Chapter Twelve

Pricing, Distributing, and Promoting Products

After reading this chapter, you should be able to:1. Identify the various pricing objectives that govern pricing

decisions and describe the price-setting tools used in making these decisions.

2. Discuss pricing strategies that can be used for different competitive situations and identify the pricing tactics that can be used for setting prices.

3. Explain the meaning of distribution mix, identify the different channels of distribution, and describe the major activities in the physical distribution process.

4. Describe the role of wholesalers and explain the different types of retailing.

L E A R N I N G O B J E C T I V E SL E A R N I N G O B J E C T I V E S

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After reading this chapter, you should be able to:

1. Describe how online shopping agents and online retailers add value for advertisers and consumers on the Internet.

2. Identify the important objectives of promotion, discuss the considerations in selecting a promotional mix, and discuss advertising promotions.

3. Outline the tasks involved in personal selling, describe the various types of sales promotions, and distinguish between publicity and public relations.

L E A R N I N G O B J E C T I V E S (cont.)L E A R N I N G O B J E C T I V E S (cont.)

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What’s in It for Me?

• By understanding this chapter’s methods for pricing, distributing, and promoting products, you can benefit in two ways: • As both employee and manager, you’ll be

prepared to use the concepts of pricing, distributing, and promoting products in your career.

• As a consumer, you’ll have a clearer picture of how a product’s promotion and distribution affect its selling price, causing it to rise or fall.

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Determining Prices• Pricing to Meet Business Objectives• Pricing objectives• The goals that sellers hope to achieve in pricing products

for sale• Profit-maximizing pricing objectives• Setting prices to sell the number of units that will

generate the highest possible total profits• Revenues = Selling Price x Units Sold

• Market share objectives• Using pricing to establish market share—a company’s

percentage of the total industry’s sales for a specific product type

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Determining Prices (cont.)

• Price-Setting Tools • Cost-Oriented Pricing• Considers the firm’s desire to make a profit and its

need to cover production costs• Variable costs: Costs that change with the number of

units of a product produced and sold• Fixed costs: Costs such as insurance and utilities that

must be paid regardless of the number of units produced and sold • Selling price = Seller’s cost + profit

price Sales

Markup percentage Markup

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Determining Prices (cont.)

cost Variable - Price

costs fixed Total units)(in point Breakeven

• Breakeven Analysis• Shows, at any selling price, the amount of loss or

profit for each possible volume of sales• Breakeven point: Number of products that must

be sold so total revenues exactly cover both fixed and variable costs

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FIGURE 12.1 Breakeven Analysis

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Pricing Strategies and Tactics

• Pricing Existing Products• A firm has three options for pricing existing

products:• Pricing above prevailing market prices for similar products• Pricing below market prices• Pricing at or near market prices

• Pricing New Products• Price skimming

• Setting an initially high price to cover costs and generate a profit—may generate a large profit on each item sold

• Penetration pricing• Setting an initially low price to establish a new product in the

market

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Pricing Strategies and Tactics (cont.)

• Fixed Versus Dynamic Pricing for E-Business• To attract sales that might be lost under

traditional fixed-price structures, sellers alter prices privately, on a one-to-one, customer-to-customer basis

• At present, fixed pricing is still the most common option for cybershoppers

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Pricing Strategies and Tactics (cont.)

• Pricing Tactics• Price lining• Offering all items in certain categories at a limited

number of prices (price points)

• Psychological pricing• Odd-even pricing: Customers prefer prices that are not

stated in even dollar amounts• Discounts: Price reductions that stimulate sales

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The Distribution Mix• Distribution Mix• The combination of distribution channels by

which a firm gets products to end users• Intermediaries (Middlemen)• Help distribute goods, either by moving them or

by providing information that stimulates their movement from sellers to customers

• Can provide added value by saving consumers both time and money• Wholesalers sell products to other businesses for

resale to final consumers• Retailers sell products directly to consumers

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The Distribution Mix (cont.)

• Distribution Channel• Path a product follows from producer to end user

• Popular Paths• Channel 1: Direct distribution (direct channel)• Channel 2: Retail distribution• Channel 3: Wholesale distribution• Channel 4: Distribution by agents or brokers

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FIGURE 12.2 Channels of Distribution

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Wholesaling• Wholesalers• Independent operations that sell consumer or business

goods• Buy products from manufacturers and sell them to other

businesses, and usually provide storage and delivery

• Provide additional value-adding services for customers

• Agents and Brokers• Sales and merchandising representatives for producers or

sellers• Do not own inventory, but manage it for producers

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FIGURE 12.3 The Value-Adding Intermediary

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Retailing• Types of Retail Outlets• Product line retailers carry broad product lines

• Department stores and supermarkets

• Specialty stores carry one line of related products

• Bargain retailers carry wide ranges of products and come in many forms• Discount houses, catalog showrooms, factory outlets, wholesale

clubs

• Convenience stores offer accessible locations and ease of purchase

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Retailing (cont.)

