Transcript Most Canadians buy nearly all the goods and services

Chapter 14
Pricing and Distributing
Goods and Services
Copyright © 2006 Pearson Education Canada Inc.
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Learning Objectives
Identify the various pricing objectives that
govern pricing decisions and describe the
price-setting tools used in making these
decisions.
Discuss pricing strategies and tactics for
existing and new products.
Explain the distribution mix, the different
channels of distribution, and different
distribution strategies.
Copyright © 2006 Pearson Education Canada Inc.
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Learning Objectives
Explain the differences between merchant
wholesalers and agents/brokers, and describe
the activities of e-intermediaries.
Identify the different types of retailing and
retail stores.
Define physical distribution and describe the
major activities in warehousing operations.
Compare the five basic forms of
transportation and explain how distribution
can be used as a marketing strategy.
Copyright © 2006 Pearson Education Canada Inc.
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Pricing
Market-share

Pricing to sell the greatest possible market
percentage
Profit-maximizing

Pricing to maximize profit (bottom line)
Neither objective will result in automatically
high or low prices
The price level is dependent on how much
consumers are willing to pay for the product
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Cost-Oriented Pricing
Considers the cost of the product and adds a
“markup” to arrive at a final cost


A light bulb costs $0.45 to the retailer
The retailer wishes to sell the light bulb for $0.75
(a markup of $0.30)
The markup as a percent of selling price is

Markup % = Markup/Sales Price =.30/.75 = 40%
The markup as a percent of cost is

Markup % = Markup/Cost = .30/.45 = 67%
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Break-Even Analysis: CostVolume-Profit Relationships
=
Break-even analysis

how many units a firm must sell in order to cover
costs
Fixed costs

costs unaffected by the number of goods produced or
services sold (rent, administrative salaries, insurance,
equipment)
Variables costs

costs that change with the number of goods or
services produced and sold (materials, labour)
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Pricing Strategies
Pricing strategy

The pricing plan based on the marketing mix
Potential strategies

Pricing Existing Products
 Pricing relative to the market (at market, above market,
below market)


Pricing New Products
 Skimming pricing
 Penetration pricing
Fixed Versus dynamic Pricing for Ebusiness
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Skimming or Penetration
Pricing
Penetration pricing

Pricing the product as low as possible to
sell the most units and generate consumer
loyalty
Skimming pricing

Pricing the product as high as possible to
earn maximum profit on each unit sold
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Pricing Tactics
Price lining



The practice of offering all items in certain
categories at a limited number of
predetermined price points
Having a product line priced with a low,
medium, and high price point
Sears may sell mattresses at $199.99
(good), $299.99 (better), $399.99 (best)
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Pricing Tactics
Psychological Pricing


The practice pf setting prices to take advantage of
the illogical reactions of consumers to certain
types of prices
Odd-even pricing
 consumers react more favourably to odd dollar amounts
($0.99, $1.99, $19.99)

Threshold pricing


consumers set a maximum price level that they will
pay for an item
pricing at the maximum allows firms to obtain the
highest price
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Pricing Tactics
Discounting

Cash discount
 customers get a lower price for paying cash

Seasonal discount
 lower prices in the off-season to move stock

Trade discount
 lower price granted to intermediaries who need to mark
up the product for resale (retailers, wholesalers)

Quantity discount
 lower prices for buying more units
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Distribution Mix
Distribution channel

The path a product follows from the producer to the
end-user
Intermediary

An entity other than the producer who participates
in the distribution of the product
Wholesaler

An intermediary who sells products to other
businesses for resale (other wholesalers, retailers)
Retailer

An intermediary who sells product to final
consumers
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Typical Channels
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Distributive Strategies
Intensive distribution

Readily available in the marketplace (candy bars)
Selective distribution

Use of a limited number of intermediaries in a
market area (hand tools)
Exclusive distribution

Use of only one intermediary in a market area
(jaguar cars)
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Channel Conflict
Channels must be managed to be successful
Conflict occurs when intermediaries and the
producer disagree about the way the channel
should function
Methods to control conflict


Channel leadership through the channel captain
Vertical marketing systems
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Channel Leadership
The channel member that is the most
powerful in determining roles and
rewards of organizations involved in a
given channel of distribution

Channel Captain
 One firm emerges as dominant and manages
the channel
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Vertical Marketing
Systems (VMS)
Corporate

Producer and intermediaries are owned by a
single organization
Contractual

Members sign contracts spelling out
responsibilities (i.e.: Franchises)
Administered

One member coordinates the system based on its
power and influence
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Wholesalers
Merchant wholesalers


