Pricing Strategy and Distribution Pricing and Distribution

Pricing Strategy and Distribution Pricing and Distribution Strategy Analysis The most critical series of decisions any company makes are which distribution channels and pricing strategies to rely on for each product or service they offer. Pricing is the most strategic factor in any marketing, supply chain and production series of decisions because they not only send a very clear message of market value, they also have an immediate impact on profitability (Dudick, 1989).

The intent of this analysis is to determine and discuss the best possible pricing strategy for a new tablet PC that would compete directly with the Apple iPad. Second, the pricing tactics, legal and ethical issues, use of differential pricing is also discussed. Next a marketing distribution channel analysis is defined along with a description of how it fits the overall marketing objectives align with launching a new tablet PC.

Pricing Analysis for a Proposed Tablet PC As pricing is the most potent marketing variable at defining differentiation while also protecting gross margins, it is the one variable that needs to be treated as an asset that shouldn't be squandered carelessly (Dudick, 1989). In the case of innovative new products as a new Tablet PC, pricing can be more skimming-based. There are several excellent reasons for pursuing this strategy. First, the market is relatively new and there is ample room for margin retention due to lack of price competition.

Second, the innovativeness of the Tablet PC will command higher pricing and margins over time due to its unique value proposition and differentiated user experience (Dong-Qing, Liu, 2005). As the majority of financially successful products earn back their initial investments within the first third of their product life, a skimming pricing strategy would be the best possible strategy for accomplishing this (Dong-Qing, Liu, 2005). Pricing tactics for a Tablet PC need to concentrate on creating differentiation through value, not just use price alone as a means to differentiate.

In high-growth, price-inelastic markets it is common for high tech companies to raise the prices of their best-selling products and attain greater contribution margin (Dong-Qing, Liu, 2005). By choosing a skimming-based strategy that preservers gross margin while also differentiating the Tablet PC, profitability and growth can be preserved and the product will be successful. Pricing wars and conflicts must be avoided at all costs with a new, very expensive product such as a Tablet PC to ensure profitability is achieved.

Distribution Channel Analysis The selection of distribution channel partners is just as critical as the development and execution of the pricing strategy. For any high tech electronic product, there will be the need for creating a distribution network that can provide a strong level of support for the product, yet also allow for adjacent or vertical markets to also be sold into (Weitz, Wang, 2004). Figure 1 shows the configuration of a typical distribution channel for a high technology product.

In defining the distribution channel fro the Tablet PC, the need for ensuring a full lifecycle of services is crucial. Being able to repair the devices in the field will be critical to providing revenue generation potential for resellers (which will be a big motivation to get them to sign up for a new product) (Sibley, 1981) in addition to providing upsell and cross-sell opportunities of their own products and services (Hunt, Ray, Wood, 1985). Channel partners must be chosen for their ability to deliver quality selling experiences, serve and support (Frazier, 1999).

Figure 1: Proposed Distribution Channel Structure for the Tablet PC Conclusion The combining of pricing and distribution channel strategies can make or break any new product. Concentrating on skimming strategies that send a clear message of high value for a given product is critically important, as pricing.