Distribution and Pricing PDF

Distribution and Pricing: Right product, right person, right place, right price CHAPTER 13 Suzaan Hughes  Planning ahead – Learning outcomes Define distribution and differentiate between channels of distribution and physical distribution Describe the...

Distribution and Pricing: Right product, right person, right place, right price CHAPTER 13 Suzaan Hughes  Planning ahead – Learning outcomes Define distribution and differentiate between channels of distribution and physical distribution Describe the various types of wholesale distributors Discuss strategies and trends in store and non-store retailing Explain the key factors in physical distribution Outline core pricing objectives and strategies Discuss pricing in practice, including the role of consumer perceptions Explain the term break-even point and its importance to the organisation 2  Chapter 13 Outline 1. Place – taking a look at distribution a. Channel of distribution b. Physical distribution c. Adding utility 2. Channels of distribution a. Wholesalers b. Retailers c. Store retailing vs non-store retailing  Chapter 13 Outline 3. Physical Distribution a. Supply Chain Management 4. Pricing – objectives and strategies a. Objectives and strategies b. Pricing strategies to boost volume 5. Pricing in practice a. Break even analysis b. Fixed margin pricing c. Identifying consumer pricing perceptions  Distribution Strategy Distribution strategy: Plan for delivering the right product to the right person at the right place at the right time Elements ◦ Channel of distribution: Network of organisations and processes that links producers to consumers ◦ Physical distribution: Actual, physical movement of products along the distribution pathway  Direct Channel and Channel Intermediaries Direct channel Distribution process that links a producer and a customer with no intermediaries Channel intermediaries Distribution organisations that facilitate the movement of products from a producer to a consumer Distributors The Role of the Distributors: Adding Value Core role - Reduce the number of transactions Add value, or utility, in the following ways: Exhibit 13.1 Reducing Transactions through Marketing Intermediaries  Distribution The Members of the Channel: Retailers versus Wholesalers Retailers*: Distributors that sell products directly to the ultimate users, typically in small quantities, that are stored and merchandized on the premises Wholesalers*: Distributors that buy products from producers and sell them to other businesses or nonfinal users such as hospitals, nonprofits, and the government Wholesalers: Sorting out the options Independent wholesaling businesses*: Independent distributors that buy products from a range of different businesses and sell those products to a range of different customers Categories ◦ Merchant wholesalers*: Independent distributors who take legal possession, or title, of the goods they distribute ◦ Agents/brokers*: Independent distributors who do not take title of the goods they distribute (even though they may take physical possession on a temporary basis before distribution) Types of Merchant Wholesalers Full-service merchant wholesalers ◦ Provide an array of services to the retailers or business users who purchase their goods Limited-service merchant wholesalers ◦ Provide fewer services to their customers ◦ Categories ◦ Drop shippers ◦ Cash and carry wholesalers ◦ Truck jobbers Retailers: The Consumer Connection Retailers sell goods and services directly to final consumers (in small quantities) ◦ Add value through customer service, product selection, advertising, and location Categories ◦ Store retailers ◦ Non-store retailers Multichannel retailing ◦ Involves providing multiple distribution channels for consumers to buy a product Store Retailers - Distribution Strategies Retail store categories Retail store categories (cont) Non-store Retailing Online retailing – e & m - commerce Direct response retailing- includes catalogs, telemarketing and advertising Vending – providing select products in convenient locations Direct selling – ie. Door-to-door & MLM ◦ Multilevel marketing (MLM): Involves hiring independent contractors to sell products to their personal network Physical Distribution All organisations, processes, and activities involved in the flow of goods from raw materials to the final consumer ◦ Supply chain management (SCM): Planning and coordinating the movement of products along the supply chain ◦ Logistics: Subset of SCM that focuses on the tactics involved in moving products along the supply chain Elements of the Supply Chain  Supply Chain Management decisions Collaboration among members of the supply chain is especially beneficial Key management decisions in coordinating the supply chain: Warehousing Materials handling Inventory control Order processing Customer service Transportation Security  Physical Distribution Transportation Decisions Modes of transportation*: The various transportation options—such as planes, trains, and railroads—for moving products through the supply chain Proactive Supply Chain Management: Firms are choosing to outsource this challenge to experts rather than handle it internally Pricing Objectives and Strategies Marketers continually evaluate and refine their pricing strategies to ensure that they meet the following goals: Building Profitability Firms can boost profits by increasing prices or decreasing costs Matching the Competition By wiping out price as a point of comparison, customers must choose based on other factors Creating Prestige Sending the message (and delivering) that higher price equates to higher quality Skimming pricing*: A new product pricing strategy that aims to maximize profitability by offering new products at a premium price Pricing Strategies Used to Boost Volume Penetration pricing A new product pricing strategy that aims to capture as much of the market as possible through rock-bottom prices Everyday-low pricing (EDLP) ◦ Long-term discount pricing ◦ Designed to achieve profitability through high sales volume  Pricing Strategies Used to Boost Volume (cont) High/low pricing Designed to drive traffic to retail stores by special sales on a limited number of products, and higher everyday prices on others Loss-leader pricing Closely related to high/low pricing, loss-leader pricing means pricing a handful of items—or loss leaders—temporarily below cost to drive traffic Breakeven Analysis Process of determining the number of units a firm must sell to cover all costs Equation: 𝐓𝐨𝐭𝐚𝐥 𝐟𝐢𝐱𝐞𝐝 𝐜𝐨𝐬𝐭𝐬 (𝐅𝐂) 𝐁𝐫𝐞𝐚𝐤𝐞𝐯𝐞𝐧 𝐏𝐨𝐢𝐧𝐭 (𝐁𝐏) = 𝐏𝐫𝐢𝐜𝐞/𝐮𝐧𝐢𝐭 (𝐩) – 𝐕𝐚𝐫𝐢𝐚𝐛𝐥𝐞 𝐜𝐨𝐬𝐭𝐬/𝐮𝐧𝐢𝐭 (𝐕𝐂) Pricing in Practice Alternatives to Cover Costs Fixed Margin Pricing Profit margin: Gap between the cost and the price of an item on a per-product basis Ways to determine margins ◦ Cost-based pricing ◦ Demand-based pricing  Considerations for Identifying Consumer Pricing Perception Price–quality relationships Consumers use price as an indicator of quality unless they have additional information to guide their decision Odd pricing Practice of ending prices in numbers below even rands and cents in order to create a perception of greater value