CHAPTER 13: DISTRIBUTION AND PRICING Right Product, Right Person, Right Place, Right Price
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CHAPTER 13: DISTRIBUTION AND PRICINGRight Product, Right Person, Right Place, Right Price
GETTING PRODUCTS TO THE RIGHT PLACEDistribution is a key element of the marketing mixWhere should the product be sold?How will it get to the location(s) from the factory?
DISTRIBUTION: GETTING YOUR PRODUCT TO YOUR CUSTOMERProducerWholesalerConsumerChannel of Distribution the path that a product takes from the producer to the consumer
CHANNEL INTERMEDIARIESChannel Intermediaries informally called middlemen. They facilitate the movement of products from the producer to the consumer.
DISTRIBUTING DIRECTLY TO THE CONSUMERProducerConsumerDirect Channel Distribution process that links the producer and the customer with no intermediaries.
THE ROLE OF DISTRIBUTORS: ADDING VALUE (utility)
Form Utility:Turning inputs into finished goodsTime Utility:Providing products at the right timePlace Utility:Offering products at the right placeOwnership Utility:Providing credit, cashing checking, delivering productsInformation Utility:Offering helpful informationService Utility:Providing fast, friendly, personalized service
DISTRIBUTORS: STREAMLINING CONSUMER TRANSACTIONS
STRATEGIC DISTRIBUTIONReed 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.
THE MEMBERS OF THE CHANNELRetailers the distributors that sell products directly to the ultimate usersWholesalers distributors that buy products from producers and sell them to other businesses or nonfinal users.
WHOLESALERS: SORTING OUT THE OPTIONSMerchant WholesalersFull-service Limited Service Drop ShippersCash and Carry Truck Jobbers
RETAILERS: THE CONSUMER CONNECTIONStore RetailersNon-Store RetailersOnlineDirect ResponseDirect Selling Vending
DISTRIBUTION STRATEGYINTENSIVE DISTRIBUTIONSELECTIVE DISTRIBUTIONEXCLUSIVE DISTRIBUTION
MULTICHANNEL RETAILINGRetailers are encouraging consumers to buy through multiple channelsStoreOnline
Category Killer Home Depot, Best Buy, StaplesConvenience Store7-eleven, AM/PM marketsDepartment StoreNordstrom, Neiman Marcus, JCPennyDiscount StoreTarget, Wal-Mart, KmartOutlet StoreNike, Gap, Gucci, VersaceSpecialty StoreBarnes & Noble, Victorias Secret, Hot Topic SupermarketKroger, Safeway, Albertsons, Whole FoodsSupercenterWal-Mart Supercenters, Super TargetWarehouse ClubCostco, Sams Club
PHYSICAL DISTRIBUTION: PLANES, TRAINS, AND MUCH, MUCH MORESupply Chain Management planning and coordinating the movement of products along the supply chain.
Logistics - focuses on the tactics involved in moving the products.
ELEMENTS OF THE SUPPLY CHAIN
SUPPLY CHAIN MANAGEMENT DECISIONSWarehousingMaterials HandlingInventory ControlOrder ProcessingCustomer ServiceTransportationSecurity
DISTRIBUTING TO THE BIG BOX RETAILERSA 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
MODES OF TRANSPORTATION
PRICING : A HIGH STAKES GAMEPricing plays a key role in the demand for productsPrice is a tough variableLegal constraintsIntermediary pricingStable pricing is not the normPrices must constantly be evaluated
PRICING OBJECTIVES AND STRATEGIESBuilding ProfitabilityMatching the CompetitionCreating PrestigeSkimming PricingBoosting VolumePenetration PricingEvery-day-low PricingHigh/Low PricingLoss Leader Pricing
SLIPPERY FINGER ONLINE PRICING GOOFSFree 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 Dells site.
PRICING IN PRACTICE: A REAL WORLD APPROACHBreakeven 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.
USING BREAKEVEN ANALYSISBusinesses make decisions to adjust the product price and/or costs.Raise pricesDecrease variable costsDecrease fixed costs
FIXED MARGIN PRICINGCost-Based Pricing
Demand-Based PricingProfit Margin the gap between cost and the price per product.
CONSUMER PRICING PERCEPTIONS: THE STRATEGIC WILD CARDConsumer price perceptions can defy logic!The link between price and perceived quality can be powerfulConsumers will use price as a quality indicatorDoes odd pricing like $196 or $199 always mean a bargain?
PSYCHOLOGICAL PRICINGA 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.
*Distribution Strategy is about getting the right product to the right person at the right place, at the right time.*Note that some retailers like Sams Club and Costco serve as both retailers and wholesalers.*Click the link to visit Spartan Foods the 10th largest grocery supplier/retailer. Review the Business Partners section and the services offered to business partners. Highlight the value of distribution.*Explain each strategy. Ask students to suggest products in each category. Discuss how more expensive brands are usually more exclusive. Provide examples of brands that are only carried in their own stores or brands that are at selective fine retailers.*Note that many retailers like the GAP have strategies for both distribution channels. Brick and Mortar vs. Click and Mortar. Also note that retailers like Lands End and Victoria Secrets initial strategies included catalog and store now the online business has become a bigger component than the catalog itslef.*Discuss the wheel of retailing. Can use Target as an example.
Click the link to view the National Retail Federations website. Click the Top 100 tab and view the Top 100 Retailers as well as the Hottest Retailers.*Many companies have turned to supply chain management to gain competitive advantage, some firms have even outsourced this function to experts.*The link will take you to CTSI, a global logistics company. Click through the variety of services offered by the company. Note their global services and the graphic on the home page identifying the different aspects of logistics.*Comment on the trends of big box retailers and the impact they are making on the retail industry.*When considering modes of transportation, businesses must consider each mode, cost, frequency, speed, dependability, flexibility and availability. Some companies use more than one mode of transportation.*If a price seems too good to be true, it probably is. But seeking an incredible bargain can still make sensedollar and cents. Due to slippery finger typos, frequent price changes, and programming glitches, online retailers are especially vulnerable to pricing mistakes. Without human cashier confirmation, its tough to catch the goofs. And to magnify the problem, quick communication on the Web almost ensures a flood of customers placing orders almost as soon as the wrong price goes live. Now many companies add disclaimers to their websites.*Discuss consumer pricing perceptions.