Pricing, Distribution, Promotion

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Pricing, Distribution, Promotion

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Pricing and Pricing Management

• What is meant by price?
• What types of price sensitive consumers are
  there?
• What are some pricing objectives?
• How do you set a specific selling price?
• What are some pricing strategies?

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Definition of Pricing

• What do we mean by price?
• Price is the amount of money and/or other items
  with utility needed to acquire a product.
• Utility is an attribute with the potential to
  satisfy wants.
• Base price list price which includes no
  discounts, freight charges or other modifications
• Expected price what customers think product is
  worth

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Definition of Pricing

• Price is what you pay for what you get

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Normal demand curve
Price
Inverse demand
Quantity sold
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Types of Price Sensitive Consumers

• Brand loyal - relatively uninterested in price
• System beaters - prefer certain brands but try to
  buy them at reduced prices
• Deal Shoppers - driven by low prices
• Uninvolveds - not motivated by brand preferences
  or low prices

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Pricing Objectives

• Profit - oriented
• to achieve a target return on sales or investment
  (short-term)
• to maximize profit (long-term)
• most companies use this
• Sales - oriented
• to increase sales volume to gain rapid growth or
  discourage competition
• to maintain or increase market share
• especially when pie is not getting bigger

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Pricing Objectives

• Status Quo - oriented
• to stabilize prices (standardized products)
• to meet competition by matching prevailing price
• to compete on other elements of the marketing mix

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SELECT PRICING OBJECTIVE
SELECT METHOD OF DETERMINING THE BASE PRICE
Cost-plus pricing
Price based on both demand and costs
Price set in relation to market alone
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Setting A Specific Selling Price

• Cost-Plus Pricing
• total cost markup
• acquisition cost markup
• most popular method
• should be used with other methods
• Breakeven Analysis is used to help determined how
  many units need to be sold total revenues
  total cost

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Markup Calculation
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100,000 90,000 80,000 70,000 60,000 50,000 40,000
30,000 20,000 10,000
Total revenue (at 80 per unit)
PROFITS
BREAK-EVEN POINT
Total costs
Cost, revenue, profit
Total variable costs
LOSSES
Total fixed costs
0 100 200 300 400 500 600 700 800 900
1000 1100 1200
Quantity in units
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Setting A Specific Selling Price

• Marginal Analysis
• considers both demand and supply
• optimum volume of output level at which
  marginal cost equals marginal revenue
• up to optimal point marginal revenue gt marginal
  cost
• not used much since hard to get numbers

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Marginal cost
Price, cost
Marginal revenue
0
Q
Quantity produced
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Setting A Specific Selling Price

• Competitive Market Conditions
• price is set in relation to market alone
• may be set at the market price or above or below
• above for a prestige or distinctive product
• below for a discounter

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SELECT PRICING OBJECTIVE
SELECT METHOD OF DETERMINING THE BASE PRICE
Cost-plus pricing
Price based on both demand and costs
Price set in relation to market alone
DESIGN APPROPRIATE STRATEGIES
Price vs. nonprice competition Skimming vs.
Penetration pricing Discounts and allowances
Geographic Pricing One price vs. flexible
price Odd Pricing Leader pricing
Everyday low vs. high-low pricing Resale price
maintenance Reactive/Proactive
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Pricing Strategies

• Price vs Non Price Competition
• price low as possible with minimum services
• non price maintain stable price and compete
  using other marketing mix elements
• Skimming vs Penetration Pricing
• skimming price set at highest possible level
  for a new product
• penetration low initial price for a new product
  to rapidly increase sales and share

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Pricing Strategies

• Discounts and Allowances
• quantity reduce price due to large purchase
• trade reduce price due to marketing functions
  performed by buyers - storing, promoting, selling
• cash reduce price due to prompt payment
• rebate mail-in or coupon to get money back
• seasonal discount reduce price for ordering
  during slack season
• promotional allowance payment for promotional
  service by buyer

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Pricing Strategies

• Geographic Pricing
• determined by whether buyer or seller or both
  bear shipping (freight) expense
• FOB factory buyer pays
• Uniform delivered same price regardless of
  location
• Zone delivered same price in the same
  geographic zone
• Freight-absorption price quoted includes
  shipping costs

