Pricing Strategy and Channel Distribution

Pricing Strategy and Distribution

Build-to-Order Netbook Marketing Plan

Pricing and Channel Distribution Strategies

The two most critical aspects of any marketing strategy are the pricing and distribution strategies, as they both underscore the branding, unique value proposition and position of products. Both have an immediate and multiplicative effect on the profitability and revenue growth of a product line and long-term, to an entire business. The intent of these sections of the marketing plan is to define the pricing and distribution channel strategies for the build-to-order netbook called Eleftria, which is the Greek word for freedom. In discussing the pricing strategy, the tactics, legal and ethical issues, and implications on brand value are discussed. In addition, the distribution channel analysis of the build-to-order netbooks is also provided. Included in this analysis is a description of how the distribution strategy fits the product and service, target market and overall marketing objectives of the company. As pricing strategies are often heavily relied on as a means to gain greater distribution and cooperation of resellers (Al-Obaidi, Gabrielsson, 2002) this specific strategy is also discussed.

Pricing Strategies for the Eleftria Netbook

There is often an overwhelming tendency to use price as a means to drive value, where manufacturers of high tech products often rely on price as a means to get higher volume (Berger, Grigoriev, van Loon, 2011). This often turns out to be an incorrect assumption and a failed strategy as the majority of high tech markets are inelastic, with flat demand curves, which makes differentiation and unique value much more critical than price (Gill, Lei, 2009). Given the highly unique nature of the Eleftria Netbook, relying more on a skimming strategy is recommended, as this will preserve gross margins and lead to a greater profitability over the long-term. Keeping the price higher will also connote greater value, as consumers often rely on a price/quality framework in their purchasing decision process (Boyle, Lathrop, 2009). This price-quality framework is used for arbitrating whether a product or service is credible, delivers value and can be trusted or not. The price-quality relationship is often used by premium products and services providers to substantiate raising prices as well, which is a strategy many rely on as their markets become more crowded with competitors (Boyle, Lathrop, 2009).

As the Eleftria system can be sold in a multitude of configurations, the pricing strategy begins with a baseline unit and increases based on the options selected. The pricing strategy concentrates on creating a high gross margin in the initial unit, followed by up-sell and cross-sell strategies on the accessories to further increase profitability per unit. The net effect of this strategy is to generated a blended gross margin of above 70% per unit, which in the current electronic industry is considered above average (Gill, Lei, 2009). The skimming pricing strategy, coupled with the exclusivity of having a made-to-order netbook to one's unique and specific tastes, which will drive the upsell and cross-sell strategy, is the intent. The accessories and many options will also serve to differentiate each model, making them unique for the needs of every given customers, further underscoring the price/quality relationship (Boyle, Lathrop, 2009). By using these pricing strategies the goal is to create a highly differentiated and unique experience for each customer as well, which will serve to further support the premium price or skimming strategy (Al-Obaidi, Gabrielsson, 2002). The pricing tactics are designed to capture as much margin as possible for the unique platform of the Eleftria netbook while also creating opportunities for upsell and cross-sell of unique configurations at the same time. All of these components of the product will be used to ensure a high premium price, which will be used to further underscore the unique experience of having an Eleftria netbook (Gill, Lei, 2009).

The Eleftria Netbook distribution strategy, which is discussed in the next section, is also heavily dependent on the pricing strategy of the base unit, accessories, and customization components. Pricing will be differentiated by volume commitments to ensure the legality of the pricing model including compliance to the Robinson-Patman Act requirements (Xia, 2011). As opposed to other approaches to defining pricing, this approach is equitable to each channel member and member of the value chain. There is also less room for price discrimination and fraudulent transactions when this is approach is used compared to more complex and challenging pricing schemes.

Distribution Channel Analysis

There will be a multichannel distribution channel strategy developed for the Eleftria netbook, as the build-to-order strategy can scale across indirect channel partners, online product configurators, and value-added resellers. The customization capability of the Eleftria netbook is ideally suited for a multichannel strategy as well. The following is an overview of the Eleftria Netbook distribution channel strategy. This channel strategy is deliberately designed to support multiple channels while also creating the opportunity to sell the Eleftria netbook to small businesses and consumers. There is also the inclusion of dealers, e-commerce hubs and retailers and Value-Added Resellers (VARs) each of who have the potential to increase their gross margin per sale by concentrating on customization needs of their long-standing customers. Dealers and VARs who sell into small businesses often have long-standing relationships with these small businesses, and can quickly gain sales of new systems by presenting the new Eleftria model to their best customers. The development of a multichannel distribution network is crucial for achieving critical mass during any new product introduction (Al-Obaidi, Gabrielsson, 2002). Figure 1 shows the proposed Eleftria Netbook distribution network. What makes this distribution network unique is the support for e-commerce selling as part of the multichannel structure.

Figure 1: Eleftria Netbook distribution network