busn1200_ch17 product distribution and pricing

7/28/2019 BUSN1200_CH17 Product Distribution and Pricing

1/12

3/19/20

Understanding Marketing

CH17- Pricing and Distribution of

Goods and Services

Instructor: Shari Ann Herrmann

BUSN 1200 Fundamentals of Business

Pricing: Learning Objectives

14-2

After this lesson you should be able to:

Identify the variouspricing objectivesthat govern

pricing decisions and describe the price-setting

tools used in making these decisions.

Calculate contribution margin and perform a

break-even analysis

Discusspricing strategies and tactics for existing

and new products.

Distribution: Learning Objectives

14-3

After this lesson you should be able to:

Describe the distribution mix and various channels of

distribution Name and describe three different distribution

strategies.

Explain the difference between merchant wholesalersand agents/brokers and describe the activities ofe-intermediaries.

Identify the different types ofretailing and retail stores.

Define physical distribution and describe the majoractivities in warehousing operations.


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The Marketing MixFour Ps

Pricing

14-5

Pricing Objectives:

Profit-maximizing

pricing to maximize profit (bottom line)

must consider all costs

Market-share

pricing to gain the greatest possible

market percentage

The price level is dependent on how

much consumers are willing to pay for

the product

Cost-Oriented Pricing (retail)

14-6

This type of pricing adds a mark-up to the cost of the

product and to arrive at a final cost A light bulb costs $0.45 to the retailer

The retailer sells the light bulb for $0.75 (a mark-up of 0.30)

The mark-up as a percent of selling price is

Markup % = Markup / Sales Price =.30/.75 = 40%Usual

The markup as a percent of cost is

Markup % = Markup / Cost = .30/.45 = 67%Variant

Profit
http://www.google.ca/url?sa=i&source=images&cd=&cad=rja&docid=qGkalc7DrvnTxM&tbnid=3E8KHOW6APUyHM:&ved=0CAgQjRwwAA&url=http%3A%2F%2Fpauldunay.com%2F4-cs-of-b2-marketing%2F&ei=1AdJUczXLeK7igLyi4DwCw&psig=AFQjCNFeH5fTE3E6DGQNbNnLe0NLgIpUgw&ust=1363827028785733http://www.google.ca/url?sa=i&source=images&cd=&cad=rja&docid=qGkalc7DrvnTxM&tbnid=3E8KHOW6APUyHM:&ved=0CAgQjRwwAA&url=http%3A%2F%2Fpauldunay.com%2F4-cs-of-b2-marketing%2F&ei=1AdJUczXLeK7igLyi4DwCw&psig=AFQjCNFeH5fTE3E6DGQNbNnLe0NLgIpUgw&ust=1363827028785733http://www.google.ca/url?sa=i&source=images&cd=&cad=rja&docid=qGkalc7DrvnTxM&tbnid=3E8KHOW6APUyHM:&ved=0CAgQjRwwAA&url=http%3A%2F%2Fpauldunay.com%2F4-cs-of-b2-marketing%2F&ei=1AdJUczXLeK7igLyi4DwCw&psig=AFQjCNFeH5fTE3E6DGQNbNnLe0NLgIpUgw&ust=1363827028785733http://www.google.ca/url?sa=i&source=images&cd=&cad=rja&docid=qGkalc7DrvnTxM&tbnid=3E8KHOW6APUyHM:&ved=0CAgQjRwwAA&url=http%3A%2F%2Fpauldunay.com%2F4-cs-of-b2-marketing%2F&ei=1AdJUczXLeK7igLyi4DwCw&psig=AFQjCNFeH5fTE3E6DGQNbNnLe0NLgIpUgw&ust=1363827028785733http://www.google.ca/url?sa=i&source=images&cd=&cad=rja&docid=qGkalc7DrvnTxM&tbnid=3E8KHOW6APUyHM:&ved=0CAgQjRwwAA&url=http%3A%2F%2Fpauldunay.com%2F4-cs-of-b2-marketing%2F&ei=1AdJUczXLeK7igLyi4DwCw&psig=AFQjCNFeH5fTE3E6DGQNbNnLe0NLgIpUgw&ust=1363827028785733http://www.google.ca/url?sa=i&source=images&cd=&cad=rja&docid=qGkalc7DrvnTxM&tbnid=3E8KHOW6APUyHM:&ved=0CAgQjRwwAA&url=http%3A%2F%2Fpauldunay.com%2F4-cs-of-b2-marketing%2F&ei=1AdJUczXLeK7igLyi4DwCw&psig=AFQjCNFeH5fTE3E6DGQNbNnLe0NLgIpUgw&ust=1363827028785733http://www.google.ca/url?sa=i&source=images&cd=&cad=rja&docid=qGkalc7DrvnTxM&tbnid=3E8KHOW6APUyHM:&ved=0CAgQjRwwAA&url=http%3A%2F%2Fpauldunay.com%2F4-cs-of-b2-marketing%2F&ei=1AdJUczXLeK7igLyi4DwCw&psig=AFQjCNFeH5fTE3E6DGQNbNnLe0NLgIpUgw&ust=1363827028785733


