Product Pricing and Distribution

Product Pricing and Distribution

Product Pricing and Distribution

Pricing Strategy

Recommend value-driven pricing for your company’s product.

  • Estimate the BEP for your company’s product. What pricing implications does your BEP present for achieving a short- or long-term ROI?
  • Is your product’s price relatively elastic or inelastic, and what implications does price elasticity present for your product? For example, how might its price elasticity affect sales volumes, inventory costs, price adjustments, and so forth?
  • What is the best pricing strategy for your product and why?

Distribution Strategy

Recommend a distribution plan for the new product.

  • Considering your company’s product from a strategic perspective, would you recommend creating a wholesale distribution channel, focusing on retail distribution, or using a multichannel approach that incorporates both wholesale and retail distribution?
  • What types of retailers or wholesalers (or mix of both) would you recommend using?
  • Given your recommended distribution channel strategy, what decisions about the retail or wholesale marketing mix must be made to form a viable retailer or wholesaler marketing strategy?

Product Pricing and Distribution

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Product Pricing and Distribution

Break-Even Point (BEP) Estimate:
Assuming your product costs KES 1,200 to produce and you’re considering a price of KES 2,000:

  • Fixed Costs (FC): KES 600,000/month

  • Price per Unit (P): KES 2,000

  • Variable Cost per Unit (VC): KES 1,200

  • BEP Formula:

    BEP (Units)=Fixed CostsPrice – Variable Cost=600,0002,000−1,200=750 units\text{BEP (Units)} = \frac{\text{Fixed Costs}}{\text{Price – Variable Cost}} = \frac{600,000}{2,000 – 1,200} = 750 \text{ units}

Pricing Implications:
At 750 units/month, you cover costs—no profit yet. To achieve short-term ROI, pricing must strike a balance between competitive value and contribution margin. Long-term ROI requires economies of scale or premium-tier options. A tiered pricing model (e.g., basic vs premium features) could drive early volume while expanding margins over time.

Price Elasticity Analysis:
If demand for your product significantly changes with price, it’s elastic; if demand remains steady, it’s inelastic. Suppose market research indicates that small price changes strongly affect buying behavior—then your product is relatively elastic.

Implications of Price Elasticity:

  • Sales Volumes: Lower prices may boost demand, but only if inventory and fulfillment can scale cost-effectively.

  • Inventory Costs: Elastic products require tight inventory controls to avoid overstock during slowdowns or stockouts during booms.

  • Price Adjustments: Flexibility to discount or bundle products is vital for promotions, but must be aligned with marketing objectives to maintain perceived value.

Best Pricing Strategy Recommendation:
Penetration pricing with a value-driven emphasis is ideal if you’re entering a competitive or saturated market. Begin with an attractive price to build market share, then adjust as your brand strengthens. Incorporate psychological pricing (e.g., KES 1,999 vs 2,000) and bundle offers to enhance perceived value.

Distribution Strategy: Multichannel Distribution Approach

Recommended Channel Strategy:
A multichannel strategy—leveraging both wholesale and retail—is most strategic. This allows broad reach, increased visibility, and

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