© 2007 Prentice Hall, Inc. All rights reserved.12–1 Chapter 12 Pricing, Distributing, and...

© 2007 Prentice Hall, Inc. All rights reserved. 12–1

Chapter 12Chapter 12

Pricing, Distributing, and Promoting ProductsPricing, Distributing, and Promoting Products


L E A R N I N G O U T C O M E SL E A R N I N G O U T C O M E SAfter reading this chapter, you should be able to:After reading this chapter, you should be able to:

Identify the various pricing objectives that govern pricing Identify the various pricing objectives that govern pricing decisions and describe the price-setting tools used in making decisions and describe the price-setting tools used in making these decisions.these decisions.Discuss pricing strategies that can be used for different Discuss pricing strategies that can be used for different competitive situations and identify the pricing tactics that can be competitive situations and identify the pricing tactics that can be used for setting prices.used for setting prices.Explain the meaning of Explain the meaning of distribution mixdistribution mix and identify the different and identify the different channel of distribution.channel of distribution.Describe the role of wholesalers and explain the different types of Describe the role of wholesalers and explain the different types of retailing. retailing. Describe the role of e-intermediaries and explain how they add Describe the role of e-intermediaries and explain how they add value for advertisers and consumers on the Internet.value for advertisers and consumers on the Internet.Define Define physical distributionphysical distribution and describe the major activities in and describe the major activities in the physical distribution process.the physical distribution process.Identify the important objectives of promotion, discuss the Identify the important objectives of promotion, discuss the considerations in selecting a promotional mix, and discuss considerations in selecting a promotional mix, and discuss advertising promotions.advertising promotions.


What’s in It for Me?What’s in It for Me?

By understanding this chapter’s methods for By understanding this chapter’s methods for pricing, distributing, and promoting products, pricing, distributing, and promoting products, you, too, can benefit in three ways: you, too, can benefit in three ways: As both employee and manager, you’ll be prepared As both employee and manager, you’ll be prepared

to use the concepts of pricing, distributing, and to use the concepts of pricing, distributing, and promoting products in your career.promoting products in your career.

As a consumer, you’ll have a clearer picture of how a As a consumer, you’ll have a clearer picture of how a product’s promotion and distribution affect its selling product’s promotion and distribution affect its selling price, causing it to rise or fall.price, causing it to rise or fall.

As a future investor, you’ll be prepared to evaluate a As a future investor, you’ll be prepared to evaluate a company’s marketing program and its competitive company’s marketing program and its competitive potential before buying the company’s stock. potential before buying the company’s stock.


Determining PricesDetermining Prices

Pricing to Meet Business ObjectivesPricing to Meet Business Objectives Pricing objectivesPricing objectives

The goals that sellers hope to achieve in pricing products The goals that sellers hope to achieve in pricing products for salefor sale

Profit-maximizing pricing objectivesProfit-maximizing pricing objectives Setting prices to sell the number of units that will generate Setting prices to sell the number of units that will generate

the highest possible total profitsthe highest possible total profits

Market share objectivesMarket share objectives Using pricing to establish market share—a company’s Using pricing to establish market share—a company’s

percentage of the total industry’s sales for a specific percentage of the total industry’s sales for a specific product typeproduct type


Determining Prices (cont’d)Determining Prices (cont’d)

Price-Setting Tools Price-Setting Tools Cost-Oriented PricingCost-Oriented Pricing

Considers the firm’s desire to make a profit and its need to Considers the firm’s desire to make a profit and its need to cover production costscover 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 AnalysisBreakeven Analysis Shows, at any selling price, the amount of loss or profit for Shows, at any selling price, the amount of loss or profit for

each possible volume of saleseach possible volume of sales Breakeven point: Number of products that must be sold so

total revenues exactly cover both fixed and variable costs


Determining Prices (cont’d)Determining Prices (cont’d)

