Pricing

Psychological Pricing

Much of pricing's communication, particularly with regard to referencing other products prices, is
inherently psychological in nature. Here are a few more

psychological tactics that are often utilized when setting end prices for products: Odd-number pricing.
Prices that endin non-rounded odd numbers, such as 9.95 or 99.50, are said to give the consumers the
perception that

the prices are not as expensive as they actually are. This is because

consumers tend to read prices from left to right and so a 9 is seen to

be not as intimidating as a 10 would be, nor would a 99 be as imposing

as a 100. The presence of the centavos also somehow communicates to

the consumer that the price is already set to its lowest possible amount.

Lastly, the odd-end numbers are seen to be "friendlier" or more palatable than even numbers.

Free pricing. Assume that you are selling two complementary products such as a tube of toothpaste for
80 pesos and a cheap toothbrush

for 20 pesos. You are going to gain far greater leverage by bundling these

two products together, selling the bundle for 100 pesos and proclaiming

the toothbrush as a free. You will effectively be selling your toothpaste

for 100 pesos, which is higher than you normally would have. But studies have shoOwn that "free" items
have such compelling power that you wil likely be able to sell more using this bundling than if you simply
were selling your toothpaste alone at 80 pesos.

Discriminatory Pricing

Discrimination is defined as the treating of different groups of people in

different manners, which is technically unjust because all humans should be

treated alike as a matter of principle. In marketing, however, market segmentation is a way of life.
Market

segmentation often translates to opportunities for discriminatory pricing-offering

different prices to different market segments.

Customer-segment pricing.

If your product is being offered in both an upscale distribution point as well as a retailer for a broader
consumer market, then you may be able to offer a different price to each. This takes advantage of the
likelihood that the upscale market takes the higher price for granted while the broader market expects a
more mainstream price point. You get to benefit from the higher margins with the former

while maximizing volume with the latter. Another example involves the

practice of student pricing. Students get discounted rates to cultural

centers. In this case, it is non-students who are being "diseriminated

against.

Product-form pricing.

What is the difference between business and

economy class on a plane? The food and the legroom. But in terms of

actual costs incurred, the costs involved for providing business class

amenities are not commensurate with the far greater margins that the

airline charges for it. In other words, much of the price premium that is

being charged for business class (or first class for that matter) is simply

discrimination between the passengers for these different classes. It is

the airline's job, however, to make business class and first class flyers

feel that there really is a big difference between these sections or else

they may no longer feel the price to be worth it.

Image pricing. Upscale products practically demand higher prices,

otherwise their credibility may be ruined. A high-end luxury vehicle, for

instance, may have a sticker price that is tremendously high compared

to its actual costs of production. This extra-high margin is there in order

to preserve the upscale image or the product more than anything else.
The result is that premium product buyers are "taxed" for their need for

premium products, whereas average consumers will be buying the more

mainstream products at prices that relect their costs much more closelv

Location pricing. Many Metro Manila-based manufacturers have a

Metro Manila price and a provincal price. This isa form of discrimination

that is based on the physical location ot the buyers. The rationale for this

kind of discrimination is that, a8 a rule ot thumb, it may cost more to ship

the products to provincial markets versus shipping within Metro Manila.

But this is not always the case and the end result is a discrimination

against provincial markets.

Time pricing. A bakeshop makes it a point to sell all of its remaining

stock at 50 percent off once the clock hits 8 p.m. This is a form of

discrimination what is the difference between selling the stocks at 7:59

p.m. and a minute later? Plays offer another example with the practice

of offering Matinee prices for tickets in order to stimulate more traffic toward afternoon shows.

Pricing approach

PLACE

The Purpose of Place

If you are a new producer of goods, getting your products to your market,

wherever they may be, can pose quite a challenge. If you have just opened a new

rvice establishment, choosing your location could also be a brain-stumper as well.

The third P of the marketing mix, Place (a.k.a. distribution channels), 18 all

about efficiency. It seeks to answer the question of how best to move products trom

the producer to the consumers. What is the best way to place your products into vour consumers'
hands? Where is the best place to set up a shop?

Distribution has three key objectives, namely:

to effectively reach your target market;

to minimize costs of dissemination; and

to maintain consistency.

You willwant your products to reach your intended market and not (necessarily) other parties. You also
want to do this as cheaply and as speedily as

possible. Finally, you want your products to reach your markets in exactly the way

you want them to be experienced.

