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 Channel of Distribution – the path that a product takes from the producer to the consumer 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 Drop Service 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 Store Retailers are encouraging consumers to buy through multiple channels Online STORE RETAILERS Category Killer Convenience Store Department Store Discount Store Outlet Store Home Depot, Best Buy, Staples 7-eleven, AM/PM markets Nordstrom, Neiman Marcus, JCPenny Target, Wal-Mart, Kmart Nike, Gap, Gucci, Versace Specialty 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 Boosting Volume Matching the Competition Penetration Creating Prestige High/Low Skimming Loss Pricing Pricing Every-day-low Pricing Pricing 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