© 2007 prentice hall, inc. all rights reserved.12–1 chapter 12 pricing, distributing, and...
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© 2007 Prentice Hall, Inc. All rights reserved. 12–1
Chapter 12Chapter 12
Pricing, Distributing, and Promoting ProductsPricing, Distributing, and Promoting Products
© 2007 Prentice Hall, Inc. All rights reserved. 12–2
L E A R N I N G O U T C O M E SL E A R N I N G O U T C O M E SAfter reading this chapter, you should be able to:After reading this chapter, you should be able to:
Identify the various pricing objectives that govern pricing Identify the various pricing objectives that govern pricing decisions and describe the price-setting tools used in making decisions and describe the price-setting tools used in making these decisions.these decisions.Discuss pricing strategies that can be used for different Discuss pricing strategies that can be used for different competitive situations and identify the pricing tactics that can be competitive situations and identify the pricing tactics that can be used for setting prices.used for setting prices.Explain the meaning of Explain the meaning of distribution mixdistribution mix and identify the different and identify the different channel of distribution.channel of distribution.Describe the role of wholesalers and explain the different types of Describe the role of wholesalers and explain the different types of retailing. retailing. Describe the role of e-intermediaries and explain how they add Describe the role of e-intermediaries and explain how they add value for advertisers and consumers on the Internet.value for advertisers and consumers on the Internet.Define Define physical distributionphysical distribution and describe the major activities in and describe the major activities in the physical distribution process.the physical distribution process.Identify the important objectives of promotion, discuss the Identify the important objectives of promotion, discuss the considerations in selecting a promotional mix, and discuss considerations in selecting a promotional mix, and discuss advertising promotions.advertising promotions.
© 2007 Prentice Hall, Inc. All rights reserved. 12–3
What’s in It for Me?What’s in It for Me?
By understanding this chapter’s methods for By understanding this chapter’s methods for pricing, distributing, and promoting products, pricing, distributing, and promoting products, you, too, can benefit in three ways: you, too, can benefit in three ways: As both employee and manager, you’ll be prepared As both employee and manager, you’ll be prepared
to use the concepts of pricing, distributing, and to use the concepts of pricing, distributing, and promoting products in your career.promoting products in your career.
As a consumer, you’ll have a clearer picture of how a As a consumer, you’ll have a clearer picture of how a product’s promotion and distribution affect its selling product’s promotion and distribution affect its selling price, causing it to rise or fall.price, causing it to rise or fall.
As a future investor, you’ll be prepared to evaluate a As a future investor, you’ll be prepared to evaluate a company’s marketing program and its competitive company’s marketing program and its competitive potential before buying the company’s stock. potential before buying the company’s stock.
© 2007 Prentice Hall, Inc. All rights reserved. 12–4
Determining PricesDetermining Prices
Pricing to Meet Business ObjectivesPricing to Meet Business Objectives Pricing objectivesPricing objectives
The goals that sellers hope to achieve in pricing products The goals that sellers hope to achieve in pricing products for salefor sale
Profit-maximizing pricing objectivesProfit-maximizing pricing objectives Setting prices to sell the number of units that will generate Setting prices to sell the number of units that will generate
the highest possible total profitsthe highest possible total profits
Market share objectivesMarket share objectives Using pricing to establish market share—a company’s Using pricing to establish market share—a company’s
percentage of the total industry’s sales for a specific percentage of the total industry’s sales for a specific product typeproduct type
© 2007 Prentice Hall, Inc. All rights reserved. 12–5
Determining Prices (cont’d)Determining Prices (cont’d)
Price-Setting Tools Price-Setting Tools Cost-Oriented PricingCost-Oriented Pricing
Considers the firm’s desire to make a profit and its need to Considers the firm’s desire to make a profit and its need to cover production costscover production costs
Variable costs: Costs that change with the number of units of a product produced and sold
Fixed costs: Costs such as insurance and utilities that must be paid regardless of the number of units produced and sold
Breakeven AnalysisBreakeven Analysis Shows, at any selling price, the amount of loss or profit for Shows, at any selling price, the amount of loss or profit for
each possible volume of saleseach possible volume of sales Breakeven point: Number of products that must be sold so
