MKTG5001 · Foundation In Marketing
Place, Distribution & Pricing
Place, Distribution & Pricing covers getting the product to the customer and setting its price. Place spans direct selling versus using intermediaries (which add reach and efficiency), retail formats, supply-chain and retail technologies, and omnichannel — combining places to fit the customer's lifestyle. Pricing has three strategies: cost-based (unit cost plus markup, which sets the floor), customer value-based (what it is worth to the customer, which sets the ceiling) and competition-based (priced relative to rivals). The integrated model sets price between a cost floor and a value ceiling, and the course urges competing on value, not price.
What this chapter covers
- 01Place: direct selling vs intermediaries (add reach and efficiency)
- 02Retail formats, supply-chain and retail technologies
- 03Omnichannel: combining places to fit the customer's lifestyle
- 04Three pricing strategies: cost-based, customer value-based, competition-based
- 05Cost-based markup: final price = unit cost × (1 + % markup); sets the floor
- 06Value-based pricing sets the ceiling; competition-based prices relative to rivals
- 07Floor-ceiling model and the case for competing on value, not price
Cost-based markup and the floor-ceiling check
- 2 marksApply the markup formula: final price = unit cost × (1 + % markup) = $24 × (1 + 0.50) = $24 × 1.50 = $36.
- 1 markFind the per-unit margin: price − unit cost = $36 − $24 = $12 per mug.
- 1 markName the approach: this is cost-based pricing — start from the internal unit cost and add a markup. It is simple and sets the price floor.
- 2 marksState the risk via the floor-ceiling model: cost-based pricing ignores the market, so $36 might exceed customers' value ceiling (what the mug is worth to them) and not sell. Cost sets the floor; the customer's perceived value sets the ceiling, and the price must sit between them.
Key terms
- Intermediaries
- Channel partners (wholesalers, retailers, agents) between producer and consumer that add reach and efficiency to distribution; selling without them is direct distribution.
- Omnichannel
- Combining multiple places and channels (store, app, web, delivery) into one seamless experience that fits the customer's lifestyle.
- Cost-based pricing
- Pricing from the inside out — unit cost plus a markup (final price = unit cost × (1 + % markup)). Simple and common, it sets the price floor but ignores what customers will pay.
- Customer value-based pricing
- Pricing from the outside in — based on what the offer is worth to the customer; this sets the ceiling, and features are designed to a target price.
- Competition-based pricing
- Setting price relative to rivals by relative brand and product strength — a premium 'value-adding' price or a lower 'good-value' price; common matching in oligopolies.
- Floor-ceiling model
- The integrating idea that price must sit between the cost floor and the customer's perceived-value ceiling, positioned using competitor prices, brand goals and market structure.
Place, Distribution & Pricing FAQ
How do I calculate a cost-based markup price?
Use final price = unit cost × (1 + % markup). For a $24 cost with a 50% markup that is $24 × 1.50 = $36, and the per-unit margin is price − cost = $36 − $24 = $12. This sets a price floor but does not guarantee customers will accept it.
Why does the course say to compete on value rather than price?
Because a price cut is easily matched by rivals, sparking a margin-destroying price war and training customers to buy only on price. Differentiated value (a stronger value proposition, better augmented product or brand) is far more defensible than a number on a tag, which any competitor can copy overnight.
Exam move
Lock in the one piece of arithmetic — final price = unit cost × (1 + markup) and margin = price − cost — and practise it until automatic. Then memorise the three pricing strategies and the floor (cost) / ceiling (value) model, and be ready to argue for competing on value over price.
