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Distribution and Pricing: Right Product, Right Person, Right Place, Right…
Distribution and Pricing: Right Product, Right Person, Right Place, Right Price
Distribution: getting your product to the customer
Distribution strategy: plan for delivering the right product to the right person at the righ place at the right time
direct channel: a distribution process that links the producer and the customer with no intermediaries
channel intermediaries: distribution organization - informally called "middlemen" - that facilitate the movement of products from the producer to the consumer
2 elements:
channel of distribution: the network of organization and processes that links producers to consumers
physical distribution: the actual, physical movement of products along the distribution pathway
The role of Distributors: Adding Value
charge for adding that value but less than it would cost for consumers or producers to add that value on their own -> when no provide comparable benefits then middlemen don't stay in business
Core role: reduce the number of transactions (and costs of it)
add value in many ways: form, time, place, ownership, information and service
sometimes deliver the value rather than adding it
Form utility provide customers satisfaction by converting inputs into finished products
Time utility add value by making products available at a convenient time for consumers
Place utility: providing the right products in the right place
Ownership utility: make it easier for customers to actually possess the goods and services that they purchase
Information utility: provide helpful information
Service utility: provide fast, friendly, personalized service, create loyal base of customers
Members of the channel: Retailer vs. Wholesalers
retailers: distributors that sell products directly to the ultimate users, typically in small quantities, that are stored and merchandised on the premises
wholesalers: distributors that buy products from producers and sell them to other businesses or nonfinal users (hospitals, nonprofits, gov...)
The 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
merchant wholesalers: independent distributors who take legal possession, or title, of goods they distribute
agents/brokers: independent distributors who don't take title of the good they distribute (though may take physical possession on temporary basis)
Merchant Wholesalers (80%): reduce the risk of producer's product being damaged or stolen or won't sell
full-service merchant wholesalers: provide a complete array of services to retailers or business users who typically purchase their goods (warehousing, shipping, promotional assistance, product repairs, credits)
limited-service merchant wholesalers: fewer service to customers:
drop shippers: take legal title of the merchandise but not physically possess it, simply organize and facilitate product shipment directly from the producer to the customer, common in bulky, but Amazon e-commerce
Cash and Carry Wholesalers: service customers who are too small to merit in-person sale calls from wholesalers reps. customer must make the trip to the wholesaler themselves and cart their own products back to the store
Truck Jobbers: work with perishable goods, drive their products to their customers, in smaller grocery stores, check the stock, suggest reorder quantities and remove out-of-date stocks
Agents and Brokers: connect buyers and sellers and facilitate transactions in exchange for commissions
Retailers: the Consumer Connection
provide more utility or added values: eg: low prices, customer service, product selection, advertising, location
2 categories: store and non-store (line are not clear)
multi-channel retailing: provide multiple distribution channels for consumers to buy a product
wheel of retailing: classic distribution theory that suggests that retail firms and retail categories become more upscale as they go through their life cycles (doesn't apply for high-end or those retain their niche as deep discounters) -> must meet changing consumer needs in relentlessly competitive environment
Store retailers (90%): range from small groceries to multi-acre superstores
3 key strategic options:
intensive distribution: place your products in as many stores as possible, for low-cost convenience goods
selective distribution: place your products only with preferred retailers, for medium/higher-priced products or stores that consumers don't expect to find on every street corner
exclusive distribution: only one retail outlet in given area, retailer have exclusive distribution rights and provides exceptional service and selection, luxury-goods, customer actively seek their products
Non-store Retailers:
Online Retailing: growing, come at the expense of on-ground retail, as consumers continue to shift to online channels, also need good customer service, disad: product must be delivered and fast delivery; lack of security
Direct Respond Retailing: catalogs, telemarketing, advertising meant to elicit direct consumer sales
Direct Selling: door-to-door sales,
multilevel marketing
(involves hiring independent contractors to sell products to their personal network of friends and colleagues and to recruit new salespeople in return for a percentage of their commissions)
Vending: technology enable growth in vending
Physical Distribution: how your product will flow through the channel
supply chain: all organization, processes, activities involved in the flow of goods from the raw materials to final consumer
supply chain management: planning and coordinating the movement of products along the supply chain, from the raw materials to the final consumers
logistic: subset of supply chain management that focuses on moving products along the supply chain
foster collab rather than competition have more success
Key management decisions:
warehouse: how many and where
materials handling: how move product, efficiency and effectiveness
inventory control: how much and how to store and distribute, tax and insurance
order processing: most efficient?
customer service: effective, reduce waiting time and facilitate interaction
transportation: how move efficiently through supply chain
security: how to keep product safe
Transportation Decisions: mode of transportation: the various transportation options (train, planes..) for moving products through the supply chain
Proactive Supply Chain Management: many choose to outsource this rather than handling it internally
Pricing objectives and strategies: high-stakes game
Price affect their spending choices more than other variables, but toughest to control (cost, competitor, investor, taxes and product strategies) -> stable pricing evaluate and refine their pricing strategies to ensure that they meet their goals
Objectives
Building Profitability: some return on investment (ROI) ir return in sales (ROS)
boost profits by increasing prices or decreasing costs
Boosting volume: usually expressed in market share (the percentage of market controlled by a company or a product)
penetration pricing: for new product, aim to capture as much of the market as possible through a rock-bottom prices
profit come from volume because single sale yield little profit,
only in categories don't have a significant group of consumers who would be willing to pay a premium
company focus on controlling cost
everyday-low pricing (sustained discount pricing): aims to achieve long-term profitability through volume
High/Low Pricing: increase traffic in retail stores by special sales on a limited number of products, and higher everyday prices on others
common in groceries, drug and department stores
alienate customers who feel cheated when a product they bought for full price goes on sale soon afterward
train customer to buy only when products are on sale
Loss-Leader Pricing: closely related to high/low pricing, mean pricing a handful of items - or loss leaders - temporarily below cost to drive traffic
retailer place loss leaders at the back of the store, force customer to navigate past tempting array of profitable items
Matching Competitor: set prices based on what everyone else been doing
wipe out price as point of comparison, forcing customers to choose their product based on other factors
sometimes one competitors emerge that drive pricing for entire industries
Creating Prestige: use price to send consumers a message about high quality and exclusivity of a product - the higher the price, the better the product
only works if the product actually delivers top quality
Skimming pricing: a new product pricing strategy that aims to maximize profitability by offering new products at a premium price
to entice price-insesitive consumers to buy high when a product first enters the market, then introduce lower-priced version to capture the bottom of the market
only work when product is tough to copy in term of design, brand image, technology... otherwise will attract competitors
Pricing in Practice: Real-world Approach
Breakeven Analysis: the process of determining the number of units a firm must sell to cover all costs
BP = Total fixed costs / (price/unit - variable cost/unit)
considerations:
raise prices
decrease variable costs
decreased fixed costs
Fixed Margin Pricing: how much money need to make for each item
profit margin: the gap between the cost and the price of an item on a per-product basis
2 key to determine margins:
cost-based pricing:
determine the actual cost of each product (complex bc fixed costs must be allocated on a per-product basis, some variable costs fluctuate weekly)
layer the margin on the cost to determine the price
demand-based pricing: determine what price consumers would be willing to pay, then subtract their desired margin, which yields their target costs
more market-focused and more risky bc profit depend on achieving those target cost
Consumer Pricing Perception: Strategic wild card
2 key consideration: price-quality relationship and odd pricing, the link can be powerful
consumer use price as indicator of quality unless they have additional information to guide their decision
odd pricing: the practice of ending prices in numbers below even dollars and cents in order to create a perception of greater value, come to signal a bargain which is benefit for marketers