Marketing Chapter 13: Pricing and Distribution

Chapter 13: Pricing, Promoting, and Distributing Products

• This chapter covers pricing objectives, tools, strategies, and tactics for product marketing. It also looks at promotion, distribution, and ultimately how companies sell products.

Learning Objectives

• Identify pricing objectives and tools used in decision-making.
• Determine pricing strategies for various competitive situations.
• Understand the importance of promotion and selecting a promotional mix.
• Outline the key advertising media and the functions of personal selling.
• Define the distribution mix and identify different channels of distribution.
• Describe the role of intermediaries (wholesalers, retailers, e-intermediaries).
• Explain the physical distribution process.

Pricing Objectives and Tools

• Pricing to Meet Business Objectives:

  • Profit-maximizing: Pricing to maximize profit (bottom line); potentially sacrificing unit sales.
  • Market-share: Pricing to gain the largest possible market share.

• Price-Setting Tools:

  • Cost-oriented pricing: Considering product cost and adding a markup (e.g., a light bulb costs $0.45; retailer sells it for $0.75).
  • Markup Percentage: Formula to calculate markup based on sales price.

• Break-Even Analysis:

  • Determining the number of units needed to sell to cover all fixed costs and start making a profit. Using figures like total revenue, total cost, fixed costs, and unit sales to arrive at the break-even point.

Pricing Strategies and Tactics

• Pricing Strategy: The overall pricing plan for a product, based on the marketing mix.

• Pricing Existing Products: Setting prices above, below, or near market price.

• Fixed vs. Dynamic Pricing for Online Business: Understanding the difference in pricing models for online businesses.

• Pricing New Products: Skimming or penetration pricing strategies to enter new markets and gain traction.

• Skimming: Charging a higher price initially to recover development costs and to be among the first to introduce a product.

• Penetration: Lower initial price to quickly gain market share.

• Pricing Tactics: Pricing techniques to entice customers:

  • Price lining: A range of prices for different products, similar to product bundles or lines, aimed at simplifying the customer's choice.
  • Psychological pricing: Using odd-even pricing (e.g. $4.99 instead of $5.00.) implying a better value.
  • Discounting: Offering price reductions as an incentive for customers to purchase products.

Promoting Products and Services

• Promotion: The process of communicating information about a product to consumers.
• Promotion Strategies:
  • Push strategy: Promoting products aggressively to intermediaries.
  • Pull strategy: Promoting directly to consumers to demand the product from intermediaries.
  • Promotional mix: Includes advertising, personal selling, sales promotions, publicity, and public relations to achieve marketing objectives.
• Advertising Promotions: Different types of advertising techniques and methods.
  • Television, Radio, Newspapers, Outdoor advertising, Magazines, Direct Mail, Internet, Mobile, and Word-of-Mouth.
  • Companies use a mix of these techniques to maximize the impact and appeal of the product and service.

Personal Selling, Sales Promotions, Publicity, Public Relations

• Personal selling: Expensive promotion method emphasizing personal interaction.
• Telemarketing: Becoming more popular due to cost.
• Sales Promotions: Short-term incentives to stimulate buying, like coupons, contests, or trade shows.
• Publicity: Information released without company control.
• Public relations: Company-influenced information to build goodwill or address negative events.

The Distribution Mix

• Combination of channels used to get products to consumers.
• Intermediary: Non-producing entity distributing the product.
• Wholesaler: Distribution intermediary selling to businesses for resale.
• Retailer: Selling directly to end-users/consumers.
• Distribution Strategies:
  • Intensive: Maximize distribution channels.
  • Selective: Limit the number of distribution channels.
  • Exclusive: Limited distribution to a single outlet.
• Channel Conflict: Disagreements among distribution channel members.

Retailing

• Types of Retail Outlets:
  • Product line retailers (e.g., department stores, supermarkets, specialty stores)
  • Bargain retailers (e.g., discount houses, factory outlets, wholesale clubs)
  • Convenience stores.
• Non-Store Retailing (e.g., direct-response, mail-order, telemarketing, video/TV): Non-store retail channels.
• E-intermediaries: Internet-based channel members for collection of information and facilitating purchases.

Physical Distribution

• Physical Distribution: Activities to efficiently move products from manufacturer to end-user.
• Warehousing Operations: Storage of goods during distribution.
• Transportation Modes: Trucks, planes, railroads, water carriers, pipelines.
• Distribution as a Marketing Strategy: Distribution is a major factor in achieving a competitive advantage. Companies like Walmart, Zara, and Dell have utilized effective distribution strategies.

Quick-Check Questions (Examples)

• Break-even analysis: A method for determining how many units must be sold at a given price to break even based on cost factors.
• Pricing strategy for new product launch: Penetration pricing is appropriate for a new product with the goal of quickly increasing market share.
• Pay-per-view advertising: This is an example of a direct marketing strategy.
• Effective tool for expensive/complicated products: Personal selling is the most effective promotional tool for complex or expensive products.
• Distribution strategies for Rolex vs. Coca-Cola: Rolex uses exclusive distribution, and Coca-Cola uses intensive distribution.