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Pricing Strategies

• One Price versus Flexible
• one price same price to everyone
• flexible similar customers pay different prices
  (airlines)
• Price Lining
• selecting a limited number of prices at which the
  business will sell related products
• Odd Pricing
• setting prices at uneven amounts
• 99 cents instead of 1 or 2.99 instead of 3
• psychological pricing

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Pricing Strategies

• Leader Pricing
• temporarily cutting prices on a few items to
  attract customers
• reduced items are called leaders
• if items below cost called loss leaders
• High-low versus Everyday Low Pricing
• high-low alternating between regular (higher)
  and sale (low) prices on most visible products
  (Sears)
• everyday low prices consistently low prices and
  few (if any) temporary price reductions (Wal-Mart)

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Pricing Strategies

• Resale Price Maintenance
• manufacturers want to control prices at which
  middlemen resell their products
• suggested retail price
• Reactive versus Proactive price changes
• reactive reacts to the competition - price wars
• proactive initiates price changes to reduce
  inventory, reach economies of scale, etc.

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Pricing Strategies

• Robinson Patman Act
• seller must offer promotional services and
  facilities, or payments for them, on a
  proportionally equal basis to all competing
  customers

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Price differential injury to competition Robin
son-Patman violation
UNLESS Price differential Cost differential
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Distribution and Logistics

• What is distribution and channels?
• How do you design a distribution channel?
• What is supply chain management?
• What is meant by retailing?
• What types of retailers are there?
• What marketing strategies are used by retailers?
• What is wholesaling?
• What types of wholesalers are there?
• What are the elements of physical distribution?

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Distribution / Supply Chain

• Distribution Channel
• consists of the set of people and firms involved
  in the transfer of title to a product as the
  product moves from producer to ultimate consumer
  or business user
• Middleman
• business firm that renders services directly to
  the sale and/or purchase of a product as it moves
  from producer to consumer
• merchant - takes title - retailers, wholesalers
• agent - doesnt take title (ex., real estate
  brokers, travel agents)

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Middlemen and Distribution Channels

• The role of distribution is to get the product to
  the firms target market, which entails
• Arranging for its sale and transfer of title
• Promoting the product
• Storing the product
• Assuming some risk during distribution.
• Middlemen often perform these activities for
  producer or consumer.

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Typical Middlemen Activities
SALES SPECIALIST FOR PRODUCERS
PURCHASING AGENT FOR BUYERS

• Provides market
• information
• Interprets consumers
• wants
• Promotes producers
• products
• Creates assortments
• Stores products
• Negotiates with
• customers
• Provides financing
• Owns products
• Shares risks

• Anticipates wants
• Subdivides large
• quantities of a product
• Stores products
• Transports products
• Creates assortments
• Provides financing
• Makes products
• readily available
• Guarantees products
• Shares risks

M I D D L E M A N
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The Importance of Sutters Channels
According to CEO Bob Trinchero, one major factor
in Sutter Home Winerys success has been the
ability to choose good distributors and build a
cooperative relationship with them. What have
distributors done for Sutter Home?

• Distributors help in doing product planning for
  the future.
• They warehouse the wine and promote it.
• They often publish and make available to
  retailers a catalog that includes Sutter and
  other products.
• They set up countertop displays and racks.
• Many do detailing checking supply on
  retailers shelves and restocking when necessary.
• They select the most efficient means of
  transportation and make sure deliveries are made
  on time.

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Distribution / Supply Chain

• Designing Distribution Channels
• Specify the role of distribution within the
  marketing mix
• look at marketing goals and marketing plan
• Select the type of channel
• which types of middlemen
• Determine the intensity of distribution
• intensive, selective, exclusive
• Choose specific channel members

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Designing a Distribution Channel
WELL- DESIGNED DISTRIBUTION CHANNEL
Specify the role of distribution within
the marketing mix
Select type of distribu- tion channel
Determine appropriate intensity of distri- bution
Choose specific channel members
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Major Distribution Channels
PRODUCERS OF CONSUMER GOODS
Agents
Agents
Merchant wholesalers
Merchant wholesalers
Retailers
Retailers
Retailers
Retailers
ULTIMATE CONSUMERS
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Major Distribution Channels
PRODUCERS OF BUSINESS GOODS
Agents
Agents
Merchant wholesalers (industrial distributors)
Merchant wholesalers (industrial distributors)
Merchant wholesalers (industrial distributors)
Resellers
BUSINESS USERS
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Major Distribution Channels
PRODUCERS OF SERVICES
Agents
ULTIMATE CONSUMERS OR BUSINESS USERS
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Distribution / Supply Chain

