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Chapter 11: Pricing Issues in Channel Management

The importance of pricing
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
The “Golden Rule” of Channel Pricing
it is not enough to base pricing decisions solely on market, internal cost factors, and competitive factors. For those firms under independent channel members, explicit consideration of how pricing decisions affect channel members behavior is an important part of pricing strategy
– pricing decisions can have a substantial impact on channel member performance
Influencing pricing strategy. The major challenge for the channel manager is:
– to help foster pricing strategies that promote channel member cooperation and minimize conflict
Channel Manager;s Role:
channel manager must focus on the channel considerations and work to incorporate them in to the firms pricing decisions
Channel Pricing Guidelines are necessary because:
1. to help those involved in pricing decision focus more clearly on the channel implications of their pricing decisions
2. to provide general prescriptions on how to formulate pricing strategies that will help promote channel member cooperation and minimize conflict
Guidelines for Channel Pricing (8)
1. Profit Margins
2. Different Classes of Resellers
3. Rival Brands
4. Special Arrangements
5. Conventional Norm in Margins
6. Margin Variation on Models
7. Price Points
8. Product Variations
#1: Profit Margins
each efficient reseller must obtain a unit profit margin that exceeds unit of operating costs
#2: Different Classes of Resellers
each class of reseller margins should vary in rough proportion to the cost of the functions the reseller performs
#3: Rival Brands
at all points in the channel, prices charged must be in line with those charged for comparable rival brands
#4: Special Arrangements
special distribution arrangements — variations in functions performed or departures from the usual flow of merchandise — should be accompanied by corresponding variations in financial arrangements
#5 Conventional Norms in Margins
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
#6: Margin Variation on Models
variations in margins on individual models and styles of a line are permissible and expected. However, they must vary around the conventional margin for trade
#7: Price Points
a price structure should contain offerings at the chief price points, where such a price point exists
price point
specific prices, usually at the retailer lever, to which consumers have become accustomed
#8: Product Variations
a manufacturers price structure must reflect variation in the attractiveness of individual product offerings
Other channel pricing issues
– exercising control in channel pricing
– changing price policies
– passing price increases through the channel
– using price incentives in the channel
– dealing with the gray market and free riding
Gray Market
sale of a brand name product at a very low price by unauthorized dealers
Free Rider
describes behavior of distributors and dealers who offer cheap product but no customer service

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