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Running head: PRICING STRATEGY AND CHANNEL DISTRIBUTION

PRICING STRATEGY AND CHANNEL DISTRIBUTION

Lamont Johnson

Strayer University MKT 500 April 29, 2012 Dr. Thomas Matula

PRICING STRATEGY AND CHANNEL DISTRIBUTION

PRICING STRATEGY AND CHANNEL DISTRIBUTION Determine and a pricing strategy (Penetrating or Skimming). According to Iacobucci (2010), Penetrating or market share pricing entails giving most of the value to the customer and retaining a small margin. The objective is to gain as much market share as possible. It is often used as part of an entry strategy for new products and is particularly useful for preventing competitive entry. First, there is less of the market for the competition to gain if you have been successful in penetrating the market. Second, the economics of entry look less attractive if the price levels are low. (p.252) The opposite of penetration pricing is skimming or prestige pricing. Skimming gives more of the cost-value gap to you than to the customer. This strategy is appropriate in a variety of situations. If there is a strong priceperceived quality relationship (e.g., wine) and the value proposition of the product at the high end of the market, this objective makes sense. (Iacobucci, 2010, p.253) With these facts at hand the obvious pricing strategy for Visionary Investments would be to follow the penetrating strategy. When the company reaches a level that the perceived value of the service would allow the company to switch to a skimming strategy. Determine and discuss pricing tactics (Product line pricing, Value pricing, Differential pricing, or Competing against private brands) to be used for your product. There are several pricing tactics available to the company they are product line pricing, value pricing, differential pricing and competing against private brands. Product line pricing involves offering both high priced and low-priced brands. The objective is to have multiple price tiers. This strategy ensures that the company covers most customer segments (Iacobucci, 2010). Value Pricing was

PRICING STRATEGY AND CHANNEL DISTRIBUTION introduced in the 1990s by Taco Bell. This tactic offers selected products at a very low price to help the company gain market share. (Iacobucci, 2010). The key strategic decision of which customers to target recognizes that potential customers behavior is heterogeneous. This heterogeneity can be reflected in price in various ways. (Iacobucci, 2010, p.260) this is known as Differential Pricing. Being a new product Visionary Investment will pursue the value pricing tactic. The value pricing tactic will allow the company to gain market share against the established investment companies. Identify any legal and ethical issues related to the pricing tactics. There are four main tactics under differential pricing they are Direct Price Discrimination, Second Market Discounting, Periodic Discounting and Flat-rate vs. Variable-rate Pricing. The theory is that

price discrimination maximizes products profits by charging each market segment the price that maximizes profits from that segment because of different price elasticities of demand and customer value (Iacobucci, 2010, p.260) this statement defines Direct Price Discrimination. Second market discounting is a useful pricing strategy when excess production exists. This policy sells extra production to a market separate from the main market (Iacobucci, 2010). Periodic discounting varies price over time. It is appropriate when customers are willing to pay a higher price to have a product or service during a particular time period (Iacobucci, 2010, pg 261). The last strategy is Flat-rate vs Variable-rate pricing this concept allows customers to choose the option that best suits their level of usage (Iacobucci, 2010). Direct price discrimination runs the highest risk of legal and ethical issues. Though unpopular price discrimination is not always illegal and is done all the time. An example of this would be insurance companies have price discriminated for many years based upon age, gender, and

PRICING STRATEGY AND CHANNEL DISTRIBUTION

driving record (Iacobucci, 2010). Although companies have found a way to legally implement price discrimination that does not mean it is always ethical. Prepare a marketing distribution channel analysis identifying the wholesaler, distributor, and retailer relationships. Visionary Investments due to the nature of the product will fulfill the roles of wholesaler, distributor and retailer. The customer will purchase and receive all services directly from Visionary Investments. Discuss how the distribution strategy fits the product/service, target market, and overall marketing objectives for the company. The distributor will be Visionary Investments. This arrangement is good for the customer and the company. This allows for better pricing and quality control. From a marketing stand point this is the correct strategy for Visionary Investments. The profit margin will be very tight in the early stages of the company. The direction of this company approach is new and different from the current investment products available. Current investment options do not target income replacement instead the collect monies and pay the customer whatever is available at a future date. The focus at visionary investments is income replacement and financial freedom for the customer. Customers are not accustomed to this approach. It will take time to build a customer base and customer confidence.

PRICING STRATEGY AND CHANNEL DISTRIBUTION

References Iacobucci, D. (2011). Marketing management: 2010 custom edition. Mason, OH: South-Western Cengage Learning.