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Break-Even Analysis:Cost-Volume-Profit Relationships

14-7

Break-even analysis

how many units a firm must sell before it

makes a profit (covers all costs)Fixed costs

costs unaffected by the number of goods

produced or services sold

rent, administrative salaries, insurance, equipment

Variable costs

costs that change with the number of goods or

services produced and sold

materials, labour

14-8

Higher price = lower breakeven point

Must also consider demand of consumers and competitors prices

Break-Even Analysis:Cost-Volume-Profit Relationships

TotalRevenue

TotalCosts

TotalProfit

Breakeven point Total Fixed Costs

(in units) price variable cost

Pricing Strategies

Pricing existing products

14-11

Pricing strategy is the pricing plan

based on the marketing mix

Potential pricing strategies for existing

products:

above market

below market

at market


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Pricing Strategies

Pricing New Products

14-12

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

New products are often introduced using one of

two common pricing strategies:

Pricing Tactics

14-17

Discounting

Some common discounts are:

Cash discount for payments made in cash

Seasonal end of season discounts

Trade for professionals or businessesE.g. building supply stores give trade discounts to

contractors or skilled trade workers

Quantitydiscounts when large quantities

are purchased

Pricing Tactics

14-18

Price Lining: pricing a product linewith low,

medium and highprice points to appeal to different

customer types. i.e: base model, upgraded model and deluxe model.

Helps customers recognize that there are differences

between products that are not noticeably different

(interior features, quality, etc.).


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Pricing Tactics

14-20

Psychological Pricing

Customer reactions to

pricing are not completelylogical

Odd-even pricing

consumers react more

favourably to odd dollar

amounts ($0.99, $1.99, $19.99)

Pricing Tactics

14-21

International Pricing

Income and spending trends

must be analyzed in new

market

Other factors to consider

that may affect prices:

Exchange rates

Tariffs

Shipping and storage costs Number ofintermediaries and

additional costs for distribution

The Marketing MixFour Ps
http://www.google.ca/url?sa=i&source=images&cd=&cad=rja&docid=qGkalc7DrvnTxM&tbnid=3E8KHOW6APUyHM:&ved=0CAgQjRwwAA&url=http%3A%2F%2Fpauldunay.com%2F4-cs-of-b2-marketing%2F&ei=1AdJUczXLeK7igLyi4DwCw&psig=AFQjCNFeH5fTE3E6DGQNbNnLe0NLgIpUgw&ust=1363827028785733http://www.google.ca/url?sa=i&source=images&cd=&cad=rja&docid=qGkalc7DrvnTxM&tbnid=3E8KHOW6APUyHM:&ved=0CAgQjRwwAA&url=http%3A%2F%2Fpauldunay.com%2F4-cs-of-b2-marketing%2F&ei=1AdJUczXLeK7igLyi4DwCw&psig=AFQjCNFeH5fTE3E6DGQNbNnLe0NLgIpUgw&ust=1363827028785733http://www.google.ca/url?sa=i&source=images&cd=&cad=rja&docid=qGkalc7DrvnTxM&tbnid=3E8KHOW6APUyHM:&ved=0CAgQjRwwAA&url=http%3A%2F%2Fpauldunay.com%2F4-cs-of-b2-marketing%2F&ei=1AdJUczXLeK7igLyi4DwCw&psig=AFQjCNFeH5fTE3E6DGQNbNnLe0NLgIpUgw&ust=1363827028785733


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Distribution

14-23

Moves the

product from

the producer to

the end user.

