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Title: Pricing, Distribution, Promotion


1
Pricing, Distribution, Promotion

2
Pricing and Pricing Management
  • What is meant by price?
  • What types of price sensitive consumers are
    there?
  • What are some pricing objectives?
  • How do you set a specific selling price?
  • What are some pricing strategies?

3
Definition of Pricing
  • What do we mean by price?
  • Price is the amount of money and/or other items
    with utility needed to acquire a product.
  • Utility is an attribute with the potential to
    satisfy wants.
  • Base price list price which includes no
    discounts, freight charges or other modifications
  • Expected price what customers think product is
    worth

4
Definition of Pricing
  • Price is what you pay for what you get

5
Normal demand curve
Price
Inverse demand
Quantity sold
6
Types of Price Sensitive Consumers
  • Brand loyal - relatively uninterested in price
  • System beaters - prefer certain brands but try to
    buy them at reduced prices
  • Deal Shoppers - driven by low prices
  • Uninvolveds - not motivated by brand preferences
    or low prices

7
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8
Pricing Objectives
  • Profit - oriented
  • to achieve a target return on sales or investment
    (short-term)
  • to maximize profit (long-term)
  • most companies use this
  • Sales - oriented
  • to increase sales volume to gain rapid growth or
    discourage competition
  • to maintain or increase market share
  • especially when pie is not getting bigger

9
Pricing Objectives
  • Status Quo - oriented
  • to stabilize prices (standardized products)
  • to meet competition by matching prevailing price
  • to compete on other elements of the marketing mix

10
SELECT PRICING OBJECTIVE
SELECT METHOD OF DETERMINING THE BASE PRICE
Cost-plus pricing
Price based on both demand and costs
Price set in relation to market alone
11
Setting A Specific Selling Price
  • Cost-Plus Pricing
  • total cost markup
  • acquisition cost markup
  • most popular method
  • should be used with other methods
  • Breakeven Analysis is used to help determined how
    many units need to be sold total revenues
    total cost

12
Markup Calculation
13
100,000 90,000 80,000 70,000 60,000 50,000 40,000
30,000 20,000 10,000
Total revenue (at 80 per unit)
PROFITS
BREAK-EVEN POINT
Total costs
Cost, revenue, profit
Total variable costs
LOSSES
Total fixed costs
0 100 200 300 400 500 600 700 800 900
1000 1100 1200
Quantity in units
14
Setting A Specific Selling Price
  • Marginal Analysis
  • considers both demand and supply
  • optimum volume of output level at which
    marginal cost equals marginal revenue
  • up to optimal point marginal revenue gt marginal
    cost
  • not used much since hard to get numbers

15
Marginal cost
Price, cost
Marginal revenue
0
Q
Quantity produced
16
Setting A Specific Selling Price
  • Competitive Market Conditions
  • price is set in relation to market alone
  • may be set at the market price or above or below
  • above for a prestige or distinctive product
  • below for a discounter

17
SELECT PRICING OBJECTIVE
SELECT METHOD OF DETERMINING THE BASE PRICE
Cost-plus pricing
Price based on both demand and costs
Price set in relation to market alone
DESIGN APPROPRIATE STRATEGIES
Price vs. nonprice competition Skimming vs.
Penetration pricing Discounts and allowances
Geographic Pricing One price vs. flexible
price Odd Pricing Leader pricing
Everyday low vs. high-low pricing Resale price
maintenance Reactive/Proactive
18
Pricing Strategies
  • Price vs Non Price Competition
  • price low as possible with minimum services
  • non price maintain stable price and compete
    using other marketing mix elements
  • Skimming vs Penetration Pricing
  • skimming price set at highest possible level
    for a new product
  • penetration low initial price for a new product
    to rapidly increase sales and share

19
Pricing Strategies
  • Discounts and Allowances
  • quantity reduce price due to large purchase
  • trade reduce price due to marketing functions
    performed by buyers - storing, promoting, selling
  • cash reduce price due to prompt payment
  • rebate mail-in or coupon to get money back
  • seasonal discount reduce price for ordering
    during slack season
  • promotional allowance payment for promotional
    service by buyer

20
Pricing Strategies
  • Geographic Pricing
  • determined by whether buyer or seller or both
    bear shipping (freight) expense
  • FOB factory buyer pays
  • Uniform delivered same price regardless of
    location
  • Zone delivered same price in the same
    geographic zone
  • Freight-absorption price quoted includes
    shipping costs

