Marketing Flashcards

Where does distribution fit in the marketing mix?

The decisions and activities that make products available to consumers when and where they want to purchase them

• Essential to the success of other mix elements

• Range of options

• Difficult to change once established

Logistics

The activities that focus on getting the right amount of the right products to the right place at the right time at the lowest possible cost (lowest efficient cost)

Supply Chain

All the organizations and activities involved with the flow and transformation of products from raw materials through to the end customer

Supply Chains

• Suppliers

• Producers

• Consumers

• Upstream Partners

• Downstream Partners

Upstream Partners

Firms that supply raw materials, components, parts, information, finances, and expertise needed to create a product or service

Downstream Partners

the marketing channels or distribution channels that look toward the customer, including retailers and wholesalers

Marketing Intermediaries

Middlemen that link producers to other intermediaries or ultimate consumers through contractual agreements or through the purchase and resale of products

Names for Intermediaries

• Agent

• Wholesaler

• Distributor

• Retailer

Agent

indipendent individual company whose main function is to act as the primary selling arm of the producer, take possession of products but do not actually own them

Wholesaler

independently owned firms that take the title to the merchandise they handle, purchase product in bulk and store it until they can resell it

Distributor

buys noncompeting products or product lines, warehouses them, and resells them to retailers or direct to the end users or customers

Retailer

Sells goods to the consumer, as opposed to a wholesaler, who normally sell their goods to another business; typically purchases the product that is sold to consumers

Marketing Channel

A set of interdependent organizations that help make a product or service available for use or consumption by the customer or business user

• The major role of marketing channels is to make products available at the right time at the right place in the right quantities

• Providing customer satisfaction should be the driving force behind marketing channel decisions

Why do companies use marketing channels

Channels create greater efficiency in making goods available to target markets

How do marketing channel members add value

Benefits (Utility) Consumers get from Intermediaries

• Time (having the product/service when they want it)

• Place (having the product/service where they want it)

• Form (Enhancing a product/service to make it more appealing to the consumer)

• Possession (Helping buyers take possession or ownership of a product/service)

Levels of Distribution Channels

Channel Level is a layer of intermediaries that performs some work in bringing the product and its ownership close to the final buyer

• Direct

• Indirect

The length of the channel is measured by the number of intermediaries that are involved

Transactional Function: Buying

Purchasing products for resale or as an agent for supply of a product

Transactional Function: Selling

Contracting potential customers, promoting products, and seeking orders

Transactional Function: Risk Taking

Assuming business risks in the ownership of inventory that can become obsolete or deteriorate

Logistical Function: Assorting

Creating product assortments from several sources to serve customers

Logistical Function: Storing

Assembling and protecting products at a convenient location to offer better customer service

Logistical Function: Sorting

Purchasing in large quantities and breaking into smaller amounts desired by customers

Logistical Function: Transporting

Physically moving a product to customers

Facilitating Function: Financing

Extending credit to customers

Facilitating Function: Grading

Inspecting, testing, or judging products and assigning them quality grades

Facilitating Function: Marketing Information and Research

Providing information to customers and suppliers, including competitive conditions and trends

Marketing Channels

More than a simple collection of firms linked by flows of physical products, payments, promotion and information

Complex behavioral systems organized in various ways to accomplish individual, company, and channel goals

Unified System

Producers, wholesalers, and retailers act as a unified system. One member

• owns the others

• has contracts

• exercises power

Corporate Vertical Marketing System

Combine successive stages of production and distribution under single ownership

Contractual vertical Marketing Systems

Consists of independent firms at different levels of production and distribution who join together through contracts. 4 Types:

• Manufacturer- sponsored retail franchise system

• Manufacturer- sponsored wholesale franchise system

• Service- sponsored retail franchise system

• Service- sponsored franchise system

Administered Vertical Marketing System

Coordinates successive stages of production and distribution through the size and power of one of the parties

Horizontal Marketing System

A channel arrangement in which two or more companies at one level join together to follow a new marketing opportunity

Target market coverage

Which channel and intermediaries will provide the best coverage for the target market

Buyer Requirements

Which channel and intermediaries will best satisfy the buying requirements of the target market

Profitability

Which channel and intermediary will be the most profitable

Target market coverage: Intensity of Distribution

The number and kinds of outlets in which a product will be sold

Intensive Distribution

Using all available outlets to distribute a product

Selective Distribution

Using only some available outlets in an area to distribute a product

Exclusive Distribution

Using a single outlet in a fairly large geographic area to distribute a product

Buying Requirements: Different Types

• Information

• Convenience

• Variety

• Pre-or Post Sales

Information

Key concern when buyers have limited knowledge

Does the intermediary communicate through in-store displays, demonstrations, personal selling

Convenience

Multiple aspects, proximity, minimize time, easy to locate and navigate

Variety

Availability of different choices

Pre-or-Post sale services

important for items that require delivery, installation, or credit

Disintermediation

The cutting out of marketing channel intermediaries by product or service producers or the displacement of traditional retailers by radical new types of intermediaries

Selecting an approximate Price level

• cost-oriented approaches

• profit-oriented approaches

• competition oriented approaches

• demand-oriented approaches

Cost Oriented Approaches

• Standard Markup

• Cost-plus

• experience curve

This approach has the disadvantage of ignoring customer demand

• sellers are more comfortable about their costs than they are about their demand.

