© 2009 South-Western, a division of Cengage Learning 1 Chapter 13: DISTRIBUTION AND PRICING Right Product, Right Person, Right Place, Right Price

© 2009 South-Western, a division of Cengage Learning 2 LOOKING AHEAD What is distribution as it relates to marketing? What is the difference between channels of distribution and physical distribution? What are the different types of wholesale distributors? What are trends in retailing? What are the key factors in physical distribution? What are examples of pricing strategies?

© 2009 South-Western, a division of Cengage Learning 3 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?

© 2009 South-Western, a division of Cengage Learning 4 DISTRIBUTION: GETTING YOUR PRODUCT TO YOUR CUSTOMER ProducerWholesalerConsumer Channel of Distribution – the path that a product takes from the producer to the consumer

© 2009 South-Western, a division of Cengage Learning 5 CHANNEL INTERMEDIARIES Channel Intermediaries – informally called middlemen. They facilitate the movement of products from the producer to the consumer.

© 2009 South-Western, a division of Cengage Learning 6 DISTRIBUTING DIRECTLY TO THE CONSUMER ProducerConsumer Direct Channel – Distribution process that links the producer and the customer with no intermediaries.

© 2009 South-Western, a division of Cengage Learning 7 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

© 2009 South-Western, a division of Cengage Learning 8 DISTRIBUTORS: STREAMLINING CONSUMER TRANSACTIONS

© 2009 South-Western, a division of Cengage Learning 9 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. “ “

© 2009 South-Western, a division of Cengage Learning 10 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.

© 2009 South-Western, a division of Cengage Learning 11 WHOLESALERS: SORTING OUT THE OPTIONS Merchant Wholesalers –Full-service –Limited Service Drop Shippers Cash and Carry Truck Jobbers

© 2009 South-Western, a division of Cengage Learning 12 RETAILERS: THE CONSUMER CONNECTION Store Retailers Non-Store Retailers –Online –Direct Response –Direct Selling –Vending

© 2009 South-Western, a division of Cengage Learning 13 DISTRIBUTION STRATEGY INTENSIVE DISTRIBUTION SELECTIVE DISTRIBUTION EXCLUSIVE DISTRIBUTION

© 2009 South-Western, a division of Cengage Learning 14 MULTICHANNEL RETAILING Retailers are encouraging consumers to buy through multiple channels StoreOnline

© 2009 South-Western, a division of Cengage Learning 15 STORE RETAILERS Category KillerHome Depot, Best Buy, Staples Convenience Store7-eleven, AM/PM markets Department StoreNordstrom, Neiman Marcus, JCPenny Discount StoreTarget, Wal-Mart, Kmart Outlet StoreNike, Gap, Gucci, Versace Specialty StoreBarnes & Noble, Victoria’s Secret, Hot Topic SupermarketKroger, Safeway, Albertson’s, Whole Foods SupercenterWal-Mart Supercenters, Super Target Warehouse ClubCostco, Sam’s Club

© 2009 South-Western, a division of Cengage Learning 16 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.

© 2009 South-Western, a division of Cengage Learning 17 ELEMENTS OF THE SUPPLY CHAIN

© 2009 South-Western, a division of Cengage Learning 18 SUPPLY CHAIN MANAGEMENT DECISIONS Warehousing Materials Handling Inventory Control Order Processing Customer Service Transportation Security

© 2009 South-Western, a division of Cengage Learning 19 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.

© 2009 South-Western, a division of Cengage Learning 20 MODES OF TRANSPORTATION

© 2009 South-Western, a division of Cengage Learning 21 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

© 2009 South-Western, a division of Cengage Learning 22 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

© 2009 South-Western, a division of Cengage Learning 23 “SLIPPERY FINGER” ONLINE PRICING GOOFS Free flights from Los Angeles to Fiji. Round-trip tickets from San Jose, California, to Paris for $ $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.

© 2009 South-Western, a division of Cengage Learning 24 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.

© 2009 South-Western, a division of Cengage Learning 25 USING BREAKEVEN ANALYSIS Businesses make decisions to adjust the product price and/or costs. –Raise prices –Decrease variable costs –Decrease fixed costs

© 2009 South-Western, a division of Cengage Learning 26 FIXED MARGIN PRICING Cost-Based Pricing Demand-Based Pricing Profit Margin – the gap between cost and the price per product.

© 2009 South-Western, a division of Cengage Learning 27 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?

© 2009 South-Western, a division of Cengage Learning 28 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.

© 2009 South-Western, a division of Cengage Learning 29 LOOKING BACK What is the difference between channels of distribution and physical distribution? What are the different types of wholesale distributors? What are trends in retailing? What are the key factors in physical distribution? What are core pricing objectives and strategies? What is the role of consumer perceptions in pricing?