Distribution

14-24

Distribution Channel

Individuals and firmswho distribute a product

the path a productfollows from producerto the end-user

Distribution Mix

the combination ofdistribution channels afirm uses

Distribution Mix

14-25

Intermediary

an entity other than the producerwho participates in

the distribution of products to final consumers

Wholesaler

an intermediary who sellsproducts to otherbusinesses for resale (otherwholesalers, or retailers)

Retailer

an intermediary who sellsproducts to final consumers


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Intermediaries and Distribution Channels

14-26

Direct distribution No intermediaries

Non-direct distribution

Retail Distribution

Wholesale Distribution

Sales agent represents a business and receives commission

Broker brokers match numerous sellers and buyers as needed

Each intermediary adds cost but also adds value

Distribution Strategies

14-27

Intensive

As many channels and members as possible Low cost consumer goods (candy bars)

Selective

use of a limited number of outlets Consumer products with special displays (hand tools)

Exclusive

use of only one intermediary in a market area High cost prestige items (Jaguar cars)

Provide different degrees

of market coverage

Retail Outlets

14-28

Product Line Retailers Department stores

Supermarkets

Specialty stores

Bargain Retailers Discount houses

Catalogue showrooms

Factory outlets

Wholesale clubs

Convenience stores Extended hours, fast service

Higher prices


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Wholesaling

14-29

Wholesalers

Buy and take legal title to goods

Resell items to retailers or industrial users Usually provide storage and delivery

May provide credit, advice, and other services

Wholesaling

14-30

Agents

Serve as sales and merchandising

arms of manufacturers

Receive commission for sales

Do not take legal title

Perform wide range of services

BrokersMatch buyers and sellers, do not

always know who they will bei.e. real estate, stocks

Channel Conflict

14-33

Channel conflict happens when members

disagree about roles or rewards.Typical sources of conflict:

some members receiving more favourable terms

inconsistencies in pricing

differences in sales incentives

Most powerful member is referred to

as the channel captain.Channels must be

managed

to be successful


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Non-store Retailing Direct Distribution

14-34

Direct-Response Marketing = firms contact customersdirectly to sell their products

Vending machines

Direct selling door-to-door, home parties

Mail-order catalogues

Telemarketing

Direct-response TV ads infomercials

Electronic retailing on-line stores

E-Intermediary

14-35

Internet-based channel members who perform one

or both of these functions

1. They collect information about sellers andpresent it to consumers.

2. They help deliver Internet products tobuyers.

Three types:

syndicated sellers

shopping agents e-retailers

E-Intermediary

14-36

Syndicated sellers

when a web site offers other web sites a

commission for referring customers

Example: Expedia.ca refers customer to

car rental companies, tour operators and hotels.


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14-37

E-Intermediary

14-38

Shopping agents (e-agents)

helps Internet consumers by gathering and sorting

information they need to make purchases

Examples:

Electronic Retailing (e-tailing)

14-40

E-catalogues

display products on-line

Internet-based stores

inform, sell to and distribute to

customers


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Physical Distribution

14-42

Physical Distribution is the activities needed to moveproducts from the manufacturer to the customer

warehousing

transporting

distribution for e-customers

Goals:

keep customers satisfied

make good available when customers want

keep costs low

Warehousing

14-43

The storing of goods during the distribution

process in various types of warehouses:

storage: facility used to store goods for longtime periods

distribution centre: facility used to storegoods for short periods of time pending

distribution to retailers

private: owned and used by one company

public: independently owned by a separate

company who rents out space to other firms

E-commerce Distribution

14-44

Physical Distribution and E-commerce

Order fulfillment = all activities from making thesale to on-time delivery to the customer

Some e-tailers maintain their own warehouses

and distribution centres, others use distribution

specialists (e.g. UPS, FedEx)


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Recap: Pricing

14-45

Can you identify the various pricing objectives that

govern pricing decisions?

Can you describe the price-setting tools used inmaking these decisions?

Can you calculate contribution margin and perform a

break-even analysis?

Can you explain the difference between penetration

andskimming pricing strategies and explain the

benefits of each?

Can you name four common discounting approaches

and explain the business benefits of each?

Recap: Distribution

14-46

Can you describe the distribution mix and name various

channels of distribution ?

Can you describe three different distribution strategies?

Can you explain the difference between merchant

wholesalers and agents/brokers ?

Can you describe the activities ofe-intermediaries ?

Can you name different types ofretailing and retail stores?

Can you define physical distribution and describe the major

activities in warehousing operations?

47

Questions?

busn1200_ch17 product distribution and pricing

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