• Intensity of Distribution
• intensive producer sells through every
  available outlet where consumer might reasonably
  look
• selective sells through multiple, but not all
  possible outlets where consumer might reasonably
  look
• exclusive sells only through a single outlet
  (wholesaler or retailer) in a given market

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Intensity-of- Distribution Continuum
INTENSIVE
SELECTIVE
EXCLUSIVE
Distribution through every reasonable outlet in a
market
Distribution through multiple, but not
all, reasonable outlets in a market
Distribution through a single wholesaling middlema
n and/or retailer in a market
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Distribution / Supply Chain

• Supply Chain Management
• total system perspective towards physical
  distribution
• looks at total cost
• channel cooperation
• coordination of logistics/distribution activities
  with all channel members

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What Is Retailing?

• Retailing the sale, and all activities directly
  related to the sale, of goods and services to
  ultimate consumers for personal, nonbusiness use.
• A firm engaged primarily in retailing is called a
  retailer.
• Retailers perform many activities such as
  anticipating customers wants, developing product
  assortments, acquiring market information, and
  financing.
• E-tailers are retailers who operate online, as
  opposed to having a physical store consumers can
  visit in person.

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What Types of Retailers?

• Corporate Chain
• organization of two or more centrally managed
  stores that generally handle the same lines of
  products
• Independent Store
• company with a single store not affiliated with
  other stores in a contractual arrangement
• Contractual Vertical Marketing System
• independently owned firms join together under a
  contract specifying how they will operate

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What Types of Retailers?

• Contractual Vertical Marketing System
• independently owned firms join together under a
  contract specifying how they will operate
• retailer cooperative - group of small retailers
  that agree to operate a wholesale warehouse (True
  Value Hardware)
• voluntary chain - sponsored by a wholesaler in
  contract with interested retailers (Ace, IGA)
• franchise systems
• product / trade name - focus is on what is sold
  (Ford)
• business format - focus is on how the business is
  run (McDonalds)

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Retailing Marketing Strategies

• Department Stores
• large scale, broad deep assortment, tries not
  to compete on price, many services (J.C. Penny)
• Discount Stores
• low prices, broad but shallow product assortment,
  few services (Wal-Mart)
• Limited Line Stores
• narrow but deep product assortment, selected
  customer services
• Specialty Stores - Batteries Plus
• Off-Price Retailers - lower than discount -
  Payless
• Category Killers - Circuit City, Toys R Us

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Retailing Marketing Strategies

• Supermarkets
• moderately broad and deep assortment including
  groceries, some nonfood lines (Jewel, Krogers)
• Convenience Stores
• concentrates on selected groceries and non foods
  (beverages, snacks, cigarettes), higher prices
  (White Hen Pantry)
• Warehouse Clubs
• broad but shallow assortment, very low prices,
  few customer services, open only to members who
  pay an annual fee, tries to combine wholesaling
  and retailing (Sams Club)

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Retailers Classified by Marketing Strategies
Type of store
Assortment
Price level
Customer service
Department store
Broad, deep
Avoid price competition
Extensive
Discount store
Broad, shallow
Low
Few
Limited-line
Narrow, deep
Varies
Varies
Specialty
Very narrow, deep
Avoid price competition
Moderate to extensive
Off-price
Narrow, deep
Low
Few
Category killer
Narrow, deep
Low
Few to moderate
Supermarket
Broad, deep
Varies
Few
Convenience store
Narrow, shallow
High
Few
Warehouse club
Broad, shallow
Very low
Few
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Retailing Marketing Strategies

• Non Store Retailing
• Direct Selling - personal contact between
  salesperson and consumer away from retail site
  (Mary Kay, Amway)
• Telemarketing - salesperson initiating contact
  with a shopper and making a sale over the
  telephone
• Automatic Vending - sales of products through
  machine - no personal contact
• Online Retailing - buying over the internet
  (Amazon.com)

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Retailing Marketing Strategies

• Direct Marketing
• Direct Mail - letters, brochures, product samples
• Catalog retailing - catalogs (J.C. Whitney)
• Televised Shopping - infomercials (30 minutes or
  more), shopping channels (QVC, Home Shopping
  Network)

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Institutional Change in Retailing

• Retailers - even small ones - can survive if they
  concentrate on serving customers needs.
• Retailers that prosper in the future will
• provide customers with a distinctive bundle of
  benefits
• stress value, not just low prices
• save their customers time and energy
• make shopping fun

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What is Wholesaling?

