CHAPTER 13: DISTRIBUTION AND PRICING
Right Product, Right Person, Right Place, Right Price
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?
DISTRIBUTION: GETTING YOUR PRODUCT TO YOUR CUSTOMER
Producer Wholesaler Consumer
Channel of Distribution – the path that a product takes from
the producer to the consumer
CHANNEL INTERMEDIARIES
Channel Intermediaries – informally called middlemen. They facilitate the movement of products from the producer to the consumer.
DISTRIBUTING DIRECTLY TO THE CONSUMER
Producer Consumer
Direct Channel – Distribution process that links the producer and the customer with
no intermediaries.
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
DISTRIBUTORS: STREAMLINING CONSUMER TRANSACTIONS
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.““
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.
WHOLESALERS: SORTING OUT THE OPTIONS
Merchant Wholesalers Full-service Limited Service
Drop Shippers Cash and Carry Truck Jobbers
RETAILERS: THE CONSUMER CONNECTION
Store Retailers Non-Store Retailers
Online Direct Response Direct Selling Vending
DISTRIBUTION STRATEGY
INTENSIVE DISTRIBUTION
SELECTIVE DISTRIBUTION
EXCLUSIVE DISTRIBUTION
MULTICHANNEL RETAILING
Retailers are encouraging
consumers to buy through multiple
channels
Store Online
STORE RETAILERSCategory Killer Home Depot, Best Buy, Staples
Convenience Store 7-eleven, AM/PM marketsDepartment Store Nordstrom, Neiman Marcus, JCPenny
Discount Store Target, Wal-Mart, Kmart
Outlet Store Nike, Gap, Gucci, VersaceSpecialty Store Barnes & Noble, Victoria’s Secret, Hot Topic
Supermarket Kroger, Safeway, Albertson’s, Whole Foods
Supercenter Wal-Mart Supercenters, Super Target
Warehouse Club Costco, Sam’s Club
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.
ELEMENTS OF THE SUPPLY CHAIN
SUPPLY CHAIN MANAGEMENT DECISIONS
Warehousing Materials Handling Inventory Control Order Processing Customer Service Transportation Security
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.
www.walmartfacts.com/wal-mart-distribution-centers.aspx
MODES OF TRANSPORTATION
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
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
“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.
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.
USING BREAKEVEN ANALYSIS
Businesses make decisions to adjust the product price and/or costs.
Raise prices Decrease variable costs Decrease fixed costs
FIXED MARGIN PRICING
Cost-Based Pricing Demand-Based Pricing
Profit Margin – the gap between cost and the price
per product.
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?
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.