total revenues exactly cover both fixed and variable costs
© 2007 Prentice Hall, Inc. All rights reserved. 12–6
Determining Prices (cont’d)Determining Prices (cont’d)
Cost-Oriented PricingCost-Oriented Pricing
Breakeven AnalysisBreakeven Analysis
price Sales
Markup percentage Markup
cost Variable - Price
costs fixed Total units) (in point Breakeven
© 2007 Prentice Hall, Inc. All rights reserved. 12–7
Pricing Strategies and TacticsPricing Strategies and Tactics
Pricing Existing ProductsPricing Existing Products A firm has three options for pricing existing products:A firm has three options for pricing existing products:
Pricing above prevailing market prices for similar productsPricing above prevailing market prices for similar products Pricing below market pricesPricing below market prices Pricing at or near market pricesPricing at or near market prices
Pricing New ProductsPricing New Products Price skimmingPrice skimming
Setting an initially high price to cover costs and generate a Setting an initially high price to cover costs and generate a profit—may generate a large profit on each item soldprofit—may generate a large profit on each item sold
Penetration pricingPenetration pricing Setting an initially low price to establish a new product in the Setting an initially low price to establish a new product in the
marketmarket
© 2007 Prentice Hall, Inc. All rights reserved. 12–8
Pricing Strategies and Tactics (cont’d)Pricing Strategies and Tactics (cont’d)
Fixed Versus Dynamic Pricing for E-BusinessFixed Versus Dynamic Pricing for E-Business To attract sales that might be lost under traditional To attract sales that might be lost under traditional
fixed-price structures, sellers alter prices privately, on fixed-price structures, sellers alter prices privately, on a one-to-one, customer-to-customer basisa one-to-one, customer-to-customer basis
At present, fixed pricing is still the most common At present, fixed pricing is still the most common option for cybershoppersoption for cybershoppers
© 2007 Prentice Hall, Inc. All rights reserved. 12–9
Pricing Strategies and Tactics (cont’d)Pricing Strategies and Tactics (cont’d)
Pricing TacticsPricing Tactics Price liningPrice lining
Offering all items in certain categories at a limited number Offering all items in certain categories at a limited number of prices (price points)of prices (price points)
Psychological pricingPsychological pricing Odd-even pricing:Odd-even pricing: C Customers prefer prices that are not ustomers prefer prices that are not
stated in even dollar amountsstated in even dollar amounts DiscountsDiscounts: Price reductions that stimulate sales: Price reductions that stimulate sales
© 2007 Prentice Hall, Inc. All rights reserved. 12–10
The Distribution MixThe Distribution Mix
Distribution MixDistribution Mix The combination of distribution channels by which a The combination of distribution channels by which a
firm gets products to end usersfirm gets products to end users
Intermediaries (middlemen)Intermediaries (middlemen) Help distribute goods, either by moving them or by Help distribute goods, either by moving them or by
providing information that stimulates their movement providing information that stimulates their movement from sellers to customersfrom sellers to customers
Can provide added value by saving consumers both Can provide added value by saving consumers both time and moneytime and money WholesalersWholesalers sell products to other businesses for resale to sell products to other businesses for resale to
final consumers.final consumers. RetailersRetailers sell products directly to consumers. sell products directly to consumers.
© 2007 Prentice Hall, Inc. All rights reserved. 12–11
The Distribution Mix (cont’d)The Distribution Mix (cont’d)
Distribution ChannelDistribution Channel Path a product follows from producer to end user
Popular PathsPopular Paths Channel 1: Direct Distribution (direct channel) Channel 2: Retail Distribution Channel 3: Wholesale Distribution Channel 4: Distribution by Agents or Brokers
© 2007 Prentice Hall, Inc. All rights reserved. 12–12
WholesalingWholesaling
WholesalersWholesalers Independent operations that sell consumer or Independent operations that sell consumer or
business goodsbusiness goods Buy products from manufacturers and sell them to other Buy products from manufacturers and sell them to other
businesses, and usually provide storage and deliverybusinesses, and usually provide storage and delivery
Provide additional value-adding services for customersProvide additional value-adding services for customers
Agents and BrokersAgents and Brokers Sales and merchandising representatives for Sales and merchandising representatives for
producers or sellersproducers or sellers Do not own inventory, but manage it for producersDo not own inventory, but manage it for producers
© 2007 Prentice Hall, Inc. All rights reserved. 12–13
RetailingRetailing
