Chapter 5: Pricing, promotion, and distribution decisions

Pricing- meaning, objectives, factors influencing pricing policy, methods of pricing, Promotion-
Meaning and significance of promotion, Tools of promotion, Physical distribution- meaning, factors
affecting choice of channel, Types of channels of distribution, Channel strategies

Pricing meaning:
Pricing refers to the process of setting a value or cost for a product, service, or commodity that is
offered for sale. It involves determining the appropriate price point that will generate revenue for the
seller while also being acceptable to potential buyers. Pricing may consider factors such as the cost of
production, marketing expenses, competition, demand and supply, and customer perception of value.

Pricing objectives:
The objectives of pricing can vary depending on the nature of the business, product or service, and
market conditions. However, some common objectives of pricing include:

1. Profit maximization: One of the primary objectives of pricing is to maximize profits for the
business. This involves setting prices that generate the highest possible profit margins while
maintaining a competitive edge in the market.
2. Market share: Another objective of pricing is to gain or maintain market share. This can involve
setting lower prices than competitors to attract customers, or setting prices at a premium to
communicate higher quality or exclusivity.
3. Revenue generation: Pricing can also be used to maximize revenue generation, either by
increasing sales volume or by charging higher prices for premium products or services.
4. Customer loyalty: Pricing can be used to create customer loyalty by offering value-based
pricing or by creating pricing incentives for frequent or long-term customers.
5. Cost recovery: Pricing may be used to recover costs incurred in the production, marketing, and
distribution of products or services. This can involve setting prices at a level that covers all
costs and generates a reasonable profit margin.
6. Survival: In some cases, pricing may be used as a survival strategy for businesses facing difficult
market conditions, such as intense competition or economic downturns. This may involve
setting prices at a level that is just enough to cover costs and keep the business afloat.

Factors influencing pricing policy

1. Cost of Production: The cost of producing a product or service is one of the most important
factors in determining its price. Companies need to ensure that they price their products high
enough to cover their costs and make a profit.
2. Competition: The level of competition in a market can have a significant impact on pricing.
Companies may need to adjust their prices to remain competitive or differentiate their
products from others in the market.
3. Customer demand: The level of customer demand for a product or service can also influence
pricing. Companies may be able to charge higher prices for products that are in high demand,
while they may need to lower prices for products that are not selling well.
4. Economic conditions: The state of the economy can also impact pricing. During a recession,
for example, companies may need to lower their prices to attract customers who are cutting
back on spending.
 5. Government regulations: Government regulations can also impact pricing. For example, if the
government imposes tariffs on imported goods, the cost of those goods may increase, which
could lead to higher prices for consumers.
6. Marketing and branding: A company's marketing and branding strategies can also influence
pricing. Companies may charge higher prices for products that are perceived as high-quality
or luxury items, while they may price lower for products that are positioned as value items.

Methods of pricing
1. Cost-plus pricing: This method involves adding a markup to the cost of producing the product
or service. The markup is typically a percentage of the cost and is designed to cover the
company's overhead expenses and generate a profit.
2. Value-based pricing: This method involves setting a price based on the perceived value of the
product or service to the customer. This can be based on factors such as quality, performance,
convenience, or brand reputation.
3. Competitive pricing: This method involves setting a price based on the prices charged by
competitors for similar products or services. The goal is to remain competitive in the market
and attract customers who are looking for a good deal.
4. Dynamic pricing: This method involves adjusting the price based on changes in market
demand, supply, or other external factors. This can include offering discounts or raising prices
during peak seasons or when demand is high.
5. Psychological pricing: This method involves using pricing strategies that appeal to customers'
emotions and perceptions. For example, setting a price just below a round number (e.g., Rs.
999 instead of 1000) can create the impression of a better deal.
6. Premium pricing: This method involves setting a higher price than competitors for a product
or service that is perceived as being of higher quality or having more features.
7. Penetration pricing: This method involves setting a low price for a new product or service to
quickly gain market share. The goal is to attract customers away from competitors and
establish a foothold in the market. Once the product or service gains traction, the price can be
gradually increased.
8. Skimming pricing: This method involves setting a high price for a new product or service to
capitalize on early adopters who are willing to pay a premium for the latest innovation. As the
product or service becomes more mainstream, the price can be gradually lowered to attract a
broader customer base.
9. Bundle pricing: This method involves offering multiple products or services together at a
discounted price. The goal is to encourage customers to purchase more items than they might
have otherwise and increase revenue per transaction.

