An interesting thought of the digital world has changed the marketing world as well. “Traditionally, the price has operated as a major determinant of buyer retailers to lower prices. Internet has been changing the way buyers and sellers interact,” (Kotler & Keller, 2016, p. 462) changing the way not only sales occur online between the seller and the buyer but also has been a game changer for businesses that have either gone bankrupt or have had to close stores due to their major online sales demand.
Facebook wishes to leverage its database to introduce a product which allows individuals to order food directly from their website. Facebook hopes to introduce a food service like no other, a service cues from real-time analysis of the data users show interest. For example, Facebook’s algorithms note a spike Pizza among people living in a particular city; it will offer options for people to purchase Pizza from its website. The success of the product depends on the distribution strategy Facebook uses; distribution entails moving the product from the producer to the consumers (Pang & Chen, 2014). The distribution strategy utilized by Facebook is to be flexible because the service anticipates and responds to demand in real time.
An ideal distribution strategy for Facebook is direct distribution. Direct distribution is a distribution strategy where the company sells its products directly to the customer without involving any intermediaries (Hanssens, Pauwels, & Srinivasan, 2014). Facebook’s food service, direct distribution is ideal: it gives the company plenty of control and opportunity to refine its distribution strategy to satisfy customer demand.
Direct distribution eschews the use of intermediaries, enabling Facebook to market the cost of the food its sells through the service. Facebook isn’t traditionally in the food industry; therefore, it will take billions of investment in its distribution channel; however, the company will have obstacles to overcome. Successful fast food franchises like Domino’s spent billions of dollars in research and years to obtain a distribution channel; to where customers in America can order Pizza and have delivered within minutes of placing the order, which is Facebook’s future goal.
A significant amount of capital needed to get a direct distribution channel up and running means Facebook has to find a partner with expertise and fleet to meet the demands of Facebook’s customers. Facebook can deal with its distribution problems if they collaborate with food companies to establish distribution channels, such as Domino’s Pizza.
Facebook’s real-time data analysis predicts demands allows customers to order food directly from the website while the food industry uses their established distribution channels to get the food to the customers. Facebook will roll out the service in particular cities with a large number of Facebook users, for example, New York. The distribution channel used by Facebook for its new service is a mix of direct and selective distribution; the nature of the product only makes it viable in regions with a large number of users due to volume.
Facebook new service is entering a space dominated by hundreds of competitors; the pricing philosophy aimed is to capture a significant market share portion as soon as possible. Unlike its competitors, Facebook has deep pockets of cash that can be used to subsidize its products until they have a dominant market position and can achieve profitability. The low pricing enables Facebook to attract customers who are unfamiliar with the food service but find a reasonable price. The aggressive entry into the fast food business can trigger a price war; however, Facebook has the necessary funding to ensure it is successful.
The pricing strategy used is promotional pricing; promotional pricing is a strategy aiming to increase sales by lowering the cost of a product or service (Solomon, 2014). The stable company introduces a new product, promotional pricing to draw attention to the new service and increase demand. Facebook risks losing money in this market, but hoping to attain a dominant market position in a promptly manner to minimize loss by offering food delivery to customers at low average costs; with promotional pricing strategy allowing Facebook to assess the viability of its new business venture.
Graph 1.1 Illustrates low prices correlate with an increase in demand. (“K–K Club”, 2003-2017).
Hanssens, Pauwels, & Srinivasan. (2014). Consumer attitude metrics for guiding marketing mix decisions. Marketing Science, 33(4), 534-550. K–K Club. (2003-2017). Retrieved from http://k–k.club/?p=54579 Kotler, P.T. & Keller, K.L. (2016). Marketing Management (15th ed). Upper Saddle River, NJ: Pearson/Prentice Hall Pang, & Chen. (2014). Coordinating inventory control and pricing strategies for perishable products. Operations Research, 284-300. Solomon. (2014). Consumer Behavior: Buying, having, and being (Vol. 10). Englewood Cliffs, NJ: Prentice-Hall. Purpose of Assignment This assignment is designed to help students analyze and understand how price setting and go to market (distribution) are interrelated and affects the profitability and growth of the business. It has been designed to be a short overview on purpose: the concepts of pricing and distribution are complex and a general understanding is what should be absorbed in one week of study. Assignment Steps Construct a minimum 700-word plan for setting price and a distribution model (place/distribution) in Microsoft® Word. This plan should address at least three elements (from the Price and Place/Distribution list below) of the Price and Place/Distribution section of the marketing plan. Price and Place/Distribution: Distribution Strategies Channels, Mass, Selective, Exclusive Positioning within channels Dynamic/Static Pricing Strategies Channel tactics (Pricing) Daily pricing, promotion pricing, List pricing Note: Charts/graphs/tables do not count toward the word count. The plan will be a continuation of your global or multi-regional business you chose in Week 1. This will be incorporated into your overall marketing plan for Week 6. Cite a minimum of three peer-reviewed references.