Copyright © 2006 Pearson Education Canada Inc. 14-1 Chapter 14 Pricing and Distributing Goods and...

14-1

Copyright © 2006 Pearson Education Canada Inc.

Chapter 14

Pricing and DistributingGoods and Services

14-2 Copyright © 2006 Pearson Education Canada Inc.

Learning Objectives

Identify the various pricing objectives that govern pricing decisions and describe the price-setting tools used in making these decisions.Discuss pricing strategies and tactics for existing and new products.Explain the distribution mix, the different channels of distribution, and different distribution strategies.


Learning ObjectivesExplain the differences between merchant wholesalers and agents/brokers, and describe the activities of e-intermediaries.Identify the different types of retailing and retail stores.Define physical distribution and describe the major activities in warehousing operations.Compare the five basic forms of transportation and explain how distribution can be used as a marketing strategy.


Pricing

Market-share Pricing to sell the greatest possible market

percentage

Profit-maximizing Pricing to maximize profit (bottom line)

Neither objective will result in automatically high or low pricesThe price level is dependent on how much consumers are willing to pay for the product


Cost-Oriented Pricing

Considers the cost of the product and adds a “markup” to arrive at a final cost A light bulb costs $0.45 to the retailer The retailer wishes to sell the light bulb for

$0.75 (a markup of $0.30)

The markup as a percent of selling price is Markup % = Markup/Sales Price =.30/.75 =

40%

The markup as a percent of cost is Markup % = Markup/Cost = .30/.45 = 67%


Break-Even Analysis: Cost-Volume-Profit Relationships

Break-even analysis how many units a firm must sell in order to

cover costs

Fixed costs costs unaffected by the number of goods

produced or services sold (rent, administrative salaries, insurance, equipment)

Variables costs costs that change with the number of goods or

services produced and sold (materials, labour)

==


Pricing StrategiesPricing strategy The pricing plan based on the marketing

mix

Potential strategies Pricing Existing Products

Pricing relative to the market (at market, above market, below market)

Pricing New Products Skimming pricing Penetration pricing

Fixed Versus dynamic Pricing for Ebusiness


Skimming or Penetration Pricing

Penetration pricing Pricing the product as low as possible

to sell the most units and generate consumer loyalty

Skimming pricing Pricing the product as high as

possible to earn maximum profit on each unit sold


Pricing Tactics

Price lining The practice of offering all items in

certain categories at a limited number of predetermined price points

Having a product line priced with a low, medium, and high price point

Sears may sell mattresses at $199.99 (good), $299.99 (better), $399.99 (best)


Pricing Tactics

Psychological Pricing The practice pf setting prices to take

advantage of the illogical reactions of consumers to certain types of prices

Odd-even pricing consumers react more favourably to odd dollar

amounts ($0.99, $1.99, $19.99) Threshold pricing

consumers set a maximum price level that they will pay for an item

pricing at the maximum allows firms to obtain the highest price


Pricing Tactics

Discounting Cash discount

customers get a lower price for paying cash Seasonal discount

lower prices in the off-season to move stock Trade discount

lower price granted to intermediaries who need to mark up the product for resale (retailers, wholesalers)

Quantity discount lower prices for buying more units


Distribution MixDistribution channel The path a product follows from the producer to

the end-user

Intermediary An entity other than the producer who

participates in the distribution of the product

Wholesaler An intermediary who sells products to other

businesses for resale (other wholesalers, retailers)

Retailer An intermediary who sells product to final

consumers


Typical Channels


Distributive Strategies

Intensive distribution Readily available in the marketplace (candy

bars)

Selective distribution Use of a limited number of intermediaries in

a market area (hand tools)

Exclusive distribution Use of only one intermediary in a market

area (jaguar cars)


Channel Conflict

Channels must be managed to be successfulConflict occurs when intermediaries and the producer disagree about the way the channel should functionMethods to control conflict Channel leadership through the channel

captain Vertical marketing systems


Channel Leadership

The channel member that is the most powerful in determining roles and rewards of organizations involved in a given channel of distribution Channel Captain

One firm emerges as dominant and manages the channel


Vertical Marketing Systems (VMS)

Corporate Producer and intermediaries are owned by

a single organization

Contractual Members sign contracts spelling out

responsibilities (i.e.: Franchises)