Cost-Oriented PricingCost-Oriented Pricing

Breakeven AnalysisBreakeven Analysis

price Sales

Markup percentage Markup

cost Variable - Price

costs fixed Total units) (in point Breakeven


Pricing Strategies and TacticsPricing Strategies and Tactics

Pricing Existing ProductsPricing Existing Products A firm has three options for pricing existing products:A firm has three options for pricing existing products:

Pricing above prevailing market prices for similar productsPricing above prevailing market prices for similar products Pricing below market pricesPricing below market prices Pricing at or near market pricesPricing at or near market prices

Pricing New ProductsPricing New Products Price skimmingPrice skimming

Setting an initially high price to cover costs and generate a Setting an initially high price to cover costs and generate a profit—may generate a large profit on each item soldprofit—may generate a large profit on each item sold

Penetration pricingPenetration pricing Setting an initially low price to establish a new product in the Setting an initially low price to establish a new product in the

marketmarket


Pricing Strategies and Tactics (cont’d)Pricing Strategies and Tactics (cont’d)

Fixed Versus Dynamic Pricing for E-BusinessFixed Versus Dynamic Pricing for E-Business To attract sales that might be lost under traditional To attract sales that might be lost under traditional

fixed-price structures, sellers alter prices privately, on fixed-price structures, sellers alter prices privately, on a one-to-one, customer-to-customer basisa one-to-one, customer-to-customer basis

At present, fixed pricing is still the most common At present, fixed pricing is still the most common option for cybershoppersoption for cybershoppers


Pricing Strategies and Tactics (cont’d)Pricing Strategies and Tactics (cont’d)

Pricing TacticsPricing Tactics Price liningPrice lining

Offering all items in certain categories at a limited number Offering all items in certain categories at a limited number of prices (price points)of prices (price points)

Psychological pricingPsychological pricing Odd-even pricing:Odd-even pricing: C Customers prefer prices that are not ustomers prefer prices that are not

stated in even dollar amountsstated in even dollar amounts DiscountsDiscounts: Price reductions that stimulate sales: Price reductions that stimulate sales


The Distribution MixThe Distribution Mix

Distribution MixDistribution Mix The combination of distribution channels by which a The combination of distribution channels by which a

firm gets products to end usersfirm gets products to end users

Intermediaries (middlemen)Intermediaries (middlemen) Help distribute goods, either by moving them or by Help distribute goods, either by moving them or by

providing information that stimulates their movement providing information that stimulates their movement from sellers to customersfrom sellers to customers

Can provide added value by saving consumers both Can provide added value by saving consumers both time and moneytime and money WholesalersWholesalers sell products to other businesses for resale to sell products to other businesses for resale to

final consumers.final consumers. RetailersRetailers sell products directly to consumers. sell products directly to consumers.


The Distribution Mix (cont’d)The Distribution Mix (cont’d)

Distribution ChannelDistribution Channel Path a product follows from producer to end user

Popular PathsPopular Paths Channel 1: Direct Distribution (direct channel) Channel 2: Retail Distribution Channel 3: Wholesale Distribution Channel 4: Distribution by Agents or Brokers


WholesalingWholesaling

WholesalersWholesalers Independent operations that sell consumer or Independent operations that sell consumer or

business goodsbusiness goods Buy products from manufacturers and sell them to other Buy products from manufacturers and sell them to other

businesses, and usually provide storage and deliverybusinesses, and usually provide storage and delivery

Provide additional value-adding services for customersProvide additional value-adding services for customers

Agents and BrokersAgents and Brokers Sales and merchandising representatives for Sales and merchandising representatives for

producers or sellersproducers or sellers Do not own inventory, but manage it for producersDo not own inventory, but manage it for producers


RetailingRetailing

Types of Retail OutletsTypes of Retail Outlets Product line retailersProduct line retailers carry broad product lines carry broad product lines

Department stores and supermarketsDepartment stores and supermarkets

Specialty storesSpecialty stores carry one line of related products carry one line of related products

