Bus201 ch 13

Chapter 13: Distributing Products, Pricing, Promoting

Learning Objectives Overview

  • Pricing Objectives & Tools

    • Identify various pricing objectives that guide pricing decisions.

    • Describe the price-setting tools used in making these decisions.

  • Pricing Strategies

    • Discuss pricing strategies for different competitive situations and identify pricing tactics

  • Promotion Objectives & Mix

    • Identify important objectives of promotion.

    • Discuss considerations involved in selecting a promotional mix.

  • Advertising Strategies

    • Discuss key advertising strategies.

    • Describe the major advertising media.

  • Personal Selling & Sales Promotions

    • Outline tasks involved in personal selling.

    • Describe various types of sales promotions.

    • Distinguish between publicity and public relations.

  • Distribution Mix

    • Explain the meaning of the distribution mix and channels of distribution.

    • Describe the role and functions of wholesalers and retailers.

Pricing Objectives and Tools (LO 13-1)

  • Pricing to Meet Business Objectives

    • Profit-maximizing Pricing:

    • Aim: Maximize profit (bottom line).

    • Strategy: May sacrifice unit sales in pursuit of high overall profits.

    • Market-share Pricing:

    • Aim: Gain the greatest possible market share.

  • Price-Setting Tools

    • Cost-oriented Pricing:

    • Process: Determines final cost by considering product costs and adding a markup.

    • Example: If a light bulb costs $0.45 to the retailer and sells for $0.75, the markup is $0.30.

    • Break-Even Analysis:

    • Definition: Examines cost-volume-profit relationships to determine the sales volume at which total revenue equals total costs.

Pricing Strategies and Tactics (LO 13-2)

  • Pricing Strategy:

    • An overarching pricing plan based on the marketing mix.

    • Pricing Existing Products:

    • Approaches: Market prices set above, below, or near competitors.

    • Pricing New Products:

    • Types:

      • Skimming: Launch at a high price, targeting consumers willing to pay more at the introduction phase.

      • Penetration: Launch at a low price to attract a large number of customers.

  • Pricing Tactics:

    • Psychological Pricing: Creating an illusion of greater value through strategic pricing methods.

    • Price Lining: Setting the price based on a series of predetermined price points.

    • Odd-even Pricing: Pricing items just below a round number (e.g., $9.99 instead of $10).

    • Discounting: Offering a price reduction as an incentive to purchase.

Promoting Products and Services (LO 13-3)

  • Promotion: Key objectives include:

    • Information: Communicate information about products.

    • Awareness: Increase product awareness and knowledge.

    • Preference: Increase product preference among consumers.

    • Value Addition: Enhance product positioning.

    • Volume Control: Help stabilize or boost sales volume.

  • Promotion Strategies:

    • Push Strategy: The firm promotes aggressively to intermediaries to gain shelf space.

    • Pull Strategy: The firm promotes directly to consumers, resulting in demand that pulls products through the distribution chain.

    • Typical firms often use a combination of both strategies.

  • Promotional Mix Components:

    • Personal Selling

    • Advertising

    • Sales Promotions

    • Publicity

    • Public Relations

Advertising Promotions (LO 13-4)

  • Media Mix Options:

    • Television

    • Radio

    • Newspapers

    • Outdoor advertising

    • Direct mail

    • Magazines

    • Online Platforms (includes word of mouth and mobile).

  • Table: Total Media Usage, Strengths, and Weaknesses

    • Television:

      • Total Spend: $3.34 billion (26.6% of total advertising).

      • Strengths: Combines sight, sound, and motion; measurable success; tailored advertising.

      • Weaknesses: High costs, ad skipping through DVRs, annoying formats.

    • Online Advertising:

      • Total Spend: $2.98 billion (23.8% of total advertising).

      • Strengths: Customization; dynamic nature; rapid adaptability.

    • Mobile Advertising:

      • Total Spend: $1.62 billion (12.9% of total, up from 3.5% two years prior).

    • Newspapers:

      • Total Spend: $2.02 billion (16.1% of total).

    • Radio:

      • Total Spend: $1.58 billion (12.6% of total).

    • Outdoor Advertising:

      • Total Spend: $586 million (4.7% of total).

    • Magazines:

      • Total Spend: $412 million (3.3% of total).

  • Consumer Engagement in Online Advertising:

    • Companies like Starbucks and Frito Lay encourage consumer involvement in marketing decisions, e.g., naming flavors, generating new ideas for products.

Personal Selling (LO 13-5)

  • Personal Selling:

    • Definition: The most expensive form of promotion per contact.

    • Characteristic: Involves direct personal interaction; telemarketing is a growing sub-category due to cost considerations.

Sales Promotions (LO 13-5)

  • Definition: Short-term promotional activities designed to stimulate buying or encourage cooperation from distributors.

  • Types of Sales Promotions:

    • Coupons

    • Point-of-purchase (POP) displays

    • Purchase incentives/premiums

    • Trade shows

    • Sweepstakes and contests.

Publicity and Public Relations (LO 13-5)

  • Publicity:

    • Definition: Information made available to consumers through media outlets, often without direct company control.

    • Advantage: Free coverage.

  • Public Relations:

    • Definition: Company-influenced information that aims to build goodwill and manage public perception, especially in the event of unfavorable incidents (public service announcements included).

The Distribution Mix (LO 13-6)

  • Definition: The combination of distribution channels used to deliver products to end-users.

  • Types of Intermediaries:

    • Wholesaler: Aimed at resale, sells products to other businesses.

    • Retailer: Directly sells products to consumers.

  • Distribution Channels:

    • Definition: The path a product follows from producer to end user.

  • Intermediaries & Their Roles:

    • Sales Agent: Independent intermediaries representing a few producers and dealing in related product lines; often forms long-term relationships.

    • Broker: Independent intermediary that matches numerous sellers to buyers as needed.

  • Distribution Strategies:

    • Intensive: Utilize as many outlets as possible.

    • Selective: A limited number of intermediaries chosen to market the product.

    • Exclusive: One intermediary handling the product within a given market area.

    • Channel Conflict: Arises when disagreements occur regarding the roles and rewards among individuals or organizations in a distribution channel.

Retailing (LO 13-7)

  • Types of Retail Outlets:

    • Product Line Retailers:

      • Department stores

      • Supermarkets

      • Specialty stores

      • Category killers.

    • Bargain Retailers:

      • Discount houses

      • Factory outlets

      • Wholesale clubs

    • Convenience Stores.

  • Non-Store Retailing:

    • Direct-Response Non-Store Channels:

      • Mail-order

      • Telemarketing

      • Direct selling

      • Video/TV.

Physical Distribution (LO 13-8)

  • Definition: Activities necessary to move products efficiently from manufacturer to consumer.

  • Warehousing Operations: The process involved in storing goods during distribution.

  • Transportation Modes Include:

    • Pipelines

    • Water carriers

    • Railroads

    • Planes

    • Trucks.

  • Digital Transmission: Acknowledges new models like freemium music distribution technology as a revolutionary shift in physical distribution.

  • Distribution as a Marketing Strategy: Recognized as an important method to gain a competitive advantage, leveraged by companies such as Walmart, Zara, and Dell.