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Pricing Strategies and Marketing Channels

Explain At Least Four of the Seven Steps for Setting an Initial Price for a Product or Service

Select the pricing objectives

In choosing its pricing objectives, a company must first establish what it wants to achieve with a certain product offer. A company can pursue various objectives and they include survival, maximum current profit, maximum market share, current market maximization, maximizing profit margins, quality leadership, partial cost recovery, and status quo. The objectives that a company chooses to adapt are strategically important, in ensuring it survival in the market while at the same time maximizing on profits. A company cannot also accomplish more than one objective simultaneously, but one at a time.

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Estimating costs

This denotes the demand limits the price that a company sets for its commodities or services. The cost on the other hand sets the floor. The price that a company sets on its product has to cover its cost of production and distribution to ensure maximum profits are gained. The total cost of producing a unit is made up of the changing cost and fixed cost. In setting the price of a commodity, the company must therefore put into consideration both costs.

Environmental factors

When setting the prices of its products many outside factors affect the company’s ultimate decision. Legal and the competitive environment that the company operates is crucial when making this decision. From the legal pointy of view, a company is not entirely free to price its commodities at any level it chooses. There are legal limitations to these. For example, there are rules that forbid setting the prices of goods either too high or too low.

From the competitive point of view, the company must put into consideration the effects of their prices on the pricing decisions of their competitors. For instance, putting the prices too high may pull in a great number of competitors. On the other hand, setting the prices to low may lead to price wars (Hutt& Speh 2009).

Selecting pricing methods

To determine the specific price levels that helps a company to achieve its objectives, a company uses different pricing methods which include: cost-plus pricing, value-based pricing, target return pricing and psychological pricing

Explain At Least Four Ways That an Organization Can Respond To Competitors Price Change

A company can respond to changes in prices by competitors in various ways. They include:

Maintain the price and profit margins

The company maintains its prices and profit margins if it believes that it would lose a lot of its profit if it reduced its prices, that it would not lose its market share if it maintained its prices and that it would get back its share of the market when needed.

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Maintain the price and quality of its products

The Company could maintain its current price but strengthen the value of its goods and services by improving its products, services, and communication. It could also put more emphasis on the quality of its goods and services over that of the lower prices by its competitors.

Reducing the price

The company could reduce the prices of its products if it believes that: the cost of the products decreases with the decrease in volume produced, it could lose its share of the market if the market is sensitive to price changes, and if it feels that it will be hard to regain back its share of the market once it looses it.

Introducing low-price fighter products

This involves introducing lower price commodities of the same brand into the market or creating a separate brand of lower priced goods. This works well if the specific market share being lost is sensitive to price changes.

However, before responding to price changes, a company should first consider the following things: what are the reasons for changes in price by competitors, are the changes temporary or permanent, what will happen to the company’s profits and market share if it does not react to these changes and how are the other firms competitors likely to react to the same changes (Kotler, Margaret &Turner 2011).

Describe How Effective Healthcare Delivery Channels Can Be Designed

When designing effective marketing channels, companies have to determine what is ideal, available, and feasible. Designing effective channels involves:

Examining customer’s needs

This is the first step involved in designing marketing channels. It aims at answering the questions, why, how, when, what and where target customers buy their goods. In examining the customer’s needs, the company should look into the types and level of services that customers want and expect to get when they buy a given product. Channels give out five levels of service output. They are lot size, waiting time, the convenience of the channel, the variety of goods that the channel provides and the other types of services that the channel provides e.g. deliveries and repairs.

Establish the objectives of the channel and its constraints

The objectives of the channel should be stated in terms of the service output levels targeted. In competitive situations, the companies should arrange their channels in a manner that reduces total channel costs with respect to preferred levels of service outputs. Different segments of the market require different service outputs. Successful channel strategizing needs one’s knowledge of which group of the market to cater for, and the best channel to be used in each case.

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Identify alternative channels

After the company has identified its target market and desired positioning, it should identify its alternative channels. An alternative channel is described by three variables. This includes the intermediaries, the number of intermediaries and the responsibilities and terms of each channel member. The company must determine the responsibilities and the right of each channel member, making certain that each member is respected and given the chance to be profitable (Kotler, Shalowitz & Stevens2010).

Assessing alternative channel

After identifying the major alternative channels, the company should assess them to get the one most appropriate to its needs. Every alternative need is therefore assessed against adaptive, control and economic criteria. In the economic criteria, the company establishes whether its sales group or sales force will produce more sales. In the control criteria: the company must take into considerations control factors. While in the adaptive criteria, each member of the channel must have some level of commitment for each other (Hutt and Speh , 2009).

Describe the Four Main Decisions That Companies Face In Managing Their Channels

The key decisions involve in managing a channel include:

Selecting members of a channel

Different companies attract customers differently within the different channels. In order to get the best intermediaries, the company should consider the following: the number of years the intermediary has been in the business, their profit and growth records, other services that they offer, their solvency, their degree of cooperativeness and their reputation.

Motivating channel members

For the intermediaries to perform well, the company must always motivate them. Some of the ways that can be used to motivate them include the use of coercing power, rewarding power, legitimate power, expert power and referent power.

Evaluating channel members

The Company should occasionally evaluate the performance of the intermediaries against the set standards such as customer delivery time, sales target, treatment of lost or damaged goods, cooperation in training and promotional programs and inventory levels.

Modifying channel arrangements

In order for a given channel to be effective, the producer should occasionally modify it to keep up with new conditions in the marketplace. Modification usually becomes essential if the current channel is not working as required, the market gets bigger, the buying patterns of consumers change, new competitors enters the market, better channels of distribution emerges and if the product enters a different production stage in its life cycle (Kotler, Shalowitz & Stevens, 2010).


Hutt, M. & Speh , T. (2009). Business Management Marketing. London: Cengage Publishers.

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Kotler, P., Margaret, H. &Turner, E. (2011). Marketing Management. New York: Pearson Publishers.

Kotler, P., Shalowitz, J. & Stevens, J. (2010). Marketing for Health Care Organizations: Building a Customer-Driven Health System. London: John Wiley and Sons Publishers.

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