Take legal title; Resell items to retailers or industrial
users
Perform other services such as storage and means
of delivery
Agents/brokers



Do not take legal title
Handle the products between producers & retailers
or industrial users
Perform other services such as shelf and display
merchandising and advertising layout
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Types of Merchant Wholesalers
Full-service

Perform all services including granting credit,
marketing, and merchandising
Limited-function

Perform fewer services, specializing in certain areas
Drop-shipper

Take title, have goods shipped directly to final user
from producer, do not physically handle the goods
Rack-jobber

Specializes in non-food lines, sets up and maintains
displays in retail stores
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E-Intermediary
Internet-based channel members
who perform one or both of these
functions
1. They collect information about sellers
and present it to consumers.
2. They help deliver Internet products to
buyers.
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Retailing in Canada
•Most Canadians buy nearly all the goods and
services they consume from retailers
•Most Canadian retailers are small businesses,
often consisting of just owners and part-time help
•Competition from American-owned retailers (like
Wal-Mart) has had profound effects on Canadian
retailers
•Wal-Mart is the largest retailer in Canada at
estimated sales of $9 billion annually
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Product Line Retailers
Department Stores

organized into specialized departments
with a range of products and brands
Supermarkets

Divided into departments of similar
products
(produce, bakery, meats, personal care,
pharmacy)

Emphasis on self-service, low prices, &
wide selection
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Product Line Retailers
Specialty Stores


Small stores that carry one line of related products
Sunglass Hut International, Jiffy Lube
Category killers


larger specialized retailers with a deep selection of
goods greater expertise, & usually lower prices
Staples, Home Depot
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Bargain Retailers
Discount houses

Bargain retailers offering large consumer durables
at a discount price
Catalogue showrooms

Sell primarily out of a catalogue with a showroom
to display goods
Factory outlet

Bargain retail stores located adjacent or
convenient to the factories, owned by producers
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Bargain Retailers
Warehouse Clubs


Membership-only retail outlets (Costco)
Huge facilities with many separate
departments of food and non-food items
Convenience Stores


Retail stores that are very accessible with
extended hours of operation and fast
service
Prices tend to be higher (Mac’s, 7-Eleven)
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Non-store & Electronic
Retailing

Direct-response retailing
 Firms make direct contact with customers both
to inform them about products and to receive
sales orders

Direct selling
 Form of non-store retailing typified by door-to-
door sales

Mail-order (catalogue marketing)
 Customers place orders for merchandise
shown in catalogues and receive their orders
via mail
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Non-store & Electronic
Retailing
Telemarketing

Use of the telephone to sell directly to
consumers (may also take calls in response
to direct mail or video marketing)
Ecatalogues

Use of internet to display products and
services
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Electronic Storefronts and
Cybermalls
Electronic storefront

A web site in which consumers collect
information about products and buying
opportunities, place sales orders, and pay
for their purchase
Cybermalls

Collections of virtual storefronts
representing diverse products
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E-Sales & Multilevel Marketing
Multi-level marketing

salespeople earn commissions on their own
sales, and the sales of anyone else that
they recruit (Amway)
E-sales occur when Web sites are used
to conduct multi-level marketing
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Interactive and Video
Marketing
Interactive marketing

selling products and services by allowing
customers to interact with multimedia Web
sites
Video marketing

products showcased via television videos
on home shopping channels that sell
directly through telephone orders
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Warehousing
The storing of goods through the distribution
process in various types of warehouses




Private: owned by a company
Public: independently owned by a separate
company who rents out space to other firms
Storage: facility used to store goods for long time
periods
Distribution centre: facility used to store goods
for short periods of time pending distribution to
retailers
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Warehousing Costs
Basic expenses

Rent or mortgage, insurance and wages
Inventory control

Operations process that monitors amount
of inventory on hand and ensures
adequate stock levels at all times
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Warehousing Costs
Materials handling

Transporting goods, arrangement and
orderly retrieval of goods
Unitization

A materials handling method that
standardizes inventory by unit size and
type to streamline the storage process
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Transportation
The process of moving goods physically
through the distribution network
Intermodal

Combined use of different means of transportation
Containerization

Packing many items at once into a sealed, heavyduty container that is used with a variety of
different methods of transportation (truck, railroad,
water, plane, pipeline)
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Hubs
A central distribution outlet that controls all or
most of a firm’s distribution activities



Supply side/pre-staging: large shipments destined for
user are gathered in a single hub from various sources
to eliminate the need for inventory & to streamline
traffic
Supplier-coordinated: several suppliers combine forces
to gather shipments destined for a single user in a
single “incoming” hub that is convenient to the user
Distribution-side: hubs located adjacent to customer
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