21
Pricing Strategies
  • One Price versus Flexible
  • one price same price to everyone
  • flexible similar customers pay different prices
    (airlines)
  • Price Lining
  • selecting a limited number of prices at which the
    business will sell related products
  • Odd Pricing
  • setting prices at uneven amounts
  • 99 cents instead of 1 or 2.99 instead of 3
  • psychological pricing

22
Pricing Strategies
  • Leader Pricing
  • temporarily cutting prices on a few items to
    attract customers
  • reduced items are called leaders
  • if items below cost called loss leaders
  • High-low versus Everyday Low Pricing
  • high-low alternating between regular (higher)
    and sale (low) prices on most visible products
    (Sears)
  • everyday low prices consistently low prices and
    few (if any) temporary price reductions (Wal-Mart)

23
Pricing Strategies
  • Resale Price Maintenance
  • manufacturers want to control prices at which
    middlemen resell their products
  • suggested retail price
  • Reactive versus Proactive price changes
  • reactive reacts to the competition - price wars
  • proactive initiates price changes to reduce
    inventory, reach economies of scale, etc.

24
Pricing Strategies
  • Robinson Patman Act
  • seller must offer promotional services and
    facilities, or payments for them, on a
    proportionally equal basis to all competing
    customers

25
Price differential injury to competition Robin
son-Patman violation
UNLESS Price differential Cost differential
26
Distribution and Logistics
  • What is distribution and channels?
  • How do you design a distribution channel?
  • What is supply chain management?
  • What is meant by retailing?
  • What types of retailers are there?
  • What marketing strategies are used by retailers?
  • What is wholesaling?
  • What types of wholesalers are there?
  • What are the elements of physical distribution?

27
Distribution / Supply Chain
  • Distribution Channel
  • consists of the set of people and firms involved
    in the transfer of title to a product as the
    product moves from producer to ultimate consumer
    or business user
  • Middleman
  • business firm that renders services directly to
    the sale and/or purchase of a product as it moves
    from producer to consumer
  • merchant - takes title - retailers, wholesalers
  • agent - doesnt take title (ex., real estate
    brokers, travel agents)

28
Middlemen and Distribution Channels
  • The role of distribution is to get the product to
    the firms target market, which entails
  • Arranging for its sale and transfer of title
  • Promoting the product
  • Storing the product
  • Assuming some risk during distribution.
  • Middlemen often perform these activities for
    producer or consumer.

29
Typical Middlemen Activities
SALES SPECIALIST FOR PRODUCERS
PURCHASING AGENT FOR BUYERS
  • Provides market
  • information
  • Interprets consumers
  • wants
  • Promotes producers
  • products
  • Creates assortments
  • Stores products
  • Negotiates with
  • customers
  • Provides financing
  • Owns products
  • Shares risks
  • Anticipates wants
  • Subdivides large
  • quantities of a product
  • Stores products
  • Transports products
  • Creates assortments
  • Provides financing
  • Makes products
  • readily available
  • Guarantees products
  • Shares risks

M I D D L E M A N
30
The Importance of Sutters Channels
According to CEO Bob Trinchero, one major factor
in Sutter Home Winerys success has been the
ability to choose good distributors and build a
cooperative relationship with them. What have
distributors done for Sutter Home?
  • Distributors help in doing product planning for
    the future.
  • They warehouse the wine and promote it.
  • They often publish and make available to
    retailers a catalog that includes Sutter and
    other products.
  • They set up countertop displays and racks.
  • Many do detailing checking supply on
    retailers shelves and restocking when necessary.
  • They select the most efficient means of
    transportation and make sure deliveries are made
    on time.

31
Distribution / Supply Chain
  • Designing Distribution Channels
  • Specify the role of distribution within the
    marketing mix
  • look at marketing goals and marketing plan
  • Select the type of channel
  • which types of middlemen
  • Determine the intensity of distribution
  • intensive, selective, exclusive
  • Choose specific channel members