Administered One member coordinates the system based

on its power and influence


WholesalersMerchant wholesalers Take legal title; Resell items to retailers or

industrial users Perform other services such as storage and

means of delivery

Agents/brokers Do not take legal title Handle the products between producers &

retailers or industrial users Perform other services such as shelf and

display merchandising and advertising layout


Types of Merchant Wholesalers

Full-service Perform all services including granting credit,

marketing, and merchandising

Limited-function Perform fewer services, specializing in certain

areas

Drop-shipper Take title, have goods shipped directly to final user

from producer, do not physically handle the goods

Rack-jobber Specializes in non-food lines, sets up and

maintains displays in retail stores


E-Intermediary

Internet-based channel members who perform one or both of these functions

1. They collect information about sellers and present it to consumers.

2. They help deliver Internet products to buyers.


Retailing in Canada•Most Canadians buy nearly all the goods and services they consume from retailers

•Most Canadian retailers are small businesses, often consisting of just owners and part-time help

•Competition from American-owned retailers (like Wal-Mart) has had profound effects on Canadian retailers•Wal-Mart is the largest retailer in Canada at estimated sales of $9 billion annually


Product Line Retailers Department Stores organized into specialized

departments with a range of products and brands

Supermarkets Divided into departments of similar

products (produce, bakery, meats, personal care, pharmacy)

Emphasis on self-service, low prices, & wide selection


Product Line Retailers

Specialty Stores Small stores that carry one line of related

products Sunglass Hut International, Jiffy Lube

Category killers larger specialized retailers with a deep

selection of goods greater expertise, & usually lower prices

Staples, Home Depot


Bargain Retailers

Discount houses Bargain retailers offering large consumer

durables at a discount price

Catalogue showrooms Sell primarily out of a catalogue with a

showroom to display goods

Factory outlet Bargain retail stores located adjacent or

convenient to the factories, owned by producers


Bargain Retailers

Warehouse Clubs Membership-only retail outlets (Costco)

Huge facilities with many separate departments of food and non-food items

Convenience Stores Retail stores that are very accessible

with extended hours of operation and fast service

Prices tend to be higher (Mac’s, 7-Eleven)


Non-store & Electronic Retailing

Direct-response retailing Firms make direct contact with

customers both to inform them about products and to receive sales orders

Direct selling Form of non-store retailing typified by

door-to-door sales Mail-order (catalogue marketing)

Customers place orders for merchandise shown in catalogues and receive their orders via mail


Non-store & Electronic Retailing

Telemarketing Use of the telephone to sell directly

to consumers (may also take calls in response to direct mail or video marketing)

Ecatalogues Use of internet to display products

and services


Electronic Storefronts and Cybermalls

Electronic storefront A web site in which consumers collect

information about products and buying opportunities, place sales orders, and pay for their purchase

Cybermalls Collections of virtual storefronts

representing diverse products


E-Sales & Multilevel Marketing

Multi-level marketing salespeople earn commissions on

their own sales, and the sales of anyone else that they recruit (Amway)

E-sales occur when Web sites are used to conduct multi-level marketing


Interactive and Video Marketing

Interactive marketing selling products and services by

allowing customers to interact with multimedia Web sites

Video marketing products showcased via television

videos on home shopping channels that sell directly through telephone orders


Warehousing

The storing of goods through the distribution process in various types of warehouses Private: owned by a company Public: independently owned by a separate

company who rents out space to other firms Storage: facility used to store goods for

long time periods Distribution centre: facility used to store

goods for short periods of time pending distribution to retailers


Warehousing CostsBasic expenses Rent or mortgage, insurance and

wages

Inventory control Operations process that monitors

amount of inventory on hand and ensures adequate stock levels at all times


Warehousing CostsMaterials handling Transporting goods, arrangement and

orderly retrieval of goods

Unitization A materials handling method that

standardizes inventory by unit size and type to streamline the storage process


Transportation

The process of moving goods physically through the distribution networkIntermodal Combined use of different means of

transportation

Containerization Packing many items at once into a sealed,

heavy-duty container that is used with a variety of different methods of transportation (truck, railroad, water, plane, pipeline)


HubsA central distribution outlet that controls all or most of a firm’s distribution activities Supply side/pre-staging: large shipments destined

for user are gathered in a single hub from various sources to eliminate the need for inventory & to streamline traffic

Supplier-coordinated: several suppliers combine forces to gather shipments destined for a single user in a single “incoming” hub that is convenient to the user

Distribution-side: hubs located adjacent to customer locations

Copyright © 2006 Pearson Education Canada Inc. 14-1 Chapter 14 Pricing and Distributing Goods and...

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