© 2009 south-western, a division of cengage learning 1 chapter 13: distribution and pricing right...
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© 2009 South-Western, a division of Cengage Learning
1
Chapter 13: DISTRIBUTION AND PRICING
Right Product, Right Person, Right Place, Right Price
© 2009 South-Western, a division of Cengage Learning
2
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?
© 2009 South-Western, a division of Cengage Learning
3
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?
© 2009 South-Western, a division of Cengage Learning
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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
© 2009 South-Western, a division of Cengage Learning
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CHANNEL INTERMEDIARIES
Channel Intermediaries – informally called middlemen. They facilitate the movement of products from the producer to the consumer.
© 2009 South-Western, a division of Cengage Learning
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DISTRIBUTING DIRECTLY TO THE CONSUMER
Producer Consumer
Direct Channel – Distribution process that links the producer and the customer with
no intermediaries.
© 2009 South-Western, a division of Cengage Learning
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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
© 2009 South-Western, a division of Cengage Learning
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DISTRIBUTORS: STREAMLINING CONSUMER TRANSACTIONS
© 2009 South-Western, a division of Cengage Learning
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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.“
“
© 2009 South-Western, a division of Cengage Learning
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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.
© 2009 South-Western, a division of Cengage Learning
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WHOLESALERS: SORTING OUT THE OPTIONS
• Merchant Wholesalers– Full-service – Limited Service
• Drop Shippers• Cash and Carry • Truck Jobbers
© 2009 South-Western, a division of Cengage Learning
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RETAILERS: THE CONSUMER CONNECTION
• Store Retailers• Non-Store Retailers
– Online– Direct Response– Direct Selling – Vending
© 2009 South-Western, a division of Cengage Learning
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DISTRIBUTION STRATEGY
INTENSIVE DISTRIBUTION
SELECTIVE DISTRIBUTION
EXCLUSIVE DISTRIBUTION
© 2009 South-Western, a division of Cengage Learning
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MULTICHANNEL RETAILING
Retailers are encouraging
consumers to buy through multiple
channels
Store Online
© 2009 South-Western, a division of Cengage Learning
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STORE RETAILERS
Category Killer Home Depot, Best Buy, Staples
Convenience Store 7-eleven, AM/PM markets
Department Store Nordstrom, Neiman Marcus, JCPenny
Discount Store Target, Wal-Mart, Kmart
Outlet Store 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
© 2009 South-Western, a division of Cengage Learning
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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.
© 2009 South-Western, a division of Cengage Learning
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ELEMENTS OF THE SUPPLY CHAIN
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SUPPLY CHAIN MANAGEMENT DECISIONS
• Warehousing
• Materials Handling
• Inventory Control
• Order Processing
• Customer Service
• Transportation
• Security
© 2009 South-Western, a division of Cengage Learning
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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.
www.walmartfacts.com/wal-mart-distribution-centers.aspx
© 2009 South-Western, a division of Cengage Learning
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MODES OF TRANSPORTATION
© 2009 South-Western, a division of Cengage Learning
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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
© 2009 South-Western, a division of Cengage Learning
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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
© 2009 South-Western, a division of Cengage Learning
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“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 X3i PDAs wrongly priced at $79 on Dell’s site.
© 2009 South-Western, a division of Cengage Learning
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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.
© 2009 South-Western, a division of Cengage Learning
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USING BREAKEVEN ANALYSIS
Businesses make decisions to adjust the product price and/or costs.
– Raise prices
– Decrease variable costs
– Decrease fixed costs
© 2009 South-Western, a division of Cengage Learning
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FIXED MARGIN PRICING
• Cost-Based Pricing
• Demand-Based Pricing
Profit Margin – the gap between cost and the price
per product.
© 2009 South-Western, a division of Cengage Learning
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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?
© 2009 South-Western, a division of Cengage Learning
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PSYCHOLOGICAL PRICING
A recent survey of
1,200 prices, found
that 57% ended in .99
cents, and another
11% ended in .97
or .98 cents. Only
about 3% were whole
dollar amounts.
© 2009 South-Western, a division of Cengage Learning
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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?
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