32
Designing a Distribution Channel
WELL- DESIGNED DISTRIBUTION CHANNEL
Specify the role of distribution within
the marketing mix
Select type of distribu- tion channel
Determine appropriate intensity of distri- bution
Choose specific channel members
33
Major Distribution Channels
PRODUCERS OF CONSUMER GOODS
Agents
Agents
Merchant wholesalers
Merchant wholesalers
Retailers
Retailers
Retailers
Retailers
ULTIMATE CONSUMERS
34
Major Distribution Channels
PRODUCERS OF BUSINESS GOODS
Agents
Agents
Merchant wholesalers (industrial distributors)
Merchant wholesalers (industrial distributors)
Merchant wholesalers (industrial distributors)
Resellers
BUSINESS USERS
35
Major Distribution Channels
PRODUCERS OF SERVICES
Agents
ULTIMATE CONSUMERS OR BUSINESS USERS
36
Distribution / Supply Chain
  • Intensity of Distribution
  • intensive producer sells through every
    available outlet where consumer might reasonably
    look
  • selective sells through multiple, but not all
    possible outlets where consumer might reasonably
    look
  • exclusive sells only through a single outlet
    (wholesaler or retailer) in a given market

37
Intensity-of- Distribution Continuum
INTENSIVE
SELECTIVE
EXCLUSIVE
Distribution through every reasonable outlet in a
market
Distribution through multiple, but not
all, reasonable outlets in a market
Distribution through a single wholesaling middlema
n and/or retailer in a market
38
Distribution / Supply Chain
  • Supply Chain Management
  • total system perspective towards physical
    distribution
  • looks at total cost
  • channel cooperation
  • coordination of logistics/distribution activities
    with all channel members

39
What Is Retailing?
  • Retailing the sale, and all activities directly
    related to the sale, of goods and services to
    ultimate consumers for personal, nonbusiness use.
  • A firm engaged primarily in retailing is called a
    retailer.
  • Retailers perform many activities such as
    anticipating customers wants, developing product
    assortments, acquiring market information, and
    financing.
  • E-tailers are retailers who operate online, as
    opposed to having a physical store consumers can
    visit in person.

40
What Types of Retailers?
  • Corporate Chain
  • organization of two or more centrally managed
    stores that generally handle the same lines of
    products
  • Independent Store
  • company with a single store not affiliated with
    other stores in a contractual arrangement
  • Contractual Vertical Marketing System
  • independently owned firms join together under a
    contract specifying how they will operate

41
What Types of Retailers?
  • Contractual Vertical Marketing System
  • independently owned firms join together under a
    contract specifying how they will operate
  • retailer cooperative - group of small retailers
    that agree to operate a wholesale warehouse (True
    Value Hardware)
  • voluntary chain - sponsored by a wholesaler in
    contract with interested retailers (Ace, IGA)
  • franchise systems
  • product / trade name - focus is on what is sold
    (Ford)
  • business format - focus is on how the business is
    run (McDonalds)

42
Retailing Marketing Strategies
  • Department Stores
  • large scale, broad deep assortment, tries not
    to compete on price, many services (J.C. Penny)
  • Discount Stores
  • low prices, broad but shallow product assortment,
    few services (Wal-Mart)
  • Limited Line Stores
  • narrow but deep product assortment, selected
    customer services
  • Specialty Stores - Batteries Plus
  • Off-Price Retailers - lower than discount -
    Payless
  • Category Killers - Circuit City, Toys R Us

43
Retailing Marketing Strategies
  • Supermarkets
  • moderately broad and deep assortment including
    groceries, some nonfood lines (Jewel, Krogers)
  • Convenience Stores
  • concentrates on selected groceries and non foods
    (beverages, snacks, cigarettes), higher prices
    (White Hen Pantry)
  • Warehouse Clubs
  • broad but shallow assortment, very low prices,
    few customer services, open only to members who
    pay an annual fee, tries to combine wholesaling
    and retailing (Sams Club)

44
Retailers Classified by Marketing Strategies
Type of store
Assortment
Price level
Customer service
Department store
Broad, deep
Avoid price competition
Extensive
Discount store
Broad, shallow
Low
Few
Limited-line
Narrow, deep
Varies
Varies
Specialty
Very narrow, deep
Avoid price competition
Moderate to extensive
Off-price
Narrow, deep
Low
Few
Category killer
Narrow, deep
Low
Few to moderate
Supermarket
Broad, deep
Varies
Few
Convenience store
Narrow, shallow
High
Few
Warehouse club
Broad, shallow
Very low
Few
45
Retailing Marketing Strategies
  • Non Store Retailing
  • Direct Selling - personal contact between
    salesperson and consumer away from retail site
    (Mary Kay, Amway)
  • Telemarketing - salesperson initiating contact
    with a shopper and making a sale over the
    telephone
  • Automatic Vending - sales of products through
    machine - no personal contact
  • Online Retailing - buying over the internet
    (Amazon.com)