Distribution channels are the set of interdependent organizations that are involved in the process of
making a product or service available for use or for

consumption by the consumer or individual user. These can include wholesalers,

sales personnel and territory managers, authorized distributors, and retail stores.

It also involves the contractual relationships between these entities, if any, as well

as the selection of actual points of distribution.

Decisions involving distribution systems can be among the most challenging in marketing. The reason is
that, more often than not, it involves having to deal

with third parties which therefore quickly becomes matters involving relationships

and even politics.

Distribution decisions include questions of where it is best to sell your products. For example, if you are
selling sugar-free ice cream, should you sell it

through: (a) supermarkets Just like regular ice creams, (b) small health stores thatt

are frequented by upscale clients, (c) drugstores and pharmacies, (d) door to door
Via sales people, or (e) special food carts? All of these distribution points have their

own pros and cons, and each has its own set of target markets.

Diageo Philippines distributes imported liquor throughout the country. It does this through three
identified distribution channels:

On-trade channels. These are places where the products are

directly consumed, such as bars and restaurants.

Off-trade channels. These are stores where the products are

bought for later consumption, such as supermarkets, wine shops,

and liquor stores.

Duty-free channels. Because Duty-free malls represent a sig.

nificant bulk of sales of imported liquors, Diageo has segregated

these as special off-trade channels, with consumers being limited

to Balikbayan or returning overseas workers.

Functions of Distribution Channels

Distributors are not just points for selling goods or executing services. They can actually take on quite a
number of roles, many of which can be negotiated

depending on how much bargaining power a producer has.

Gather information about customers. Distributors are e intermecdiaries between producer and
consumers. Therefore, they can

be given the responsibility of gathering information about the market.

Distributors can do this directly through forms and questions or more

subtly through automated methods such as loyalty cards that are linked

to customer databases.

Communicate and promote products. Distributors who are points

of retail can either take care of the task of promoting the products or at

least serve as platforms for presenting the product's communications.

Examples would be spotlights that accentuate the product from the

shelves or having "promodizers"-merchandizers who personally try to

convince shoppers to try the product.

Reach the proper market. The point of sale should either be a regular

destination point of the target market or it should be designed to attract

them.

Negotiate with buyers. Certain products, like automobiles and real

estate, may require some modifications in terms, such as discounts,

additional features, or freebies, before a customer agrees to buy.

Distribution channels (e.g., brokers and dealerships) can take care of

this.

Take orders. The actual order-taking is a function that may be too

complicated for a producer to take on. Online sites such as Zalora, for

instance, specialize in closing deals and offering convenient online

payment options.

Finance inventory-keeping. Producers of tangible goods need to

convert their goods into liquidity as quickly as possible in order to have

a continuous flow of working capital for continued operations. The longer

the goods lie in the producer's hold as inventory, the longer their cash
flow will be tied up. Distributors can offer to buy their goods up front,

often at a steep discount, to provide the producer with rapid liquidity.

Finance consumer purchases. Certain products can be offered through

deferred payment schemes, lease arrangements, or installments. These

kinds of arrangements will be difficult for a producer to take on, but

may be easy for distributors particularly those with tie-ups in financial

institutions.

Assume risks of channel work. Once a distributor gains ownership of

goods from a producer, the distributor is now responsible for any outcome

of those goods. If the goods remain unsold, then the distributor has to find

ways to sell them. If those goods are lost through accidents or spoilage,

then it is the distributor's problem as well. This is a valuable service

from the producer's perspective since it will no longer be worrying about

these risks.

Move physical products. Shipping, trucking, and point-to-point

distribution-all of these can be taken care of by the right kinds of distributors. It thereby frees the
producer from having to worry about

the logistics of shipping goods to the hands of consumers.

Provide payment facilities. More and more consumers are choosing

to use alternatives in paying cash for their purchases, such as through

credit or debit cards. These payment methods require bank-furnished

infrastructure, such as card readers, which the distributors can avail of.
Oversee transfer of ownership. For certain products, the signing of

contracts or the details for closing a sale can be a tedious and lengthy

process. Producers may not have the patience for overseeing all of these.

Distributors can take on this role, freeing producers to focus on their core

competence of actual production.

Marketing Logistics and Supply Chain Management

Marketing logistics (physical

distribution)

Planning, implementing, and controling

the physical flow of materials, final goods,

and related information from points of

origin to points of consumption to meet

customer requirements at a profit.

Supply chain management lanaging upstream and downstream

value-added flows of materials, final

goods, and related infomation among

SUppliers, the company, resellers, and

inal consumers.

