Business Essentials 9e Ebert/Griffin Pricing, Distributing, and Promoting Products chapter twelve

After reading this chapter, you should be able to: 1.Identify the various pricing objectives that govern pricing decisions, and describe the price-setting tools used in making these decisions. 2.Discuss pricing strategies that can be used for different competitive situations and identify the pricing tactics that can be used for setting prices. 3.Explain the meaning of distribution mix and identify the different channels of distribution. 4.Describe the role of wholesalers and explain the different types of retailing. 12-2

After reading this chapter, you should be able to: 5.Describe the role of e-intermediaries and explain how online shopping agents and online retailers add value for advertisers and consumers on the Internet. 6.Describe the major activities in the physical distribution process. 7.Identify the important objectives of promotion, discuss the considerations in selecting a promotional mix, and discuss advertising promotions. 8.Outline the tasks involved in personal selling, describe the various types of sales promotions, and distinguish between publicity and public relations. 12-3

Pricing to Meet Business Objectives  Pricing └ process of determining what a company will receive in exchange for its products  Pricing Objectives └ the goals that sellers hope to achieve in pricing products for sale └ profit-maximizing, market share 12-4

Cost-Oriented Pricing  Cost-Oriented Pricing └ pricing that considers the firm’s desire to make a profit and its need to cover production costs  Markup └ amount added to an item’s purchase cost to sell it at a profit 12-5

Breakeven Analysis: Cost-Volume- Profit Relationships  Variable Cost └ cost that changes with the quantity of a product produced and sold  Fixed Cost └ cost that is incurred regardless of the quantity of a product produced and sold 12-6

Breakeven Analysis: Cost-Volume- Profit Relationships  Breakeven Analysis └ for a particular selling price, assessment of the seller’s costs versus revenues at various sales volumes 12-7

Breakeven Analysis 12-8

Breakeven Analysis  Breakeven Point └ sales volume at which the seller’s total revenue from sales equals total costs (variable and fixed) with neither profit nor loss 12-9

Pricing Existing Products – Three Options 1.Pricing above prevailing market prices for similar products to take advantage of the common assumption that higher price means higher quality -Think name brand jeans, cars, etc. 2.Pricing below market prices while offering a product of comparable quality to higher-priced competitors - Think store-label brands 3.Pricing at or near market prices 12-10

Pricing New Products  Price Skimming └ setting an initially high price to cover new product costs and generate a profit  Penetration Pricing └ setting an initially low price to establish a new product in the market Profit = (P x Q) - [FC – (VC x Q)]

Pricing Tactics  Price Lining goes with Product Line └ setting a limited number of prices for certain categories of products  Psychological Pricing └ pricing tactic that takes advantage of the fact that consumers do not always respond rationally to stated prices 12-12

Pricing Tactics  Odd-Even Pricing └ psychological pricing tactic based on the premise that customers prefer prices not stated in even dollar amounts $2.79, $399, etc.  Discount └ price reduction offered as an incentive to purchase 12-13

Dynamic Pricing  Set the price in real time… 12-14

Pricing should Maximize Total Profit Profit = (P x Q) - [FC + (VC x Q)] Where: P = Price, Q= Quantity, FC = Fixed costs, VC = Variable Cost per Unit

The Distribution Mix  Distribution Mix └ combination of distribution channels by which a firm gets its products to end users 12-16

Intermediaries and Distribution Channels  Intermediary └ individual or firm that helps to distribute a product  Wholesaler └ intermediary who sells products to other businesses for resale to final consumers  Retailer └ intermediary who sells products directly to consumers 12-17

Intermediaries and Distribution Channels  Distribution Channel └ network of interdependent companies through which a product passes from producer to end user  Direct Channel └ distribution channel in which a product travels from producer to consumer without intermediaries 12-18

Channels of Distribution 12-19

The Value Chain 12-20

Enterprise Resource Systems Connect Value Chain Partners 12-21

The Value-Adding Intermediary 12-22

Wholesaling  Wholesalers └ independent operations that buy products from manufacturers and sell them to various consumers or other businesses └ usually provide storage, delivery, and additional value-adding services, including credit, marketing advice, and merchandising services, such as marking prices and setting up displays

Types of Brick-and-Mortar Retail Outlets  Department Store └ large product-line retailer characterized by organization into specialized departments  Supermarket └ large product-line retailer offering a variety of food and food-related items in specialized departments  Specialty Store └ retail store carrying one product line or category of related products 12-24