Bargain retailersBargain retailers carry wide ranges of products and carry wide ranges of products and come in many formscome in many forms Discount houses, catalog showrooms, factory outlets, Discount houses, catalog showrooms, factory outlets,

wholesale clubswholesale clubs

Convenience storesConvenience stores offer accessible locations and offer accessible locations and ease of purchaseease of purchase


Retailing (cont’d)Retailing (cont’d)

Nonstore RetailingNonstore Retailing Vending machinesVending machines

Direct-response retailingDirect-response retailing Mail order (or catalog marketing)Mail order (or catalog marketing)

TelemarketingTelemarketing

Direct sellingDirect selling


The Ascent of the E-IntermediaryThe Ascent of the E-Intermediary

E-IntermediariesE-Intermediaries Internet-based channel members who perform one Internet-based channel members who perform one

or both of two functions: or both of two functions: 1.1. Collect information about sellers and present it to Collect information about sellers and present it to

consumersconsumers

2.2. Help deliver Internet products to buyersHelp deliver Internet products to buyers


The Ascent of the E-Intermediary (cont.)The Ascent of the E-Intermediary (cont.)

Types of E-IntermediariesTypes of E-Intermediaries Syndicated sellersSyndicated sellers offer other web sites a offer other web sites a

commission for referring customers.commission for referring customers.

Shopping agents (e-agents)Shopping agents (e-agents) help Internet help Internet consumers by gathering and sorting information.consumers by gathering and sorting information.

Electronic retailingElectronic retailing is made possible by is made possible by communications networks that enable sellers to post communications networks that enable sellers to post product information on consumers’ PCs.product information on consumers’ PCs.


Electronic RetailingElectronic Retailing

Electronic Catalogs (E-catalogs)Electronic Catalogs (E-catalogs)Use the Internet to display productsUse the Internet to display products

Electronic Storefronts (virtual storefronts) Electronic Storefronts (virtual storefronts) A Web site from which consumers collect information A Web site from which consumers collect information

about products, place orders, and pay for purchasesabout products, place orders, and pay for purchases

CybermallsCybermallsCollections of virtual storefronts Collections of virtual storefronts representing diverse

products

Interactive and Video MarketingInteractive and Video MarketingLets viewers shop at home by phoning in or e-mailing Lets viewers shop at home by phoning in or e-mailing

ordersorders


Physical DistributionPhysical Distribution

Physical DistributionPhysical Distribution The activities needed to move products from The activities needed to move products from

manufacturer to consumermanufacturer to consumer Makes goods available when and where consumers Makes goods available when and where consumers

want themwant them Keeps costs lowKeeps costs low Provides services to satisfy customersProvides services to satisfy customers


Physical Distribution (cont’d)Physical Distribution (cont’d)

Warehousing OperationsWarehousing Operations Private warehousesPrivate warehouses are owned by producers are owned by producers Public warehousesPublic warehouses provide rented storage space provide rented storage space

Transportation OperationsTransportation Operations Principal differences are speed and costPrincipal differences are speed and cost

Transportation ModesTransportation Modes TrucksTrucks PlanesPlanes Water carriers Water carriers RailroadsRailroads PipelinesPipelines


Physical Distribution (cont’d)Physical Distribution (cont’d)

Physical Distribution and E-Customer Physical Distribution and E-Customer Satisfaction Satisfaction Order fulfillmentOrder fulfillment

Involves getting the product to each customer in good Involves getting the product to each customer in good condition and on timecondition and on time

Distribution as a Marketing Strategy Distribution as a Marketing Strategy Distribution is an increasingly important way of Distribution is an increasingly important way of

competing for sales.competing for sales. For some firms For some firms distribution is a cornerstone of distribution is a cornerstone of

business strategybusiness strategy


The Importance of PromotionThe Importance of Promotion

PromotionPromotion The techniques a firm uses for communicating The techniques a firm uses for communicating

information about productsinformation about products

Promotional ObjectivesPromotional Objectives To communicate informationTo communicate information To position productsTo position products To add valueTo add value To control sales volumeTo control sales volume