. Illustration.

The Promotion Mix

Promotion mix (marketing communications mix)

The specific blend of promotion tools

that the company uses to persuasively

communicate customer value and build

custormer relationships.

A company's total promotion mix also called its marketing communications mx

consists ot the specific blend of advertising public relations, personal selling, sales promo

tion, and direct marketing tools that the company uses to engage consumers, persuasively

communicate customer value, and build customer relationships. The five major promoton tools are
defined as follows:

Advertising

Any paid form of nonpersonal presentation and promotion of ideas, goods, or Services by an identified

sponsor.

Sales promotion

Short-term incentives to encourage

the purchase or sale of a product or a

Service.

Personal selling

Personal presentation by the firmms

sales force for the purpose of engaging

CUstorners, making sales, and building

customer relationships.

Public relations (PR)

BUuilding good relations with the

Company's vanious publics by obtaining

Tavorable publicity, building up a good

orporate image, and handling or heading off untavorable rumors, stories, and
Bvents.

Direct and digital marketing

Engaging directly with carefuly targeted

ndividual consumers and customer

Communities to both obtain an immediate

response and build lasting cUstomer

relationships

Selecting Advertising Media

The major steps in advertising media selection are (1) determining reach, frequency, impact,

and (4) choosing media timing. and engagement; (2) choosing among major media types; (3) selecting
specific media vehicles;

Determining Reach, Frequency, Impact, and Engagement. To select media, the adver

tiser must determine the reach and frequency needed to achieve the advertising objectives.

Reach is a measure of the percentage of people in the target market who are exposed to the

ad campaign during a given period of time. For example, the advertiser might try to reach

It could be one-to-one, as in the case of using sales personnel to pitch a product to individual

clients. It could be one-to-many, as in the case of conferences and informational

lectures. Personal communications have the advantage of offering direct lines of

communication between the buyers and the seller, allowing for instant feedback

and interaction. However, because these require a personal presence, there is

limited economies of scale in each communication opportunity. It can only reach

one person at the least and a few hundred people at most.

Personal communications refer to person-to-person communications.

product Personal communications vehicles include telemarketing, demonstrations, trade show talks, and
sales pitches.
Non-personal communications refer to one-is-to-many communication media. Because these kinds of
media tend to be impersonal to a significant degree (i.e.,

there is no direct feedback from the receivers of the message), there may be

difficulty in determining their efficacy in achieving desired objectives. On the other

hand, non-personal media can easily attain economies of scale, with the potential

to reach hundreds, thousands, and even millions of people. Non-personal communications include the
following media: Print. Newspapers, magazines, and similar publications. While print

has seen a drastic decline in readership due to the Internet, there are still

holdouts. Print is especially good at providing depth of information and detail

particularly for people who already have the interest in the products being

presented and so will have the patience to read all about it.

Television. This is still the most efficient way to reach a very wide audience

considering that over 90 percent of Philippine homes have access to TV sets,

whether in their own homes or within their communities. However, as typical

ad spots are only thirty seconds long, TV ads need to sacrifice depth and detail

in favor ofa single compelling argument or an emotional appeal.

Radio. This is a strong second to television in terms of capacity to reach broad

markets, with over 60 percent of Philippine households claiming to tune in

regularly. Radio ad spots have the same thirty second constraint that TV has

but with the added handicap of being purely audio. This means that radio

ads need to have clarity and a compelling presentation in order to engage

listeners within a short span of time.

Displays. These include billboards, banners, and p0sters. While these do not

have as broad reach as TV or radio, their capacity to reach hundred or even

thousands of "eyeballs" (an informal term for viewers) gives them some of the

powers of TV but on a smaller scale. Billboards, for instance, reach thousands

of traffic eyeballs every day. The key limitation of displays, however, is that

these tend to offer only static images and people tend to view them for only a split second if at all, so
these should be compelling enough to attract attention

while presenting severely truncated messages. Even modern "moving

billboards"-billboards with video can only be seen for a few seconds as

vehicles rapidly pass them by, so these video billboards have to complete a

message cycle within just three to five seconds.

Internet. This includes online banner ads, the use of bloggers to promote

products, and the use of social media to engage customers. In fact, social media

represents a gray area between non-personal and personal communications

as social media allows firms to actually engage in conversations with its

buyers, even as the media itself is generally impersonal in nature. The key to

an effective online campaign is to constantly update and present new content

so that visitors remain engaged.