• Wholesaling The sale, and all activities
  directly related to the sale, of goods and
  services to businesses and other organizations
  for resale, use in producing other goods or
  services, or operating an organization or
  business.
• Wholesaling middlemen are firms primarily in
  wholesaling.
• The gap between (a) producer and (b) retailer
  and/or users is filled by a wholesaling middleman
  that can pool the orders of many buyers and
  furnish a market for the small producer.

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The Economy of Transactions
A
B
C
D
PRODUCERS
RETAILERS
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5
4
3
2
1
Four producers each sell directly to six
retailers, resulting in 24 transactions
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The Economy of Transactions
A
B
C
D
PRODUCERS
WHOLESALING MIDDLEMAN
RETAILERS
6
5
4
3
2
1
Four producers use the same wholesaling
middleman, reducing the number of transactions to
10
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WHOLESALING MIDDLEMEN
MERCHANT WHOLESALERS, INCLUDING
AGENT WHOLE- SALING MIDDLE- MEN, INCLUDING
MANUFACTURERS SALES FACILITIES, INCLUDING
CHARAC- TERISTICS
CHARAC- TERISTICS
CHARAC- TERISTICS

• Independently
• owned
• Take title to
• products
• being dis-
• tributed.

• Full
• service
• Truck
• jobbers
• Drop
• shippers

• Independently
• owned
• Do not take
• title to
• products
• being
• distributed
• Actively
• negotiate
• sale or
• purchase
• of products

• Manu-
• facturers
• agents
• Brokers

• Owned and
• operated by
• manu-
• facturers
• Perform
• sales
• function

• Branches
• (carry stocks
• of merchan-
• dise being
• distributed)
• Offices (do
• not carry
• stocks)

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Types of Wholesalers

• Merchant Wholesalers
• takes title to the goods, independently owned
• wholesalers, jobbers, industrial distributors
• Manufacturer Sales Facility
• owned and operated by the manufacturer
• physically separated from the manufacturing
  plant(s)

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Types of Wholesalers

• Agent Wholesaling Middlemen
• independently owned, negotiates sale or purchase,
  does not take title
• broker - brings buyers and sellers together
• selling agent - markets producers entire output
• manufacturers agent - markets part of output
• auction company - facilitates bidding on products
• import/export agent - brings together buyers and
  sellers in different countries

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What is Physical Distribution?

• Physical distribution/logistics All activities
  concerned with moving the right amount of the
  right products to the right place at the right
  time.
• Physical distribution can strengthen a firms
  market position by providing more customer
  satisfaction and/or reducing operating costs
• Improve customer service.
• Reduce distribution costs.
• Create time and place utilities storage creates
  time utility, and transporting the goods to where
  they are desired creates place utility.
• Stabilize prices by storing products or moving
  them to other markets.
• Influence channel decisions.
• Control shipping costs.

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Physical Distribution Management Activities

• Order Processing
• set of procedures for receiving, handling, filing
  orders accurately and promptly
• Inventory Control
• efficient management of products available or
  sale
• Warehousing
• efficient and effective storage of inventories
• public or private warehousing used

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Physical Distribution Mgt. Activities

• Materials Handling
• short distance movement within a warehouse or a
  factory or between them and a carrier
• Transportation
• long distance movement by a carrier
• railroad, truck, pipeline, ship, plane

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Promotion Management

• What is promotion?
• What types of promotion are there?
• What is the promotional mix?
• What is the Integrated Marketing Communication
  Process?
• What are some possible promotional objectives?
• What are some methods used to budget promotional
  activities?

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What is Promotion?