PositioningPositioning Establishing an easily identifiable product image in Establishing an easily identifiable product image in

the minds of consumers by fixing, adapting, and the minds of consumers by fixing, adapting, and communicating the nature of the product itselfcommunicating the nature of the product itself


The Importance of Promotion (cont’d)The Importance of Promotion (cont’d)

Promotional ToolsPromotional Tools AdvertisingAdvertising Personal sellingPersonal selling Sales promotionsSales promotions PublicityPublicity Public relationsPublic relations

Promotional MixPromotional Mix The combination of promotional toolsThe combination of promotional tools


The Importance of Promotion (cont’d)The Importance of Promotion (cont’d)

Matching Promotional Tools with Stages in the Buyer Matching Promotional Tools with Stages in the Buyer Decision Process:Decision Process: Buyers recognize the need to make a purchaseBuyers recognize the need to make a purchase

best tool: advertising and publicitybest tool: advertising and publicity

Buyers search for information about productsBuyers search for information about products best tool: advertising and personal sellingbest tool: advertising and personal selling

Buyers compare benefits and features of competing productsBuyers compare benefits and features of competing products best tool: personal sellingbest tool: personal selling

Buyers choose products that are a good value and buy themBuyers choose products that are a good value and buy them best tool: sales promotion and personal sellingbest tool: sales promotion and personal selling

Buyers evaluate products after the purchaseBuyers evaluate products after the purchase best tool: advertising and personal sellingbest tool: advertising and personal selling


Advertising PromotionsAdvertising Promotions

AdvertisingAdvertising Paid, nonpersonal communication by which an Paid, nonpersonal communication by which an

identified sponsor informs an audience about a identified sponsor informs an audience about a productproduct

Advertising MediaAdvertising Media The specific communication devices for carrying a The specific communication devices for carrying a

seller’s message to potential customersseller’s message to potential customers

Media MixMedia Mix The combination of media through which a company The combination of media through which a company

advertisesadvertises


Advertising Promotions (cont’d)Advertising Promotions (cont’d)

Advertising MediaAdvertising Media TelevisionTelevision Direct mailDirect mail NewspapersNewspapers MagazinesMagazines RadioRadio InternetInternet OutdoorOutdoor Other Other


Personal SellingPersonal Selling

Personal SellingPersonal Selling A salesperson communicates one-to-one with A salesperson communicates one-to-one with

potential customers to identify their needs and align potential customers to identify their needs and align them with the seller’s productsthem with the seller’s products Can be the most expensive form of promotionCan be the most expensive form of promotion

Personal Selling TasksPersonal Selling Tasks Order processingOrder processing Creative sellingCreative selling Missionary sellingMissionary selling


Sales PromotionsSales Promotions

Sales PromotionsSales Promotions Short-term promotional activities designed to Short-term promotional activities designed to

encourage consumer buying, industrial sales, or encourage consumer buying, industrial sales, or cooperation from distributorscooperation from distributors

Types of Sales PromotionsTypes of Sales Promotions SamplesSamples CouponsCoupons PremiumsPremiums ContestsContests Point-of-sale displaysPoint-of-sale displays Trade showsTrade shows


Publicity and Public RelationsPublicity and Public Relations

PublicityPublicity Information about a company, a product, or an event Information about a company, a product, or an event

transmitted by the general mass media to attract transmitted by the general mass media to attract public attentionpublic attention

Public RelationsPublic Relations Company-influenced publicity that seeks either to Company-influenced publicity that seeks either to

build good relations with the public or to deal with build good relations with the public or to deal with unfavorable eventsunfavorable events

© 2007 Prentice Hall, Inc. All rights reserved.12–1 Chapter 12 Pricing, Distributing, and...

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Transcript of © 2007 Prentice Hall, Inc. All rights reserved.12–1 Chapter 12 Pricing, Distributing, and...