Chapter 13 DISTRIBUTION AND PRICING Right Product Right

LOOKING AHEAD • What is distribution as it relates to marketing? • What is the difference between channels of distribution and physical distribution? • What are the different types of wholesale distributors? • What are trends in retailing? • What are the key factors in physical distribution? • What are examples of pricing strategies? 2 © 2009 South-Western, a division of Cengage Learning

GETTING PRODUCTS TO THE RIGHT PLACE • Distribution is a key element of the marketing mix – Where should the product be sold? – How will it get to the location(s) from the factory? 3 © 2009 South-Western, a division of Cengage Learning

DISTRIBUTION: GETTING YOUR PRODUCT TO YOUR CUSTOMER Producer Wholesaler Consumer Channel of Distribution – the path that a product takes from the producer to the consumer 4 © 2009 South-Western, a division of Cengage Learning

CHANNEL INTERMEDIARIES Channel Intermediaries – informally called middlemen. They facilitate the movement of products from the producer to the consumer. 5 © 2009 South-Western, a division of Cengage Learning

DISTRIBUTING DIRECTLY TO THE CONSUMER Producer Consumer Direct Channel – Distribution process that links the producer and the customer with no intermediaries. 6 © 2009 South-Western, a division of Cengage Learning

THE ROLE OF DISTRIBUTORS: ADDING VALUE (utility) Form Utility: Turning inputs into finished goods Time Utility: Providing products at the right time Place Utility: Offering products at the right place Ownership Utility: Providing credit, cashing checking, delivering products Information Utility: Offering helpful information Service Utility: Providing fast, friendly, personalized service 7 © 2009 South-Western, a division of Cengage Learning

DISTRIBUTORS: STREAMLINING CONSUMER TRANSACTIONS 8 © 2009 South-Western, a division of Cengage Learning

STRATEGIC DISTRIBUTION “ Reed Hastings created Netflix – which revolutionized video distribution – partly out of anger that Blockbuster charged him $40 in late fees for a single overdue rental of Apollo 13. “ 9 © 2009 South-Western, a division of Cengage Learning

THE MEMBERS OF THE CHANNEL Retailers – the distributors that sell products directly to the ultimate users Wholesalers – distributors that buy products from producers and sell them to other businesses or nonfinal users. 10 © 2009 South-Western, a division of Cengage Learning

WHOLESALERS: SORTING OUT THE OPTIONS • Merchant Wholesalers – Full-service – Limited Service •

RETAILERS: THE CONSUMER CONNECTION • Store Retailers • Non-Store Retailers – – Online Direct

DISTRIBUTION STRATEGY INTENSIVE DISTRIBUTION SELECTIVE DISTRIBUTION EXCLUSIVE DISTRIBUTION 13 © 2009 South-Western, a division

MULTICHANNEL RETAILING Store Retailers are encouraging consumers to buy through multiple channels Online 14

STORE RETAILERS Category Killer Convenience Store Department Store Discount Store Outlet Store Home Depot, Best Buy, Staples 7 -eleven, AM/PM markets Nordstrom, Neiman Marcus, JCPenny Target, Wal-Mart, Kmart Nike, Gap, Gucci, Versace Specialty Store Barnes & Noble, Victoria’s Secret, Hot Topic Supermarket Kroger, Safeway, Albertson’s, Whole Foods Supercenter Wal-Mart Supercenters, Super Target Warehouse Club Costco, Sam’s Club 15 © 2009 South-Western, a division of Cengage Learning

PHYSICAL DISTRIBUTION: PLANES, TRAINS, AND MUCH, MUCH MORE Supply Chain Management – planning and coordinating the movement of products along the supply chain. Logistics - focuses on the tactics involved in moving the products. 16 © 2009 South-Western, a division of Cengage Learning

ELEMENTS OF THE SUPPLY CHAIN 17 © 2009 South-Western, a division of Cengage Learning

SUPPLY CHAIN MANAGEMENT DECISIONS • • Warehousing Materials Handling Inventory Control Order Processing Customer

DISTRIBUTING TO THE BIG BOX RETAILERS A typical Wal-Mart distribution center is more than one million square feet, or the equivalent of 10 Wal-Mart retail stores. 19 © 2009 South-Western, a division of Cengage Learning www. walmartfacts. com/wal-mart-distribution-centers. aspx

MODES OF TRANSPORTATION 20 © 2009 South-Western, a division of Cengage Learning

PRICING : A HIGH STAKES GAME • Pricing plays a key role in the demand for products • Price is a tough variable – Legal constraints – Intermediary pricing • Stable pricing is not the norm – Prices must constantly be evaluated 21 © 2009 South-Western, a division of Cengage Learning

PRICING OBJECTIVES AND STRATEGIES • Building Profitability • Matching the Competition • Creating Prestige – Skimming Pricing • Boosting Volume – Penetration Pricing – Every-day-low Pricing – High/Low Pricing – Loss Leader Pricing 22 © 2009 South-Western, a division of Cengage Learning

“SLIPPERY FINGER” ONLINE PRICING GOOFS • Free flights from Los Angeles to Fiji. • Round-trip tickets from San Jose, California, to Paris for $27. 98. • $1, 049 televisions wrongly listed for $99. 99 on Amazon. • $588 Hitachi monitors mistakenly priced at $164. • $379 Axim X 3 i PDAs wrongly priced at $79 on Dell’s site. 23 © 2009 South-Western, a division of Cengage Learning

PRICING IN PRACTICE: A REAL WORLD APPROACH Breakeven Point (BP) = Total fixed cost (FC) Price/Unit (P) – Variable cost/unit (VC) Breakeven analysis – the process of determining the number of units that must be sold to cover costs. 24 © 2009 South-Western, a division of Cengage Learning

USING BREAKEVEN ANALYSIS Businesses make decisions to adjust the product price and/or costs. – Raise prices – Decrease variable costs – Decrease fixed costs 25 © 2009 South-Western, a division of Cengage Learning

FIXED MARGIN PRICING • Cost-Based Pricing • Demand-Based Pricing Profit Margin – the gap

CONSUMER PRICING PERCEPTIONS: THE STRATEGIC WILD CARD • Consumer price perceptions can defy logic! • The link between price and perceived quality can be powerful – Consumers will use price as a quality indicator • Does odd pricing like $196 or $199 always mean a bargain? 27 © 2009 South-Western, a division of Cengage Learning

PSYCHOLOGICAL PRICING f o y e v r su t n e c e nd u Ar o f , s e c i r p 9 0 9. n i 1, 20 d e d n e % 7 5 t r a e h h t t o n a d n a , r o 7 cents 9. n di e d n t e u o b a 11% nly O. s t. 98 cen whole dollar re e w % 3. s t n u o am 28 © 2009 South-Western, a division of Cengage Learning

LOOKING BACK • What is the difference between channels of distribution and physical distribution? • What are the different types of wholesale distributors? • What are trends in retailing? • What are the key factors in physical distribution? • What are core pricing objectives and strategies? • What is the role of consumer perceptions in pricing? 29 © 2009 South-Western, a division of Cengage Learning