• Nonstore Retailing• Vending machines

• Direct-response retailing• Mail order (or catalog marketing)

• Telemarketing

• Direct selling

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Online Shopping Agents

• Two types of E-Intermediaries

• Shopping agents (e-agents) help Internet consumers by gathering and sorting information.

• Electronic retailing is made possible by communications networks that enable sellers to post product information on consumers’ PCs.

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Electronic Retailing

• Electronic Catalogs (E-catalogs)• Use the Internet to display products

• Electronic Storefronts (virtual storefronts) • A website from which consumers collect information

about products, place orders, and pay for purchases

• Cybermalls• Collections of virtual storefronts representing diverse

products

• Interactive and Video Marketing• Viewers shop at home by phoning in or e-mailing orders

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TABLE 12.1 Top 10 Online Retailers

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Physical Distribution• Physical Distribution• The activities needed to move products from

manufacturer to consumer• Makes goods available when and where consumers

want them• Keeps costs low• Provides services to satisfy customers

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Physical Distribution (cont.)

• Warehousing Operations• Private warehouses are owned by producers• Public warehouses provide rented storage space

• Transportation Operations• Principal differences are speed and cost

• Transportation Modes• Trucks• Planes• Water carriers • Railroads• Pipelines

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Physical Distribution (cont.)

• Physical Distribution and E-Customer Satisfaction • Order fulfillment• Involves getting the product to each customer in good

condition and on time

• Distribution as a Marketing Strategy • Distribution is an increasingly important way of

competing for sales.• For some firms distribution is a cornerstone of

business strategy

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The Importance of Promotion

• Promotion• The techniques a firm uses for communicating

information about products• Promotional Objectives• To communicate information• To position products• To add value• To control sales volume

• Positioning• Establishing an easily identifiable product image in the

minds of consumers by fixing, adapting, and communicating the nature of the product itself

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The Importance of Promotion (cont.)

• Promotional Mix Tools• Advertising• Personal selling• Sales promotions• Publicity and public relations

• Promotional Mix• The combination of promotional tools

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The Importance of Promotion (cont.)

• Matching Promotional Tools with Stages in the Buyer Decision Process:• Recognize the need to make a purchase

• Best tool: advertising and publicity

• Search for information about products• Best tool: advertising and personal selling

• Compare benefits and features of competing products• Best tool: personal selling

• Choose products that are a good value and buy them• Best tool: sales promotion and personal selling

• Evaluate products after the purchase• Best tool: advertising and personal selling

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Advertising Promotions• Advertising• Paid, non-personal communication by which an

identified sponsor informs an audience about a product

• Advertising Media• The specific communication devices for carrying a

seller’s message to potential customers• Media Mix• The combination of media through which a

company advertises

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FIGURE 12.4 Top 10 National Advertisers

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TABLE 12.2 Media Use, Strengths, and Weaknesses

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Personal Selling• Personal Selling• A salesperson communicates one-to-one with

potential customers to identify their needs and align them with the seller’s products• Can be the most expensive form of promotion

• Personal Selling Tasks• Order processing• Creative selling• Missionary selling

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Sales Promotions

• Sales Promotions• Short-term promotional activities designed to

encourage consumer buying, industrial sales, or cooperation from distributors

• Types of Sales Promotions• Samples• Coupons• Premiums• Contests• Point-of-sale displays• Trade shows

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Publicity and Public Relations

• Publicity• Information about a company, a product, or an

event transmitted by the general mass media to attract public attention

• Public Relations• Company-influenced publicity that seeks either to

build good relations with the public or to deal with unfavorable events

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Key Terms

advertisingadvertising mediabargain retailerbreakeven analysisbreakeven pointbrokercatalog showroomconvenience storecost-oriented pricingcouponcreative sellingcybermall

department storedirect channeldirect sellingdirect-response retailingdiscountdiscount housedistribution channeldistribution mixe-cataloge-intermediary

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Key Terms (cont.)

electronic retailingelectronic storefrontfactory outletfixed costinteractive marketingintermediarymail order (catalog marketing)market sharemarkupmedia mixmissionary sellingodd-even pricing

order fulfillmentorder processingpenetration pricingpersonal sellingphysical distributionpoint-of-sale (POS) displaypositioningpremiumprice liningprice skimmingpricing

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Key Terms (cont.)

pricing objectivesprivate warehousepromotionpromotional mixpsychological pricingpublic relationspublic warehousepublicityretailersales agentsales promotion

shopping agent (e-agent)specialty storesupermarketsyndicated sellingtelemarketingtrade showvariable costvideo marketingwarehousingwholesale clubwholesaler

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