CHAPTER 12 MGMT 105 Chapter 12 Pricing Distribution and Promoting Products Determining Prices o The second major component of the marketing mix is pricing determining what the customer pays and the seller receives in exchange for a product Setting prices involves understanding how they contribute to achieving the firm s sales objectives Pricing to meet Business Objectives o Pricing objectives are the goals that sellers hope to achieve in pricing products for sale o Some companies have profit maximizing pricing objectives while others have market share pricing objectives o Pricing decisions are also influenced by the need to compete in the marketplace by social and ethical concerns and even by corporate image Market Share o In the long run a business must make a profit to survive o Because they are willing to accept minimal profits even losses to get buyers to try products companies may initially set low prices for new products to establish market share or market penetration a company s percentage of the total industry sales for a specific product type Price Setting Tools o Whatever a company s objectives managers like to measure the potential impact before deciding on final prices o Two tools used for this purpose are cost oriented pricing and breakeven analysis Although each can be used alone both are often used because they provide different kinds of information for determining prices that will allow the company to reach its objectives Cost oriented pricing considers a firm s desire to make a profit and its need to cover production costs Breakeven analyses assess costs versus revenues for various sales volumes and show at any particular selling price the amount of loss or profit for each possible volume of sales Pricing Strategies and Tactics o The pricing tools help managers set prices on specific goods They do not however help them decide on pricing philosophies for diverse competitive situations Pricing strategy pricing as a planning activity and some basic pricing tactics ways in which managers implement a firm s pricing strategies o PRICING STRATEGIES Pricing is an extremely important element in the marketing mix as well as a flexible marketing tool it is certainly easier to change prices than to change products or distribution channels o PRICING TACTICS Regardless of its pricing strategy a company may adopt one or more pricing tactics Companies selling multiple items in a product category often use price lining offering all items in certain categories at a limited number of prices Psychological pricing takes advantage of the fact that customers are not completely rational when making buying decisions Finally sellers must often resort to price reductions discounts to stimulate sales The Distribution Mix o In addition to a good product mix and effective pricing the success of any product also depends on its distribution mix the combination of a distribution channels by which a firm gets products to end users Intermediaries and Distribution Channels o Once called middlemen intermediaries help to distribute goods either by moving them or by providing information that stimulates their movement from sellers to customers o Wholesalers are intermediaries who sell products to other businesses for resale to final consumers Retailers sell products directly to consumers o A distribution channel is the path a product follows from producer to end user Wholesaling o The roles differ among the various intermediaries in distribution channels o Most wholesalers are independent operations that buy products from manufacturers and sell the to various consumers or other businesses They usually provide storage delivery and additional value adding services including credit marketing advice and merchandising services such as marking prices and setting up displays o Unlike wholesalers agents and brokers do not own their merchandise Rather they serve as sales and merchandising arms for producers or sellers who do not have their own sales forces The value of agents and brokers lies in their knowledge of markets and their merchandising expertise Retailing o There are more than 3 million brick and mortar retail establishments in the United States Many consist only of owners and part time help Indeed over one half of the nation s retailers account for less than 10 percent of all retail sales Retailers also include huge operations such as Walmart the world s largest corporate employer and Home Depot Although there are large retailers in many other countries most of the world s largest retailers are U S businesses Types of Brick and Mortar Retail Outlets o U S retail operations vary widely by type as well as size They can be classified by their pricing strategies location range of services or range of product lines Choosing the right types of retail outlets is a crucial aspect of distribution strategy o U S retail stores by using three classifications product line retailers bargain retailers and convenience stores Product Line Retailers Retailers featuring broad product lines include department stores which are organized into specialized departments shoes furniture women s petite sizes and so on Bargain Retailers Bargain retailers carry wide ranges of products at low prices Convenience Stores Convenience store chains such as 7 Eleven and Circle K stores stress easily accessible locations extended store hours and speedy service They differ from most bargain retailers in that they do not feature low prices Non store Retailing o Some of the largest retailers sell all or most of their products without brick and mortar stores Certain types of products snack foods pinball jukeboxes pool and cigarettes sell well from card and coin operated machines o Non store retailing also includes direct response retailing in which firms contact customers directly to inform them about products and to receive sales orders Less popular in recent years due to do not call registries outbound telemarketing uses phone calls to sell directly to consumers o Finally more than 600 U S companies including Mary Kay cosmetics use direct selling to sell door to door or through home selling parties The Role of E Intermediaries E Commerce o E intermediaries and Internet based channel members who perform one or both of two functions 1 They collect information about sellers and present it to consumers 2 they help deliver Internet products to buyers o We will examine two types of e intermediaries shopping agents and e retailers Online