46
Retailing Marketing Strategies
  • Direct Marketing
  • Direct Mail - letters, brochures, product samples
  • Catalog retailing - catalogs (J.C. Whitney)
  • Televised Shopping - infomercials (30 minutes or
    more), shopping channels (QVC, Home Shopping
    Network)

47
Institutional Change in Retailing
  • Retailers - even small ones - can survive if they
    concentrate on serving customers needs.
  • Retailers that prosper in the future will
  • provide customers with a distinctive bundle of
    benefits
  • stress value, not just low prices
  • save their customers time and energy
  • make shopping fun

48
What is Wholesaling?
  • Wholesaling The sale, and all activities
    directly related to the sale, of goods and
    services to businesses and other organizations
    for resale, use in producing other goods or
    services, or operating an organization or
    business.
  • Wholesaling middlemen are firms primarily in
    wholesaling.
  • The gap between (a) producer and (b) retailer
    and/or users is filled by a wholesaling middleman
    that can pool the orders of many buyers and
    furnish a market for the small producer.

49
The Economy of Transactions
A
B
C
D
PRODUCERS
RETAILERS
6
5
4
3
2
1
Four producers each sell directly to six
retailers, resulting in 24 transactions
50
The Economy of Transactions
A
B
C
D
PRODUCERS
WHOLESALING MIDDLEMAN
RETAILERS
6
5
4
3
2
1
Four producers use the same wholesaling
middleman, reducing the number of transactions to
10
51
WHOLESALING MIDDLEMEN
MERCHANT WHOLESALERS, INCLUDING
AGENT WHOLE- SALING MIDDLE- MEN, INCLUDING
MANUFACTURERS SALES FACILITIES, INCLUDING
CHARAC- TERISTICS
CHARAC- TERISTICS
CHARAC- TERISTICS
  • Independently
  • owned
  • Take title to
  • products
  • being dis-
  • tributed.
  • Full
  • service
  • Truck
  • jobbers
  • Drop
  • shippers
  • Independently
  • owned
  • Do not take
  • title to
  • products
  • being
  • distributed
  • Actively
  • negotiate
  • sale or
  • purchase
  • of products
  • Manu-
  • facturers
  • agents
  • Brokers
  • Owned and
  • operated by
  • manu-
  • facturers
  • Perform
  • sales
  • function
  • Branches
  • (carry stocks
  • of merchan-
  • dise being
  • distributed)
  • Offices (do
  • not carry
  • stocks)

52
Types of Wholesalers
  • Merchant Wholesalers
  • takes title to the goods, independently owned
  • wholesalers, jobbers, industrial distributors
  • Manufacturer Sales Facility
  • owned and operated by the manufacturer
  • physically separated from the manufacturing
    plant(s)

53
Types of Wholesalers
  • Agent Wholesaling Middlemen
  • independently owned, negotiates sale or purchase,
    does not take title
  • broker - brings buyers and sellers together
  • selling agent - markets producers entire output
  • manufacturers agent - markets part of output
  • auction company - facilitates bidding on products
  • import/export agent - brings together buyers and
    sellers in different countries

54
What is Physical Distribution?
  • Physical distribution/logistics All activities
    concerned with moving the right amount of the
    right products to the right place at the right
    time.
  • Physical distribution can strengthen a firms
    market position by providing more customer
    satisfaction and/or reducing operating costs
  • Improve customer service.
  • Reduce distribution costs.
  • Create time and place utilities storage creates
    time utility, and transporting the goods to where
    they are desired creates place utility.
  • Stabilize prices by storing products or moving
    them to other markets.
  • Influence channel decisions.
  • Control shipping costs.

55
Physical Distribution Management Activities
  • Order Processing
  • set of procedures for receiving, handling, filing
    orders accurately and promptly
  • Inventory Control
  • efficient management of products available or
    sale
  • Warehousing
  • efficient and effective storage of inventories
  • public or private warehousing used

56
Physical Distribution Mgt. Activities
  • Materials Handling
  • short distance movement within a warehouse or a
    factory or between them and a carrier
  • Transportation
  • long distance movement by a carrier
  • railroad, truck, pipeline, ship, plane

57
Promotion Management
  • What is promotion?
  • What types of promotion are there?
  • What is the promotional mix?
  • What is the Integrated Marketing Communication
    Process?
  • What are some possible promotional objectives?
  • What are some methods used to budget promotional
    activities?

