1. Copyright © 2011 by Nelson Education Ltd. 1 Chapter 13: DISTRIBUTION AND PRICING Right Product, Right Person, Right Place, Right Price

2. Copyright © 2011 by Nelson Education Ltd. 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? LO1 Define distribution and differentiate between channels of distribution and physical distribution LO2 Describe the various types of wholesalers LO3 Discuss strategies and trends in store and nonstore retailing LO4 Explain the key factors in physical distribution LO5 Outline core pricing objectives and strategies LO6 Discuss pricing in practice, including the role of consumer perceptions

3. Copyright © 2011 by Nelson Education Ltd. 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? L01

4. Copyright © 2011 by Nelson Education Ltd. 4 DISTRIBUTION: GETTING YOUR PRODUCT TO YOUR CUSTOMER ProducerWholesalerConsumer Channel of Distribution – the path that a product takes from the producer to the consumer L01

5. Copyright © 2011 by Nelson Education Ltd. 5 CHANNEL INTERMEDIARIES Channel Intermediaries – informally called middlemen. They facilitate the movement of products from the producer to the consumer. L01

6. Copyright © 2011 by Nelson Education Ltd. 6 DISTRIBUTING DIRECTLY TO THE CONSUMER ProducerConsumer Direct Channel – Distribution process that links the producer and the customer with no intermediaries. L01

7. Copyright © 2011 by Nelson Education Ltd. 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 cheques, delivering products Information Utility:Offering helpful information Service Utility:Providing fast, friendly, personalized service L01

8. Copyright © 2011 by Nelson Education Ltd. 8 DISTRIBUTORS: STREAMLINING CONSUMER TRANSACTIONS L01

9. Copyright © 2011 by Nelson Education Ltd. 9 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 wholesalers, retailers, or business users L01

10. Copyright © 2011 by Nelson Education Ltd. 10 WHOLESALERS: SORTING OUT THE OPTIONS Merchant Wholesalers –Full-service –Limited Service Drop Shippers Cash and Carry Truck Jobbers L02

11. Copyright © 2011 by Nelson Education Ltd. 11 RETAILERS: THE CONSUMER CONNECTION Store Retailers Non-Store Retailers –Online –Direct Response –Direct Selling –Vending L03

12. Copyright © 2011 by Nelson Education Ltd. 12 DISTRIBUTION STRATEGY INTENSIVE DISTRIBUTION SELECTIVE DISTRIBUTION EXCLUSIVE DISTRIBUTION L03

13. Copyright © 2011 by Nelson Education Ltd. 13 MULTICHANNEL RETAILING Retailers are encouraging consumers to buy through multiple channels StoreOnline L03

14. Copyright © 2011 by Nelson Education Ltd. 14 STORE RETAILERS Category KillerHome Depot, Best Buy, Staples Convenience Store7-eleven, and a wide range of local stores Department StoreThe Bay, Sears Discount StoreWal-Mart, Zellers Outlet StoreNike, Gap, Gucci, Versace Specialty StoreLaSenza, Running Room, Indigo SupermarketLoblaws, Sobeys, No Frills SupercentreWal-Mart Supercenters, Warehouse ClubCostco, Sam’s Club L03

15. Copyright © 2011 by Nelson Education Ltd. 15 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. L04

16. Copyright © 2011 by Nelson Education Ltd. 16 ELEMENTS OF THE SUPPLY CHAIN L04

17. Copyright © 2011 by Nelson Education Ltd. 17 SUPPLY CHAIN MANAGEMENT DECISIONS Warehousing Materials Handling Inventory Control Order Processing Customer Service Transportation Security L04

18. Copyright © 2011 by Nelson Education Ltd. 18 DISTRIBUTING TO THE BIG BOX RETAILERS A typical Wal-Mart distribution centre is more than one million square feet, or the equivalent of 10 Wal-Mart retail stores. L04

19. Copyright © 2011 by Nelson Education Ltd. 19 MODES OF TRANSPORTATION L04

20. Copyright © 2011 by Nelson Education Ltd. 20 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 L05

21. Copyright © 2011 by Nelson Education Ltd. 21 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 L05

22. Copyright © 2011 by Nelson Education Ltd. 22 “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. L05

23. Copyright © 2011 by Nelson Education Ltd. 23 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. L06

24. Copyright © 2011 by Nelson Education Ltd. 24 USING BREAKEVEN ANALYSIS Businesses make decisions to adjust the product price and/or costs. –Raise prices –Decrease variable costs –Decrease fixed costs L06

25. Copyright © 2011 by Nelson Education Ltd. 25 FIXED MARGIN PRICING Cost-Based Pricing Demand-Based Pricing Profit Margin – the gap between cost and the price per product. L06

26. Copyright © 2011 by Nelson Education Ltd. 26 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? L06

27. Copyright © 2011 by Nelson Education Ltd. 27 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. L06

28. Copyright © 2011 by Nelson Education Ltd. 28 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? LO1 Define distribution and differentiate between channels of distribution and physical distribution LO2 Describe the various types of wholesalers LO3 Discuss strategies and trends in store and nonstore retailing LO4 Explain the key factors in physical distribution LO5 Outline core pricing objectives and strategies LO6 Discuss pricing in practice, including the role of consumer perceptions