1. UNIT 3 – MARKETING Unit 3.03 Price and Distribute Products

2.  Price  Distribution  Channel of Distribution  Channel Members  Retailer KEY TERMS

3. Price – the money a customer must pay for a product or service  Buyers usually want to pay the lowest price possible  Sellers want to charge the highest price possible  Car buying – 59% hate experience VALUE AND PRICE

4.  Supply and Demand  Limited supply Higher price  High demand Higher price  Christmas toys Christmas toys PRICING FACTORS

5.  Uniqueness  If product has few close competitors because it is unique Higher price  Example: Hammacher SchlemmerHammacher Schlemmer PRICING FACTORS The 20’ Animated Triceratops $350,000

6.  Age  When new product first introduced Higher price  Example:  iPhone PRICING FACTORS

7.  Season  Prices higher just before new season  Prices lower after season ends  Example:  Holiday sales  Winter boots  Air conditioners PRICING FACTORS

8.  Complexity  Highly complex and technical products have higher prices than simple products  More features and options higher prices  Pros:  New and innovative PRICING FACTORS  Cons  More difficult to understand  More fragile than counterparts  More breakage/recalls

9. The money a customer must pay for a product or service  Selling Price – price paid by the customer for the product  Product Costs – costs to the manufacturer to make the product or price paid by businesses to buy the product  Operating expenses – all expenses of operating the business that are associated with the product  i.e. salaries, storage and display equipment, facilities, utilities, taxes  Profit – amount of money available after all costs and expenses have been paid PRICE A PRODUCT Selling Price Formula Product costs + Operating expenses + Profit = Selling price

10. difference between the selling price and the product costs  Amount of money on hand to pay operating expenses and profit Example:  REI buys a canoe from the supplier for $200  It costs REI $50 (prorated) to run the store (staff, insurance, electricity, etc.)  REI makes a profit of $125 on each canoe  How much is canoe sold for?  What is gross margin? GROSS MARGIN Gross Margin = Selling price + Product costs

11. Amount added to the cost of a product to set the selling price  Markup = expected gross margin  Stated as a percentage of the cost or selling price  i.e. if a product costs $15 and has a 100% markup, the selling price is $30 MARKUP Markup Formulas Markup on Cost Product costs x Percent markup = markup on cost Markup on Selling Price Gross margin ÷ Selling price = Percent markup on selling price

12. A reduction from the original selling price  A pricing mistake  Reduces the amount of money the business has to cover operating expenses and profits  If customer demand is not as high as projected  If selling season is ending  If there is a flaw in the product MARKDOWN

13.  Premium Pricing  Uses a high price where there is a uniqueness about the product or service  Used when there is a substantial competitive advantage  Luxury goods PRICING STRATEGIES

14.  Penetration Pricing  Used to quickly achieve a high volume of sales  Good for new company or product launches  Prices set artificially low to gain market share  Once this is achieved, the price is increased PRICING STRATEGIES

15.  Economy Pricing  No frills low price  Marketing and manufacturing expenses kept to a minimum  Generic brands PRICING STRATEGIES

16.  Price Skimming  Charging a high price because you have a substantial competitive advantage  Advantage is not sustainable PRICING STRATEGIES

18.  Psychological Pricing  Makes you think you’re getting a deal  Emotional rather than rational thinking  i.e. ninety nine cents  Promotional Pricing  Pricing to promote a product  i.e. Buy One, Get One Free  Product Line Pricing  Range of products or services included in the pricing  i.e. Car Wash OTHER PRICING STRATEGIES

19.  Optional Product Pricing  Companies attempting to increase the amount customers spend once they start to buy  i.e. Airlines charging for luggage, more leg room, internet, etc.  Product Bundle Pricing  Sellers combine several products in the same package  i.e. WalMart selling Xbox 360 bundle with game, hard drive, wireless controllers, cables, etc.  Value Pricing  Used where external factors such as recession or increased competition force companies to provide value to retain sales  i.e. value meals at McDonald’s OTHER PRICING STRATEGIES

20. The locations and methods used to make a product or service available to the target market DISTRIBUTION

21.  Channel of Distribution – the route a product follows and the businesses involved in moving a product from the producer to the final consumer  Why important?  Then – exchange bushel of apples for a yard of fabric  Now – businesses specialize with mass production around world NEED FOR DISTRIBUTION

22. The businesses that take part in a channel of distribution  Direct Channel of Distribution – products move from the producer straight to the consumer  Indirect Channel of Distribution – one or more other businesses between the producer and consumer  Wholesalers – intermediaries between manufacturers and retailers  Retailers – the final business organization for consumer products CHANNEL MEMBERS