© 2009 South-Western, a division of Cengage Learning 1 Chapter 13: DISTRIBUTION AND PRICING Right...

© 2009 South-Western, a division of Cengage Learning

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Chapter 13: DISTRIBUTION AND PRICING

Right Product, Right Person, Right Place, Right Price


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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?


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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?


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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


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CHANNEL INTERMEDIARIES

Channel Intermediaries – informally called middlemen. They facilitate the movement of products from the producer to the consumer.


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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.


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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


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DISTRIBUTORS: STREAMLINING CONSUMER TRANSACTIONS


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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.“

“


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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.


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WHOLESALERS: SORTING OUT THE OPTIONS

• Merchant Wholesalers– Full-service – Limited Service

• Drop Shippers• Cash and Carry • Truck Jobbers


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RETAILERS: THE CONSUMER CONNECTION

• Store Retailers• Non-Store Retailers

– Online– Direct Response– Direct Selling – Vending


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DISTRIBUTION STRATEGY

INTENSIVE DISTRIBUTION

SELECTIVE DISTRIBUTION

EXCLUSIVE DISTRIBUTION


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MULTICHANNEL RETAILING

Retailers are encouraging

consumers to buy through multiple

channels

Store Online


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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


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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.


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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


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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


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MODES OF TRANSPORTATION


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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


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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


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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.


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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.


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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


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FIXED MARGIN PRICING

• Cost-Based Pricing

• Demand-Based Pricing

Profit Margin – the gap between cost and the price

per product.


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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?


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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.


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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?

© 2009 South-Western, a division of Cengage Learning 1 Chapter 13: DISTRIBUTION AND PRICING Right...

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