Transcript ©2013 Cengage Learning. All Rights Reserved. o re n pos t eed Lteoa ra n p u b .l i A c l y a.

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©2013 Cengage Learning. All Rights Reserved.
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Distribution and
Pricing:
Right Product, Right
Person, Right Place,
Right Price
LO1 What is distribution? What is the
difference between channels of
distribution and physical distribution?
LO2 What are the various types of
wholesale distributors?
LO3 What are strategies and trends in store
and nonstore retailing?
LO4 What are the key factors in physical
distribution?
LO5 What are core pricing objectives and
strategies?
LO6 What is pricing in practice and the role
it plays in consumers’ perceptions?
2
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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
Distribution Strategy: getting the right product to the right person
at the right place, at the right time
3
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Elements of Distribution Strategy
• Physical Distribution – the actual
movement of products to consumers (i.e.
by what means do products get to
marketing channels/consumers, like
trucking, railroad, air, etc.)
AP Images/Ross D. Franklin
Question: Are Sam’s Club
and Costco Wholesale
acting as a retailer
or wholesaler?
• Direct Channel – producers who sell
products directly to consumers (ex.
Producer->Consumer)
• Channel Intermediaries (aka Middlemen,
Marketing Channels) – help products
move from factories to consumers
efficiently (ex. Retailers and Wholesalers)
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Possible Channels of Distribution
5
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The Role of Marketing Channels
 Justifications for marketing
intermediaries
•
•
•
•
•
•
•
Intermediaries perform essential marketing services
(promotion of products, help sell product)
Intermediaries provide important market information to
producers (what’s selling, who’s buying, customer feedback)
Intermediaries help store products (producers won’t be
burdened with storage costs)
Intermediaries provide customers with convenience and
choice selection
Intermediaries accept risk for customer non-payment or nonsold products
Intermediaries create efficiency and utility
Intermediaries help REDUCE COSTS and provide VALUE!
How?
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Reducing Transactions Through
Marketing Intermediaries
7
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The Role of Distribution: Adding Value
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
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The Members of the Channel: Retailers
versus Wholesalers
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
Non-final users (i.e. other retailers
or wholesalers)
9
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© The Studio Dog/Photodisc/Getty Images
Wholesalers: Sorting out
the Options
• Merchant Wholesalers (ex. PYA/Monarch, IFH)
Full-service merchant wholesalers
 Limited-service merchant wholesalers
 Drop Shippers
 Cash and Carry Wholesalers
 Truck Jobbers

• Agents/Brokers (ex. The Match Maker, Inc. –
my company!)

Connect Buyers and Sellers
10
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Retailers: The Consumer Connection
 Store Retailers
 Nonstore Retailers




Online (e-tailing)
Direct Response
Direct Selling
Vending
 Multichannel retailing encourages
buying through different channels
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Level of Market Coverage
 Intensity of market coverage
•
Intensive distribution
– The use of all available outlets for a product to
saturate the market
– Convenience Products
•
Selective distribution
– The use of only a portion of the available outlets
for a product in each geographic area
– Shopping Products
•
Exclusive distribution
– The use of only a single retail outlet for a product
in a larger geographic area
– Specialty Products
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Level of Market Coverage
13
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© The Studio Dog/Photodisc/Getty Images
Store Retailers
Category Killer Home Depot, Best Buy, Staples
Convenience Store 7-Eleven, AM/PM markets
Department Store Nordstrom, Neiman Marcus, JCPenney
Discount Store Target, Walmart, Kmart
Outlet Store Nike, Gap, Gucci, Versace
Specialty Store Barnes & Noble, Victoria’s Secret, Hot Topic
Supermarket Kroger, Safeway, Albertson’s, Whole Foods
Supercenter Walmart Supercenters, Super Target
Warehouse Club Costco, Sam’s Club
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The Wheel of Retailing
• Retailers become more
upscale as they go
through the life cycle
• Does not account for
stores that launch highend or niche discounters
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Physical Distribution: Planes, Trains,
and 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
How will the product flow through the channel from
producer to consumer?
16
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Supply Chain
Warehousing
Materials Handling
Inventory Control
Order Processing
Customer Service
Transportation
 Supply chain management can
be increasingly complex
 Coordination can be a
challenge
 Gap contracts with more than
3,000 factories in 50 countries
Security
17
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Elements of the Supply Chain
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Transportation Decisions
Marketers must consider what each
mode of transportation offers
The right choice depends on the needs
of the business and the product
19
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Modes of Transportation
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© The Studio Dog/Photodisc/Getty Images
Proactive Supply Chain Management
• Supply chain management can build a
competitive advantage
• Many firms outsource their supply chain
activities

