CHAPTER 13: DISTRIBUTION AND PRICING Right Product, Right Person, Right Place, Right Price

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?

DISTRIBUTION: GETTING YOUR PRODUCT TO YOUR CUSTOMER ProducerWholesalerConsumer Channel of Distribution – the path that a product takes from the producer to the consumer

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

DISTRIBUTING DIRECTLY TO THE CONSUMER ProducerConsumer Direct 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 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

DISTRIBUTORS: STREAMLINING CONSUMER TRANSACTIONS

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. “ “

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.

WHOLESALERS: SORTING OUT THE OPTIONS  Merchant Wholesalers  Full-service  Limited Service Drop Shippers Cash and Carry Truck Jobbers

RETAILERS: THE CONSUMER CONNECTION  Store Retailers  Non-Store Retailers  Online  Direct Response  Direct Selling  Vending

DISTRIBUTION STRATEGY INTENSIVE DISTRIBUTION SELECTIVE DISTRIBUTION EXCLUSIVE DISTRIBUTION

MULTICHANNEL RETAILING Retailers are encouraging consumers to buy through multiple channels StoreOnline

STORE RETAILERS Category KillerHome Depot, Best Buy, Staples Convenience Store7-eleven, AM/PM markets Department StoreNordstrom, Neiman Marcus, JCPenny Discount StoreTarget, Wal-Mart, Kmart Outlet StoreNike, Gap, Gucci, Versace Specialty StoreBarnes & Noble, Victoria’s Secret, Hot Topic SupermarketKroger, Safeway, Albertson’s, Whole Foods SupercenterWal-Mart Supercenters, Super Target Warehouse ClubCostco, Sam’s Club

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.

ELEMENTS OF THE SUPPLY CHAIN

SUPPLY CHAIN MANAGEMENT DECISIONS  Warehousing  Materials Handling  Inventory Control  Order Processing  Customer Service  Transportation  Security

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.

MODES OF TRANSPORTATION

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

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

“SLIPPERY FINGER” ONLINE PRICING GOOFS  Free flights from Los Angeles to Fiji.  Round-trip tickets from San Jose, California, to Paris for $  $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.

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.

USING BREAKEVEN ANALYSIS Businesses make decisions to adjust the product price and/or costs.  Raise prices  Decrease variable costs  Decrease fixed costs

FIXED MARGIN PRICING  Cost-Based Pricing  Demand-Based Pricing Profit Margin – the gap between cost and the price per product.

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?

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.