Types of Retail OutletsTypes of Retail Outlets Product line retailersProduct line retailers carry broad product lines carry broad product lines
Department stores and supermarketsDepartment stores and supermarkets
Specialty storesSpecialty stores carry one line of related products carry one line of related products
Bargain retailersBargain retailers carry wide ranges of products and carry wide ranges of products and come in many formscome in many forms Discount houses, catalog showrooms, factory outlets, Discount houses, catalog showrooms, factory outlets,
wholesale clubswholesale clubs
Convenience storesConvenience stores offer accessible locations and offer accessible locations and ease of purchaseease of purchase
© 2007 Prentice Hall, Inc. All rights reserved. 12–14
Retailing (cont’d)Retailing (cont’d)
Nonstore RetailingNonstore Retailing Vending machinesVending machines
Direct-response retailingDirect-response retailing Mail order (or catalog marketing)Mail order (or catalog marketing)
TelemarketingTelemarketing
Direct sellingDirect selling
© 2007 Prentice Hall, Inc. All rights reserved. 12–15
The Ascent of the E-IntermediaryThe Ascent of the E-Intermediary
E-IntermediariesE-Intermediaries Internet-based channel members who perform one Internet-based channel members who perform one
or both of two functions: or both of two functions: 1.1. Collect information about sellers and present it to Collect information about sellers and present it to
consumersconsumers
2.2. Help deliver Internet products to buyersHelp deliver Internet products to buyers
© 2007 Prentice Hall, Inc. All rights reserved. 12–16
The Ascent of the E-Intermediary (cont.)The Ascent of the E-Intermediary (cont.)
Types of E-IntermediariesTypes of E-Intermediaries Syndicated sellersSyndicated sellers offer other web sites a offer other web sites a
commission for referring customers.commission for referring customers.
Shopping agents (e-agents)Shopping agents (e-agents) help Internet help Internet consumers by gathering and sorting information.consumers by gathering and sorting information.
Electronic retailingElectronic retailing is made possible by is made possible by communications networks that enable sellers to post communications networks that enable sellers to post product information on consumers’ PCs.product information on consumers’ PCs.
© 2007 Prentice Hall, Inc. All rights reserved. 12–17
Electronic RetailingElectronic Retailing
Electronic Catalogs (E-catalogs)Electronic Catalogs (E-catalogs)Use the Internet to display productsUse the Internet to display products
Electronic Storefronts (virtual storefronts) Electronic Storefronts (virtual storefronts) A Web site from which consumers collect information A Web site from which consumers collect information
about products, place orders, and pay for purchasesabout products, place orders, and pay for purchases
CybermallsCybermallsCollections of virtual storefronts Collections of virtual storefronts representing diverse
products
Interactive and Video MarketingInteractive and Video MarketingLets viewers shop at home by phoning in or e-mailing Lets viewers shop at home by phoning in or e-mailing
ordersorders
© 2007 Prentice Hall, Inc. All rights reserved. 12–18
Physical DistributionPhysical Distribution
Physical DistributionPhysical Distribution The activities needed to move products from The activities needed to move products from
manufacturer to consumermanufacturer to consumer Makes goods available when and where consumers Makes goods available when and where consumers
want themwant them Keeps costs lowKeeps costs low Provides services to satisfy customersProvides services to satisfy customers
© 2007 Prentice Hall, Inc. All rights reserved. 12–19
Physical Distribution (cont’d)Physical Distribution (cont’d)
Warehousing OperationsWarehousing Operations Private warehousesPrivate warehouses are owned by producers are owned by producers Public warehousesPublic warehouses provide rented storage space provide rented storage space
Transportation OperationsTransportation Operations Principal differences are speed and costPrincipal differences are speed and cost
Transportation ModesTransportation Modes TrucksTrucks PlanesPlanes Water carriers Water carriers RailroadsRailroads PipelinesPipelines
© 2007 Prentice Hall, Inc. All rights reserved. 12–20
Physical Distribution (cont’d)Physical Distribution (cont’d)
Physical Distribution and E-Customer Physical Distribution and E-Customer Satisfaction Satisfaction Order fulfillmentOrder fulfillment
Involves getting the product to each customer in good Involves getting the product to each customer in good condition and on timecondition and on time
Distribution as a Marketing Strategy Distribution as a Marketing Strategy Distribution is an increasingly important way of Distribution is an increasingly important way of
competing for sales.competing for sales. For some firms For some firms distribution is a cornerstone of distribution is a cornerstone of
business strategybusiness strategy
© 2007 Prentice Hall, Inc. All rights reserved. 12–21
The Importance of PromotionThe Importance of Promotion
