Chapter 13 DISTRIBUTION AND PRICING Right Product Right
Chapter 13: DISTRIBUTION AND PRICING Right Product, Right Person, Right Place, Right Price 1 © 2009 South-Western, a division of Cengage Learning
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 • Drop Shippers • Cash and Carry • Truck Jobbers 11 © 2009 South-Western, a division of Cengage Learning
RETAILERS: THE CONSUMER CONNECTION • Store Retailers • Non-Store Retailers – – Online Direct Response Direct Selling Vending 12 © 2009 South-Western, a division of Cengage Learning
DISTRIBUTION STRATEGY INTENSIVE DISTRIBUTION SELECTIVE DISTRIBUTION EXCLUSIVE DISTRIBUTION 13 © 2009 South-Western, a division of Cengage Learning
MULTICHANNEL RETAILING Store Retailers are encouraging consumers to buy through multiple channels Online 14 © 2009 South-Western, a division of Cengage Learning
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 Service Transportation Security 18 © 2009 South-Western, a division of Cengage Learning
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 between cost and the price per product. 26 © 2009 South-Western, a division of Cengage Learning
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
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