58
What is Promotion?
  • Promotion is the element in an organizations
    marketing mix that serves to inform, persuade,
    and remind the market regarding the organization
    and/or its products.
  • It includes all the means by which a company
    communicates directly with potential customers.
  • It is an attempt to influence feelings, beliefs,
    or behavior.
  • It is an attempt to shift the demand curve for a
    firms goods or services

59
Purpose of Promotion
60
Demand goal with promotion
Demand goal with promotion
Price
Price
Demand without promotion
Demand without promotion
Quantity
Quantity
a. A shift in the demand curve to the right.
b. Changing the shape (or elasticity) of the
demand curve.
61
Types of Promotion
  • Advertising
  • paid form (identified sponsor) non-personal
    presentation
  • primary demand and selective demand
  • television, radio, newspaper, magazines, direct
    mail, mass transit vehicles, outdoor displays,
    handbills, catalogs, directories
  • Sales Promotion
  • paid form short term incentives to encourage
    purchase or sale of a product or service
  • event sponsorships, contests, trade shows,
    in-store displays, rebates, samples, premiums,
    discounts, coupons

62
Types of Promotion
  • Public Relations
  • paid form wide variety of mass and personal
    communications that are image directed
  • contribute to the favorable attitudes and
    opinions toward an organization and its products
  • newsletters, annual reports, lobbying, supporting
    charitable or civic events
  • Publicity
  • not paid form non-personal presentation
  • involves news stories about an organization or
    its products
  • Personal Selling
  • paid form personal presentation to prospective
    customer

63
Customers come to the sales people
Sales force goes to the customer
Inside sales peoplecontact by mailor
telemarketing
Primarilyretail store selling
Primarily producers and wholesalingmiddlemen
selling to business users,but also
some Producers ? Household consumers Retailers
? Household consumers Nonprofit ?
Business usersorganizations ? Household
consumers
Types of Personal Selling
64
Personal Selling (Sales) Process
65
Types of Promotion
66
Promotional Mix
  • Refers to the particular combination of elements
    (advertising, personal selling, publicity, public
    relations, sales promotion) used by an
    organization as part of its promotional strategy.

67

68
Advertising, public relations, publicity best for
attention. Personal selling and sales promotion
best for desire and action.
69
Integrated Marketing Communication
  • Integrated Marketing Communication (IMC) is a
    strategic business process used to plan, develop,
    execute and evaluate coordinated communication
    with an organizations publics.
  • The IMC approach takes an audience perspective
    when planning and coordinating the organizations
    communication activities

70
The Communication Process
Source - party sending the message to another
partyEncoding - the process of putting thought
in symbolic formMessage - the set of symbols
that the sender transmitsChannel - the paths
through which the message moves from sender
to receiverNoise - extraneous disturbances
that interfere with communication
Selective Exposure Perception RetentionDecoding
- the process by which the receiver assigns
meaning to the symbols transmitted by the
senderReceiver - the party receiving the message
sent by another partyFeedback - the part of the
receivers response that the receiver
communicates back to the sender
71
((( noise )))
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73
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74
Marketing Communicator
  • The marketing communicator must
  • Identify the target audience
  • Clarify the response sought (awareness -
    knowledge - liking - preference - conviction -
    purchase)
  • Choose a message
  • Choose the channel (or media)
  • Select source attributes how source is
    portrayed to the receiver
  • Collect feedback

75
Target Audience
  • Push Strategy
  • aimed at middlemen
  • personal selling, sales promotions like contests
    for salespeople, tradeshows
  • Pull Strategy
  • aimed at the end user
  • advertising, sales promotions like premiums,
    samples, in-store demonstrations

76
PUSH STRATEGY
Consumer
PULL STRATEGY
Consumer
Product flow
Promotion effort
77
Push Policy
Pull Policy
Flow of products
Flow of communication
Trade deals contests, useful display material
Threaten
78
Promotional Objectives
  • Hierarchy of Effects (AIDA)
  • Awareness - know product or brand exists
    (attention)
  • Knowledge - learning about a products or brands
    features (interest)
  • Liking - positive feeling about the product or
    brand (interest)
  • Preference - find one brand more attractive
    (desire)
  • Conviction - actual decision or commitment to
    purchase (desire)
  • Purchase - buying the product (action)

79
Determining the Promotional Budget
  • Percentage of Sales
  • past or anticipated sales
  • most widely used
  • All Available Funds
  • all money available to build sales and share
  • Following Competition
  • match expenditures of competitors
  • spend proportional to market share
  • Task or Objective
  • determine task or objectives to be accomplished
    and allocate funds to reach them
  • best method to use
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