Firms like UPS have been successful in supply
chain management
21
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Pricing Products

•
•
Price
 Theamountof money a selleris willingto acceptin exchangefor a productat a giventimeandunder certain
circumstances
PriceObjectives
–
Increasesales,profit,and/ormarket share
–
Increasestore traffic
–
Createimage/quality
–
Combatcompetition
How do you determineprice?
–
Cost-Based
• Mark-Upon Cost
• Break-Even Analysis
–
DemandBased
• ↑D, ↑P
• ↓D, ↓P
–
CompetitionBased
• Set a pricebasedon whatyour competitionis doing
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or
Pricing Objective and Strategies
• Significant impact on company
success
• Price is a tough variable
o Legal constraints
o Intermediary pricing
• Stable pricing is not the norm
o Prices must constantly be
evaluated
©OtnaYdur/ Shutterstock.com
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Pricing Strategies
New Product Pricing
 Price Skimming: Charge highest possible price during introduction stage
 Penetration Pricing: Setting low price for new product to build market share
Differential Pricing -Charging different prices to different buyers for same quality and quantity
 Negotiated: Final price comes from bargaining
 Periodic Discounting: Temporary price reduction on patterned/systematic basis
 Random Discounting: Temporary price reduction on unsystematic basis
Psychological Pricing
 Odd-Number: use odd numbers just below whole-dollar amounts
 Multiple-Unit: single price for 2+ units (aka BOGO)
 Reference: price at moderate level and positioning it near a more expensive model
 Bundle: package 2+ products and selling for single price
 EDLP: consistently low price
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Matching Competition &
Creating Prestige
• The goal is to set prices based on what
everyone else is doing
• Wipe out price as a point of comparison
• Use price to send consumers a message
©Fotogroove/ Shutterstock.com
Rolex watches and Bentley cars use prestige
pricing to reinforce their image
• Price skimming entices price-insensitive
consumers
25
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Pricing Strategy at Chipolte
• Easy to understand pricing/menu
• Based on value
 Premium price based on well differentiated factors
• Creative use of price points
 Nontraditional price points like $8.19
 Consistent with unique image
• But a 200% markup on guacamole?
 Sales are below most burrito restaurants
26
Source: http://business.financialpost.com/2011/09/28/if-i-was-the-president-of-chipotle-restaurants, accessed September 29, 2011.
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Pricing in Practice
Breakeven analysis – the process of determining the
number of units that must be sold to cover costs.
Breakeven Point (BP) =
Total fixed cost (FC)
Price/Unit (P) – Variable cost/unit (VC)
Businesses make decisions to adjust the price and/or costs.
• Raise prices
• Decrease variable costs
• Decrease fixed costs
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27
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Applying Breakeven Analysis
How many pizzas do you need to sell in one year to
breakeven
 Fixed Costs are $300,000
 Variable Costs are $4/pizza
 Selling Price is $10
FC
$300, 000 $300, 000
BP 


 50, 000 pizzas
P  VC $10  $4
$6
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Fixed Margin Pricing
• Cost-Based Pricing
Profit Margin –
the gap between
cost and the price
per product
• Demand-Based Pricing
29
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Go Figure!
• Common sense says that consumers research and
weigh our options
• But, consumers are not so rational
• Consumers’ emotions trump their mind
 FREE!
 99 cents!
 Limited Time
• Consumers are irrational in somewhat predictable ways
Source: Why we fall for this by David Kestenbaum, AARP Magazine May/June 2011 issue, http://www.aarp.org/money/scams-fraud/info-04-2011/marketing-mind-tricks.html, accessed May 29, 2011 “Why the Price Is Rarely Right,” by Peter Coy,
January 10, 2010, BusinessWeek website, http://www.businessweek.com/magazine/content/10_05/b4165077443953.htm (accessed July 1, 2010).
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Consumer Pricing Perceptions
• 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?
• The perceived value between $99.99 and $100.00 is
much greater than the actual gap
31
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13
Looking Back
• What is distribution? What is the difference between channels of distribution
and physical distribution?
• What are the various types of wholesale distributors?
• What are strategies and trends in store and nonstore retailing?
• What are the key factors in physical distribution?
• What are core pricing objectives and strategies?
• What is pricing in practice and the role it plays in consumers’ perceptions?
32
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