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

Producer Wholesaler Consumer

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

Producer Consumer

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

Store Online

STORE RETAILERSCategory Killer Home Depot, Best Buy, Staples

Convenience Store 7-eleven, AM/PM marketsDepartment Store Nordstrom, Neiman Marcus, JCPenny

Discount Store Target, Wal-Mart, Kmart

Outlet Store Nike, Gap, Gucci, VersaceSpecialty Store Barnes & Noble, Victoria’s Secret, Hot Topic

Supermarket Kroger, Safeway, Albertson’s, Whole Foods

Supercenter Wal-Mart Supercenters, Super Target

Warehouse Club Costco, 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.

www.walmartfacts.com/wal-mart-distribution-centers.aspx

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 $27.98. $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.