PRICING, DISTRIBUTING, AND PROMOTING PRODUCTS 12 PRICING, DISTRIBUTING, AND PROMOTING PRODUCTS © 2007 Prentice Hall, Inc. All rights reserved.

After reading this chapter, you should be able to: L E A R N I N G O B J E C T I V E S After reading this chapter, you should be able to: Identify the various pricing objectives that govern pricing decisions and describe the price-setting tools used in making these decisions. Discuss pricing strategies that can be used for different competitive situations and identify the pricing tactics that can be used for setting prices. Explain the meaning of distribution mix and identify the different channels of distribution. Describe the role of wholesalers and explain the different types of retailing. © 2007 Prentice Hall, Inc. All rights reserved.

L E A R N I N G O B J E C T I V E S (cont’d) After reading this chapter, you should be able to: Describe the role of e-intermediaries and explain how they add value for advertisers and consumers on the Internet. Define physical distribution and describe the major activities in the physical distribution process. Identify the important objectives of promotion, discuss the considerations in selecting a promotional mix, and discuss advertising promotions. Outline the tasks involved in personal selling, describe the various types of sales promotions, and distinguish between publicity and public relations. © 2007 Prentice Hall, Inc. All rights reserved.

What’s in It for Me? By understanding this chapter’s methods for pricing, distributing, and promoting products, you, too, can benefit in three 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. As a future investor, you’ll be prepared to evaluate a company’s marketing program and its competitive potential before buying the company’s stock. © 2007 Prentice Hall, Inc. All rights reserved.

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 Market share objectives Using pricing to establish market share—a company’s percentage of the total industry’s sales for a specific product type © 2007 Prentice Hall, Inc. All rights reserved.

Determining Prices (cont’d) 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 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 © 2007 Prentice Hall, Inc. All rights reserved.

Determining Prices (cont’d) Cost-Oriented Pricing Breakeven Analysis © 2007 Prentice Hall, Inc. All rights reserved.

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 © 2007 Prentice Hall, Inc. All rights reserved.

Pricing Strategies and Tactics (cont’d) 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 © 2007 Prentice Hall, Inc. All rights reserved.

The Distribution Mix Distribution Mix Intermediaries (middlemen) 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. © 2007 Prentice Hall, Inc. All rights reserved.

The Distribution Mix (cont’d) 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 © 2007 Prentice Hall, Inc. All rights reserved.

Wholesaling Wholesalers Agents and Brokers 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 © 2007 Prentice Hall, Inc. All rights reserved.

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 © 2007 Prentice Hall, Inc. All rights reserved.

Retailing (cont’d) Nonstore Retailing Vending machines Direct-response retailing Mail order (or catalog marketing) Telemarketing Direct selling © 2007 Prentice Hall, Inc. All rights reserved.

The Importance of 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 © 2007 Prentice Hall, Inc. All rights reserved.

The Importance of Promotion (cont’d) Promotional Tools Advertising Personal selling Sales promotions Publicity Public relations Promotional Mix The combination of promotional tools © 2007 Prentice Hall, Inc. All rights reserved.

The Importance of Promotion (cont’d) Matching Promotional Tools with Stages in the Buyer Decision Process: Buyers recognize the need to make a purchase best tool: advertising and publicity Buyers search for information about products best tool: advertising and personal selling Buyers compare benefits and features of competing products best tool: personal selling Buyers choose products that are a good value and buy them best tool: sales promotion and personal selling Buyers evaluate products after the purchase © 2007 Prentice Hall, Inc. All rights reserved.

Advertising Promotions Paid, nonpersonal 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 © 2007 Prentice Hall, Inc. All rights reserved.

Advertising Promotions (cont’d) Advertising Media Television Direct mail Newspapers Magazines Radio Internet Outdoor Other © 2007 Prentice Hall, Inc. All rights reserved.

Personal Selling Personal Selling Personal Selling Tasks 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 © 2007 Prentice Hall, Inc. All rights reserved.

Sales Promotions Sales Promotions Types of 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 © 2007 Prentice Hall, Inc. All rights reserved.

Publicity and Public Relations 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 © 2007 Prentice Hall, Inc. All rights reserved.

K E Y T E R M S advertising advertising media bargain retailer breakeven analysis breakeven point broker catalog showroom convenience store cost-oriented pricing coupon creative selling cybermall department store direct channel direct selling direct-response retailing discount discount house distribution channel distribution mix e-catalog e-intermediary electronic retailing electronic storefront factory outlet fixed cost interactive marketing intermediary © 2007 Prentice Hall, Inc. All rights reserved.

K E Y T E R M S (cont’d) mail order (catalog marketing) market share markup media mix missionary selling odd-even pricing order fulfillment order processing penetration pricing personal selling physical distribution point-of-sale (POS) display positioning premium price lining price skimming pricing pricing objectives private warehouse promotion promotional mix psychological pricing public relations public warehouse publicity retailer sales agent sales promotion © 2007 Prentice Hall, Inc. All rights reserved.

K E Y T E R M S (cont’d) shopping agent (e-agent) specialty store supermarket syndicated selling telemarketing trade show variable cost video marketing warehousing wholesale club wholesaler © 2007 Prentice Hall, Inc. All rights reserved.