  • greater uncertainty about consumer demand levels

• Makes pricing easy

• When used by all firms in an industry, similar pricing, minimizing competition

profit-oriented approaches

• target profit

• target return on sales

• target ROI

Competition oriented approaches

• customary above, at, or below market

• loss leader

Demand Oriented approaches

• new product

• product mix

• psychological

Cost Plus

• Add a specific amount to the unit cost to arrive at price

• one-or-few-of-a-kind items

• cost plus percentage of pricing

• cost plus fixed fee pricing

Standard Markup

• add a fixed percentage to the cost of all items in a specific product class

• A fixed percentage is added to the cost of a product at each new level in the distribution channel

• The percentage markup varies by type of retailer

• Within a retail outlet, the percentage markup will vary by product

• high volume products will generally have a smaller markup than low volume products

Experience curve

• based on a learning effect

• unit cost declines by 10-30% each time a firm’s experience at producing and selling them doubles

• price follows cost

Target Profit

• Set an annual target of a specific dollar amount volume of profit

• Simple approach

Target Return on Sales

• Set price to achieve a profit that is a specified percentage of the sales volume

Target ROI

Set price to achieve an annual target return on investment (ROI)

Customary

Tradition, a standardized channel of distribution or other competitive factors dictate a price

Above, at, or below market

Set a market price for a product class based on a subjective feel for the competitors’ price or market price as the benchmark

Loss Leader

Deliberately selling a product below its customary price, not to increase sales, but to attract customers’ attention in hopes that they will buy other products with large markups as well

New Product

• Skimming

• Penetration

Skimming

The highest initial price that customers will pay (maximize profit)

Overtime, price is lowered to attract another, more price-sensitive segment

• product quality and image

• Enough buyers

• competitors cannot undercut

Penetration

Low initial price to penetrate the market quickly and deeply, attracting large numbers of buyers to build market share

• price sensitive market

• production and distribution costs drop with volume

  • challenge-raising price

Product Mix

A pricing approach where a company sets prices for its various products in a way that considers how they relate to each other, aiming to maximize overall profits rather than focusing on individual product prices

• Price Lining

• Captive Product

• By-Product

• Product Bundle

Price Lining

Setting the price of a line of products at a number of different specific pricing points

• Prices for multiple products in a line are set at intervals

• The underlying assumption is that price is elastic at each of the specific price points but inelastic between them

• Manufacturers may design products for different price points and retailers apply the same mark-up percentage to each

• Products may be purchased by a retailer at the same costs and then marked up by different percentages

• Number of price points should be limited (3 or 4) to avoid confusing consumers

Captive Product

Pricing products that must be used with the main product

By-Product

Pricing low-value-by-products to get rid of or make money on them

Product Bundle

Combine several products and offer the bundle at a reduced price

Psychological Pricing

• Prestige

• Odd-Even

• Multiple-unit

• reference

Prestige Pricing

Consumers may use price as an indicator of quality or prestige

• set a high price so that quality-or status-conscious consumers will be attracted to the product

• As the price drops initially between points A and B, consumers see the lower price a as bargain, and buy more

• As price drops further (B to C) consumers question the quality and prestige, buying less

Odd-Even

Ending the price with certain numbers to influence buyers’ perceptions of the price or product ($199)

Multiple Unit

Packaging together two or more identical products and selling them at a signle price

increase sales by encouraging multi-unit purchases

Reference

pricing a product at a moderate level and displaying it next to a more expensive model or brand

Competitve Effects

anticipate potential price response

“price war” - successive price cutting

Customer Effects

ultimate consumers’ perceptions and expectations

Resellers price to gain their support

Price Policy

How a company sets the price of its products and services based on costs, values, demands, and competitions

Fixed

One price policy, setting one price for all buyers of a product or service `

Dynamic

Flexible price policy, setting different prices in real time in response to supply and demand conditions; tech driven

ability to customize price by customer

Company Effects

product line or mix

Product line pricing

• lowest price (entry)

• highest price (premium)

• Differentials (perceived value)

Special Adjustments to the list price or quoted price

Discounts

Allowances

Geographical adjustments

Quantity

Reductions in unit costs for a larger order

Seasonal

Encourage buyers to stock inventory earlier than normal demand would require

Reward wholesalers and retailers for assuming risk and higher inventory carrying costs

Trade

Compensation to resellers for marketing activity they are expected to perform

Cash

Incentives to encourage retailers to pay manufactures quickly

Promotional Allowances: EDLP

Constant low price with few temporary price reductions

Generally, generates less profit per unit, but overall, more profit

Promotional Allowances: High Low

Higher everyday prices coupled with frequent temporary deep discounts on selected products

Illegal Pricing Practices

• Horizontal Price Fixing

• Predatory Pricing

• Geographical Pricing

• Price Discrimination

• Vertical Pirce Fixing

• Deceptive Pricing

Horizontal Price Fixing

Two or more competitors explicitly or implicitly set prices

Predatroy Pricing

low price to force competition out of business

Price Discrimination

same product, different prices to different buyers

Vertical Price Fixing

Controlling agreements between a manufacturer and a retailer

Deceptive Pricing

Bait and Switch

Comparable price comparisons

former price comparisons

Price

Money or other considerations (including other products and services) exchanged for the ownership or use of a product or service

Barter

Exchanging products or services for other products or services; does not involve the use of money

Price Paid and Value are not the same

Price if often used to indicate value when compared to perceived benefits

Value= Perceived Benefits/ Price

Value Pricing

The practice of simultaneously increasing product and service benefits while maintaining or decreasing price

Setting Price Objectives: Manage long-term profits

• Give up immediate profit to penetrate the market

• Initial price is low vs. costs

• higher market share yields greater profit over time

Setting Price Objectives: Maximize Short-term profits

• targets are set vs. performance that can be measured quickly

• quarterly, annual

Setting Price Objectives: Achieve target return

• goal determined by the board of directors

Setting Price Objectives: Unit Volume

Quantity produced or sold; potentially counterproductive