can then charge a slight premium over that of its competitors. -Adding value or benefits but not necessarily increasing the cost · Reduce focus: We have maxed out our profit margin and anything else we do is not going to change. So we increase the price and aim for a smaller market segment and eventually get out of the market. Laggers come in and are still holding on to "current/fading" technology; will only switch if there is no other option

· Harvest: Our product is the last one standing. Eg. typewriters or records players. These products are generally acquired by the laggards that will not switch unless there is no other alternative. The benefit comes in just having the product available.

**__ If competitors reduce the price, what will you do? __** o Reduce price, maintain quality:The company should be a low cost producer to afford the reduction in price o Maintain price, maintain quality: The company will lose some of it's market share o Increase price, enhance current benefit: signals better product o Increase price, add new benefit or keep same benefit: To differentiate yourself

**__ Lessons learn: __** o Price is never a sustainable competitive advantage, cost can be o We should look at the price throughout the product life cycle

o Price is meaningless in and of itself. It only has meaning with respect to place, participation, and product o Pricing should be thought of in the context of the segment we are targeting and the product life cycle

- **__ Value proposition based on article: __** o **// ITC //** ü Target market: Rural areas of India

ü Benefits: Availability & acessibility of infrastructure.

o **// Gyan Shala //** ü Target Market: Rural areas of India

ü Benefits: Primary education which is economical and accessible

o **// Postal Service //** ü Target market: Rural areas of India

ü Benefits: Communication & financial services

-- **__ What are the functions of distribution channels? __** Distribution channels provide value to the end user through the value proposition. The structure formed minimizes the costs in providing the value addition.

**__ Should you use indirect channels or go direct to the customers? __** It depends on the situation.Layer of indirect channel increases cost as there is cost associated with the indirect channels. Direct channel will always add maximum value to the customer (not if the indirect channel provides the value better than you). The answer to this question can only be answered if you know how much control you want to have over the customers.

Three questions to think about when considering indirect or direct channel distribution: 1.) Do you know what value your channel partner needs to provide? 2.) Can they provide that value better than you? 3.) How important is it for you to be close to the customer?

**__ What decisions do companies face in designing, managing, evaluating, and modifying their channels? __** Companies have to find,negotiate & monitor. There is a lot of unseen cost in building contracts. These accumulate to the transaction costs, which can be a substantial part of the channel.