Price and Channel Strategy: Dynamic vs. Static Pricing

Introduction to Pricing in the Marketing Mix

Price constitutes an important element of the marketing mix. It significantly influences profitability and business growth. Price is essentially the cost the consumer incurs in acquiring the product or service on offer, and it is the only element of the marketing mix that has direct implications for revenue. Major factors that influence pricing decisions include cost, consumer preferences, competition, and distribution channels (Baines, Fill & Page, 2011). Within the global or multiregional context, price setting may be even more complex, as additional factors must be considered, such as foreign exchange costs, inflation, and export costs (Wilson & Gilligan, 2005).

Static Pricing: Definition and Limitations

Generally, pricing may be static or dynamic. Static pricing entails maintaining the same price for all customers regardless of changes in market conditions (Lamb, Hair & McDaniel, 2012). While this option minimizes administrative difficulties, it may not satisfy all market segments (Baines, Fill & Page, 2011). For instance, high-end consumers may equate low prices with low quality or product inferiority. Static pricing may be particularly ineffective in the global or multiregional context, where an organization serves diverse market segments with differing expectations and purchasing power.

Dynamic Pricing: Flexibility Across Market Segments

Dynamic pricing is generally more appropriate for complex markets. Also known as flexible pricing, dynamic pricing involves changing prices based on prevailing market conditions (Lamb, Hair & McDaniel, 2012). Pricing may be influenced by factors such as demand, season, product lifecycle stage, regulations, and consumers' sensitivity to price.

Flexible pricing means that high-end and low-income consumers may be charged different prices for the same product. High-end consumers may prefer premium pricing, while low-income consumers may favour economy pricing. Equally, a firm may offer a lower price during the early stages of the product lifecycle in order to increase market share — an approach known as penetration pricing. Once the brand is established, prices can then be adjusted and the product repositioned as a superior offering. Customers in different regions may also be charged differently depending on local conditions. On the whole, pricing decisions must be carefully weighed against the relevant factors in order to effectively capture all targeted market segments.

Distribution Strategy: Direct and Indirect Channels

Distribution also represents an important element of the marketing mix. Distribution strategy refers to the plan for delivering a product to the end consumer. An effective distribution strategy is critical to the success of a product in the marketplace (Wilson & Gilligan, 2005), ensuring that consumers can obtain the product whenever and wherever they want it. The choice of distribution strategy is typically informed by factors such as the location and characteristics of the target market, as well as costs.

Generally, distribution may be direct or indirect (Baines, Fill & Page, 2011). Indirect distribution involves delivering the product to the consumer through intermediaries such as distributors, wholesalers, and retailers. Although this option often lengthens the supply chain, it may be more appropriate when intermediaries hold greater distribution advantages than the firm itself. Direct distribution, on the other hand, entails delivering products without intermediaries — the product is sent directly to the end consumer via firm-owned brick-and-mortar stores or an online retailing platform. This approach may reduce distribution costs to the advantage of the final consumer.

References

Baines, P., Fill, C., & Page, K. (2011). Marketing. Oxford: Oxford University Press.

Lamb, C., Hair, J., & McDaniel, C. (2012). Essentials of marketing (7th ed.). Mason: Cengage Learning.

Wilson, R., & Gilligan, C. (2005). Strategic marketing management (3rd ed.). New York: Routledge.