© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 10 SLIDE Marketing Basics Develop Effective Products and Services Price and Distribute Products Plan Promotion 10 C H A P T E R Marketing

© 2012 Cengage Learning. All Rights Reserved. SLIDE Price and Distribute Products Goal 1Discuss how the selling price of a product is calculated. Goal 2Differentiate between a direct and an indirect channel of distribution.

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 10 SLIDE 3 KEY TERMS ●Price ●The money a customer must pay for a product or service ●Distribution ●The location and methods used to make a product or service available to the target market ●Channel of Distribution ●The route a product follows and the businesses involved in moving a product from the producer to the final consumer

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 10 Key Terms (cont’d.) ●Channel Members ●Businesses that take part in a channel of distribution ●Retailer ●The final business organization in an indirect channel of distribution for consumer products SLIDE 4

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 10 SLIDE 5 VALUE AND PRICE ●Buyers usually want to pay the lowest price possible. ●Sellers want to charge the highest price possible.

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 10 SLIDE 6 PRICING FACTORS Factors influencing the price paid for a product: ●Supply and demand ●High supply = lower prices ●High demand = higher prices ●Low supply = higher prices ●Low demand = lower prices ●Uniqueness ●Products with few close competitors will have higher price

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 10 Pricing Factors (cont’d.) ●Age ●When product first introduced, prices will be higher ●As products age, prices decrease ●Season ●High sales for a short time and almost no sales for rest of year (holiday decorations) ●Higher prices just before and at beginning of season – lower prices other times of year SLIDE 7

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 10 Pricing Factors (cont’d.) ●Complexity ●Highly complex and technical products and products with many features and options have higher prices than simple products ●Convenience ●People pay for convenience ●Customers expect lower prices at large warehouses that are not as convenient SLIDE 8

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 10 SLIDE 9 PRICE A PRODUCT ●Selling price – price paid by the customer ●Product costs – costs to the manufacturer of producing the product or the price paid by other businesses to buy the product ●Operating expenses – all expenses of operating the business that are associated with the product ●Profit – amount of money available after all costs and expenses have been paid Selling price = Product costs + Operating expenses +Profit

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 10 GROSS MARGIN ●The difference between the selling price and the product costs ●It represents the amount of money on hand to pay for operating expenses and provide a profit SLIDE 10 Gross Margin = Selling price - Product costs

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 10 SLIDE 11 MARKUP ●The amount added to the cost of a product to set the selling price ●Equal to the expected gross margin ●Stated as a percentage of the product’s cost or as a percentage of the product’s selling price ●Markup on cost = product costs x percent markup ●Markup on selling price = gross margin ÷ selling price

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 10 SLIDE 12 MARKDOWN ●A reduction from the original selling price ●Thought of as a pricing mistake because it reduces the amount of money to cover operating expenses and profits ●Reasons for markdowns ●Low demand ●End of season ●Flaws

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 10 SLIDE 13 CHANNELS OF DISTRIBUTION ●Distribution involves determining the best methods and procedures to use so customers can find, obtain, and use a product or service ●Channel of Distribution is the route a product follows and the businesses involved in moving a product from the producer to the final consumer

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 10 Need for distribution channels ●Differences in quantity ●Business produce large amounts of products ●Consumers need only a small number of products at any given time ●Differences in assortment ●Business typically specialize in producing a specific type of product ●Consumers want a variety of products SLIDE 14

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 10 Need for distribution channels ●Differences in location ●Products may be located in other countries and/or thousands of miles away ●Differences in timing ●More efficient for businesses to produce a large quantity at one time ●Consumers may want to purchase at different times than when produced SLIDE 15

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 10 Channels and channel members ●Channel Members – businesses that take part in a channel of distribution ●Two types of channels: ●Direct channel of distribution ●products move from the producer straight to the consumer with no other organization participating ●Indirect channel of distribution ●includes one or more other businesses between the producer and consumer ●Wholesalers – intermediaries between manufacturers and retailers ●Retailers – final business organization in an indirect channel of distribution for consumer products SLIDE 16