PromotionPromotion The techniques a firm uses for communicating The techniques a firm uses for communicating
information about productsinformation about products
Promotional ObjectivesPromotional Objectives To communicate informationTo communicate information To position productsTo position products To add valueTo add value To control sales volumeTo control sales volume
PositioningPositioning Establishing an easily identifiable product image in Establishing an easily identifiable product image in
the minds of consumers by fixing, adapting, and the minds of consumers by fixing, adapting, and communicating the nature of the product itselfcommunicating the nature of the product itself
© 2007 Prentice Hall, Inc. All rights reserved. 12–22
The Importance of Promotion (cont’d)The Importance of Promotion (cont’d)
Promotional ToolsPromotional Tools AdvertisingAdvertising Personal sellingPersonal selling Sales promotionsSales promotions PublicityPublicity Public relationsPublic relations
Promotional MixPromotional Mix The combination of promotional toolsThe combination of promotional tools
© 2007 Prentice Hall, Inc. All rights reserved. 12–23
The Importance of Promotion (cont’d)The Importance of Promotion (cont’d)
Matching Promotional Tools with Stages in the Buyer Matching Promotional Tools with Stages in the Buyer Decision Process:Decision Process: Buyers recognize the need to make a purchaseBuyers recognize the need to make a purchase
best tool: advertising and publicitybest tool: advertising and publicity
Buyers search for information about productsBuyers search for information about products best tool: advertising and personal sellingbest tool: advertising and personal selling
Buyers compare benefits and features of competing productsBuyers compare benefits and features of competing products best tool: personal sellingbest tool: personal selling
Buyers choose products that are a good value and buy themBuyers choose products that are a good value and buy them best tool: sales promotion and personal sellingbest tool: sales promotion and personal selling
Buyers evaluate products after the purchaseBuyers evaluate products after the purchase best tool: advertising and personal sellingbest tool: advertising and personal selling
© 2007 Prentice Hall, Inc. All rights reserved. 12–24
Advertising PromotionsAdvertising Promotions
AdvertisingAdvertising Paid, nonpersonal communication by which an Paid, nonpersonal communication by which an
identified sponsor informs an audience about a identified sponsor informs an audience about a productproduct
Advertising MediaAdvertising Media The specific communication devices for carrying a The specific communication devices for carrying a
seller’s message to potential customersseller’s message to potential customers
Media MixMedia Mix The combination of media through which a company The combination of media through which a company
advertisesadvertises
© 2007 Prentice Hall, Inc. All rights reserved. 12–25
Advertising Promotions (cont’d)Advertising Promotions (cont’d)
Advertising MediaAdvertising Media TelevisionTelevision Direct mailDirect mail NewspapersNewspapers MagazinesMagazines RadioRadio InternetInternet OutdoorOutdoor Other Other
© 2007 Prentice Hall, Inc. All rights reserved. 12–26
Personal SellingPersonal Selling
Personal SellingPersonal Selling A salesperson communicates one-to-one with A salesperson communicates one-to-one with
potential customers to identify their needs and align potential customers to identify their needs and align them with the seller’s productsthem with the seller’s products Can be the most expensive form of promotionCan be the most expensive form of promotion
Personal Selling TasksPersonal Selling Tasks Order processingOrder processing Creative sellingCreative selling Missionary sellingMissionary selling
© 2007 Prentice Hall, Inc. All rights reserved. 12–27
Sales PromotionsSales Promotions
Sales PromotionsSales Promotions Short-term promotional activities designed to Short-term promotional activities designed to
encourage consumer buying, industrial sales, or encourage consumer buying, industrial sales, or cooperation from distributorscooperation from distributors
Types of Sales PromotionsTypes of Sales Promotions SamplesSamples CouponsCoupons PremiumsPremiums ContestsContests Point-of-sale displaysPoint-of-sale displays Trade showsTrade shows
© 2007 Prentice Hall, Inc. All rights reserved. 12–28
Publicity and Public RelationsPublicity and Public Relations
PublicityPublicity Information about a company, a product, or an event Information about a company, a product, or an event
transmitted by the general mass media to attract transmitted by the general mass media to attract public attentionpublic attention
Public RelationsPublic Relations Company-influenced publicity that seeks either to Company-influenced publicity that seeks either to
build good relations with the public or to deal with build good relations with the public or to deal with unfavorable eventsunfavorable events