Types of Brick-and-Mortar Retail Outlets  Bargain Retailer └ retailer carrying a wide range of products at bargain prices  Discount House └ bargain retailer that generates large sales volume by offering goods at substantial price reductions  Factory Outlet └ bargain retailer owned by the manufacturer whose products it sells └ What about factory store “pricing”? 12-25

Types of Brick-and-Mortar Retail Outlets  Wholesale Club └ bargain retailer offering large discounts on brand- name merchandise to customers who have paid annual membership fees  Convenience Store └ retail store offering easy accessibility, extended hours, and fast service 12-26

Wholesale or Retail? The Lines are Blured 12-27

Nonstore Retailing Direct-Response Retailing Mail Order (Catalog Marketing) Telemarketing Direct Selling 12-28

The Role of E-Intermediaries  E-Intermediary └ Internet distribution channel member that assists in delivering products to customers or that collects information about various sellers to be presented to consumers  Shopping Agent (E-Agent) └ e-intermediary (middleman) in the Internet distribution channel that assists users in finding products and prices but does not take possession of products 12-29

Electronic Retailing  Electronic Retailing (Online Retailing) └ Nonstore retailing in which information about the seller’s products and services is connected to consumers’ computers, allowing consumers to receive the information and purchase the products in the home 12-30

Product Pricing Online vs. Brick and Mortar $49.99 $39.99 Don’t forget how channels should Be used to maximize profit. Profit = (P x Q) - [FC + (VC x Q)] Must maximize profit so that both “channels” work efficiently

Online Cannibalization of Traditional Retail Channels Does not show price until you Check out…. What about Samsung? Who has the power to set prices here? Long-term Profit = (P x Q) - [FC + (VC x Q)]

Customers and Your Online Presence  Obsess over your customers  Remember that the Web is an infant └ What do you have to offer that the physical world cannot in order to attract customers?  If you make one customer unhappy, he won't tell five friends -- he'll tell 5,000 on newsgroups, list servers, and so on. └ "Word of mouth" factor gets amplified on the Net  The shifts of balance of power away from business and toward customer. - Jeff Bezos

Physical Distribution  Physical Distribution └ activities needed to move a product efficiently from manufacturer to consumer └ Warehousing, transportation operations 12-34

Warehousing Operations  Warehousing └ physical distribution operation concerned with the storage of goods  Private Warehouse └ warehouse owned by and providing storage for a single company  Public Warehouse └ independently owned and operated warehouse that stores goods for many firms Profit = (P x Q) - [FC + (VC x Q)]

Transportation ModesTrucksPlanes Digital transmission Water carriers RailroadsPipelines 12-36

The Importance of Promotion  Promotion └ aspect of the marketing mix concerned with the most effective techniques for communicating information about and selling a product └ Subaru 12-37

Promotional Objectives  Positioning └ process of establishing an identifiable product image in the minds of consumers  Marketers may use promotion to communicate information, position products, add value, and control sales volume Product, Place, Price and Promotion  Profit = (P x Q) - [FC + (VC x Q)]

The Promotional Mix  Promotional Mix └ combination of tools used to promote a product Samsung Galaxy Watch???

Changing your Promotional Mix  Know your market and cater the mix to the target audience  Be careful if you abruptly change your promotional strategy; have a good reason for the change. How will you customers react?  Remember you are building and “product image” 12-40

Top 10 U.S. National Advertisers Can you determine P&G main Customers?

Advertising Promotions  Advertising └ promotional tool consisting of paid, nonpersonal communication used by an identified sponsor to inform an audience about a product └ For P&G that audience is heavily “Moms”  Advertising Media └ variety of communication devices for carrying a seller’s message to potential customers  Media Mix └ combination of advertising media chosen to carry a message about a product 12-42

Personal Selling  Personal Selling └ promotional tool in which a salesperson communicates one-on-one with potential customers └ order processing, creative selling, └ missionary selling 12-43

Sales Promotions  Sales Promotions └ short-term promotional activity designed to encourage consumer buying, industrial sales, or cooperation from distributors └ coupons, premiums, point-of-sale displays └ Think of the grocery line…

Publicity and Public Relations  Publicity └ promotional tool in which information about a company, product, or event is transmitted by the general mass media to attract public attention  Public Relations └ company-influenced information directed at building goodwill with the public or dealing with unfavorable events └ Large businesses will normally have a “Mar-Comm” (Marketing Communications) Group 12-45

A Simple Example of “Public Relations” Building Will this help Shannon sell more insurance policies?

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