Promotion- Meaning

Promotion generally refers to the process of promoting or advertising a product, service, idea, or a
person. In a business context, promotion typically involves marketing and communication activities
designed to increase awareness and interest in a company's products or services, and ultimately to
persuade people to buy them.
Significance of promotion

1. Increases sales: One of the primary goals of promotion is to increase sales by creating demand
for a product or service. Effective promotion strategies can help attract new customers, retain
existing ones, and encourage repeat purchases.
2. Builds brand awareness: Promotion can help build brand awareness by creating a strong brand
image and communicating the brand's values and unique selling proposition (USP). Effective
promotion can help a brand stand out in a crowded market and differentiate itself from
competitors.
3. Creates customer loyalty: Promotions such as loyalty programs, discounts, and special offers
can help create customer loyalty by rewarding customers for their repeat business. Loyal
customers are more likely to recommend the brand to others and become brand advocates.
4. Encourages customer engagement: Promotion can encourage customer engagement by
creating interactive experiences such as social media campaigns, contests, and events. These
experiences help customers connect with the brand and build a sense of community.
5. Provides market insights: Promotion can also provide valuable market insights by collecting
customer feedback, tracking sales trends, and monitoring the effectiveness of promotion
campaigns. This information can be used to refine marketing strategies and improve future
campaigns.
6. Differentiates from competitors: Promotion can help businesses differentiate themselves
from their competitors by highlighting their unique features, benefits, and advantages.
Effective promotion can help create a perceived value that sets a business apart from others
in the same industry.
7. Generates revenue: Promotion can generate revenue by increasing sales and driving customer
engagement. Effective promotion strategies can help businesses increase their bottom line and
achieve their financial goals.
8. Creates a sense of urgency: Promotions such as limited-time offers, flash sales, and exclusive
discounts can create a sense of urgency that motivates customers to act. This can lead to
higher conversion rates and increased sales.
9. Targets specific audiences: Promotion can be targeted to specific audiences based on
demographics, interests, behaviour, and other factors. This allows businesses to reach the right
customers with the right message at the right time, increasing the effectiveness of their
promotion campaigns.
10. Builds relationships: Promotion can help build relationships between businesses and their
customers by creating positive experiences, providing value, and fostering trust and loyalty.
This can lead to long-term customer relationships and repeat business.

Tools of promotion
1. Advertising: Paid advertising through various channels such as print media, television, radio,
online ads, and social media platforms can be a powerful tool for promoting a product or
service.
2. Public relations: This involves building and maintaining relationships with the media,
influencers, and stakeholders to create positive awareness and publicity for the product or
brand.
3. Sales promotions: This includes tactics like coupons, discounts, and sales events designed to
encourage customers to make a purchase.
4. Personal selling: This is a face-to-face communication between a salesperson and a customer
to convince them to make a purchase.
Physical distribution- Meaning
Physical distribution, also known as logistics or supply chain management, refers to the process of
getting a product or service from the manufacturer to the customer. It includes all the activities
involved in moving goods from the production line to the final point of consumption, including
transportation, warehousing, inventory management, and order processing. The goal of physical
distribution is to ensure that the right product is delivered to the right customer at the right time and
at the right cost. This involves managing the flow of goods, information, and finances throughout the
supply chain, and optimizing the performance of each component to minimize costs and maximize
customer satisfaction.

Factors affecting choice of channels of distribution

1. Nature of the Product: The type of product being sold can have a significant impact on the
choice of distribution channel. For example, perishable goods may require a shorter
distribution route to reach consumers quickly, while bulky or heavy products may require a
direct distribution channel to reduce transportation costs.
2. Target Market: The characteristics of the target market, such as their location, purchasing
power, and buying behaviour, can influence the choice of distribution channel. For example, if
the target market is in a remote area with limited access to transportation, direct distribution
may be more feasible.
3. Competition: The level of competition in the market can also impact the choice of distribution
channel. If competitors are already established in certain distribution channels, it may be
difficult to enter those channels without incurring high costs.
4. Company Resources: The resources available to the company, such as financial resources,
manpower, and technology, can also influence the choice of distribution channel. For example,
if a company has limited financial resources, it may be more cost-effective to use indirect
distribution channels such as wholesalers or retailers.
5. Marketing Objectives: The company's marketing objectives, such as increasing brand
awareness, building customer loyalty, or expanding market share, can also impact the choice
of distribution channel. For example, if the objective is to reach many consumers quickly, using
a direct distribution channel such as online sales may be more effective.
6. Legal and Regulatory Environment: The legal and regulatory environment of the country or
region where the company operates can also impact the choice of distribution channel. For
example, some countries may require certain products to be sold only through specific
distribution channels, or may have restrictions on foreign companies entering certain
channels.

Types of channels of distribution

1. Direct Distribution: This is when a company sells directly to the end consumer without
involving any intermediaries. For example, a company may sell their products online or
through their own retail stores.
2. Indirect Distribution: This involves the use of intermediaries to distribute products to the end
consumer. There are several types of indirect distribution channels:
a) Wholesalers: These are intermediaries that buy products from manufacturers and sell
them to retailers or other businesses.
b) Retailers: These are businesses that sell products directly to the end consumer.
c) Agents: These are independent sales representatives who are paid a commission to sell
products on behalf of the manufacturer.
 d) Brokers: These are intermediaries who bring buyers and sellers together to facilitate
transactions.
3. Hybrid Distribution: This is when a company uses both direct and indirect distribution
channels to reach the end consumer. For example, a company may sell their products directly
to consumers through their website, but also sell their products through retailers.