• Promotion is the element in an organizations
  marketing mix that serves to inform, persuade,
  and remind the market regarding the organization
  and/or its products.
• It includes all the means by which a company
  communicates directly with potential customers.
• It is an attempt to influence feelings, beliefs,
  or behavior.
• It is an attempt to shift the demand curve for a
  firms goods or services

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Purpose of Promotion
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Demand goal with promotion
Demand goal with promotion
Price
Price
Demand without promotion
Demand without promotion
Quantity
Quantity
a. A shift in the demand curve to the right.
b. Changing the shape (or elasticity) of the
demand curve.
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Types of Promotion

• Advertising
• paid form (identified sponsor) non-personal
  presentation
• primary demand and selective demand
• television, radio, newspaper, magazines, direct
  mail, mass transit vehicles, outdoor displays,
  handbills, catalogs, directories
• Sales Promotion
• paid form short term incentives to encourage
  purchase or sale of a product or service
• event sponsorships, contests, trade shows,
  in-store displays, rebates, samples, premiums,
  discounts, coupons

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Types of Promotion

• Public Relations
• paid form wide variety of mass and personal
  communications that are image directed
• contribute to the favorable attitudes and
  opinions toward an organization and its products
• newsletters, annual reports, lobbying, supporting
  charitable or civic events
• Publicity
• not paid form non-personal presentation
• involves news stories about an organization or
  its products
• Personal Selling
• paid form personal presentation to prospective
  customer

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Customers come to the sales people
Sales force goes to the customer
Inside sales peoplecontact by mailor
telemarketing
Primarilyretail store selling
Primarily producers and wholesalingmiddlemen
selling to business users,but also
some Producers ? Household consumers Retailers
? Household consumers Nonprofit ?
Business usersorganizations ? Household
consumers
Types of Personal Selling
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Personal Selling (Sales) Process
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Types of Promotion
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Promotional Mix

• Refers to the particular combination of elements
  (advertising, personal selling, publicity, public
  relations, sales promotion) used by an
  organization as part of its promotional strategy.

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Advertising, public relations, publicity best for
attention. Personal selling and sales promotion
best for desire and action.
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Integrated Marketing Communication

• Integrated Marketing Communication (IMC) is a
  strategic business process used to plan, develop,
  execute and evaluate coordinated communication
  with an organizations publics.
• The IMC approach takes an audience perspective
  when planning and coordinating the organizations
  communication activities

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The Communication Process
Source - party sending the message to another
partyEncoding - the process of putting thought
in symbolic formMessage - the set of symbols
that the sender transmitsChannel - the paths
through which the message moves from sender
to receiverNoise - extraneous disturbances
that interfere with communication
Selective Exposure Perception RetentionDecoding
- the process by which the receiver assigns
meaning to the symbols transmitted by the
senderReceiver - the party receiving the message
sent by another partyFeedback - the part of the
receivers response that the receiver
communicates back to the sender
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((( noise )))
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Marketing Communicator

• The marketing communicator must
• Identify the target audience
• Clarify the response sought (awareness -
  knowledge - liking - preference - conviction -
  purchase)
• Choose a message
• Choose the channel (or media)
• Select source attributes how source is
  portrayed to the receiver
• Collect feedback

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Target Audience

• Push Strategy
• aimed at middlemen
• personal selling, sales promotions like contests
  for salespeople, tradeshows
• Pull Strategy
• aimed at the end user
• advertising, sales promotions like premiums,
  samples, in-store demonstrations

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PUSH STRATEGY
Consumer
PULL STRATEGY
Consumer
Product flow
Promotion effort
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Push Policy
Pull Policy
Flow of products
Flow of communication
Trade deals contests, useful display material
Threaten
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Promotional Objectives

• Hierarchy of Effects (AIDA)
• Awareness - know product or brand exists
  (attention)
• Knowledge - learning about a products or brands
  features (interest)
• Liking - positive feeling about the product or
  brand (interest)
• Preference - find one brand more attractive
  (desire)
• Conviction - actual decision or commitment to
  purchase (desire)
• Purchase - buying the product (action)

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Determining the Promotional Budget

• Percentage of Sales
• past or anticipated sales
• most widely used
• All Available Funds
• all money available to build sales and share
• Following Competition
• match expenditures of competitors
• spend proportional to market share
• Task or Objective
• determine task or objectives to be accomplished
  and allocate funds to reach them
• best method to use