BUSN 1200 - Chapter 13 PDF

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BUSN 1200 Chapter 13 Pricing, Promoting, and Distributing Products Pricing Pricing Objectives o Pricing to maximize profit (bottom line) Must consider all costs. has lower costs, but easier price comparisons. Profit maximization will result in lower prices if that is sufficient to make a profit and ...

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BUSN 1200 Chapter 13 - Pricing, Promoting, and Distributing Products Pricing  Pricing Objectives o Profit-maximizing – Pricing to maximize profit (bottom line) § Must consider all costs. § E-business has lower costs, but easier price comparisons. § Profit maximization will result in lower prices if that is sufficient to make a profit and if it will sell enough units to be it worthwhile. o Market-share – Pricing to gain the greatest possible market percentage. § Market-share pricing could be high if the company is selling a luxury item, such as fur coats. o Loss containment and survival  The price level is dependent on how much consumers are willing to pay for the product.  The nature of the pricing objective does not automatically force prices up or down. Rather the pricing objective is what the firm is trying to achieve through its pricing strategy. The level of the price which is needed to achieve its objectives is affected by many other factors.  E-business prices are often lower due to direct marketing and the ability to avoid costs of using intermediaries.  Other issues affecting prices include the need to survive through the tough times, and social and ethical concerns. In such cases, the profit-maximization or market-share objectives may not be feasible. Cost-Oriented Pricing  Considers the cost of the product and adds a “markup” to arrive at a final cost. o A light bulb costs $0.45 to the retailer. o The retailer wishes to sell the light bulb for $0.75 (a markup of $0.30).

Break-Even Analysis: Cost-Volume-Profit Relationships  Break-even analysis – How many units a firm must sell before it makes a profit. o It’s the point at which costs are covered but no profit has been made. In calculating this, a business needs to know fixed and variable costs.  Fixed costs – Costs unaffected by the number of goods produced or services sold. o Rent, administrative salaries, insurance, equipment.  Variable costs – Costs that change with the number of goods or services produced and sold like materials, labour.

 Break-even point – How many units a firm must sell in order to cover fixed and variable costs

 Higher price = lower breakeven point  But must consider demand of consumers and competitor’s prices Pricing Strategies  Pricing strategy o the pricing plan based on the marketing mix  Potential Strategies o Pricing relative to the market (at market, above market, below market) § Price leadership = the dominant firm in the industry sets the price and others follow o Pricing new products § Skimming pricing – Pricing the product as high as possible to earn maximum profit on each unit sold § Penetration pricing – Pricing the product as low as possible to sell the most units and generate consumer loyalty Pricing Tactics  Pricing tactics are the methods used to set prices regardless of which pricing objective is being used by the firm. For example, price lining can be used when a firm prices at or below competition, or uses price skimming or penetrating.  Price Lining – Having a product line priced with a low, medium, and high price point. o Sears may sell mattresses at $199.99 (good), $299.99 (better), $399.99 (best)  Psychological Pricing – Customer reactions to pricing are not completely logical. o Odd-even pricing. o Consumers react more favourably to odd dollar amounts ($0.99, $1.99, $19.99)  Discounting o Cash discount – Customers get a lower price for paying cash o Seasonal discount – Lower prices in the off-season to move stock o Trade discount – Lower price granted to intermediaries who need to mark up the product for resale (retailers, wholesalers) o Quantity discount – Lower prices for buying more units International Pricing  Additional factors to consider o Income and spending trends o Differences in intermediaries o Exchange rates o Shipping costs, tariffs, etc.

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Dumping – (pricing products below costs to set prices lower in foreign than home market) is illegal.

Promotion  Seeks to o Communicate Information § Increase product awareness § Increase knowledge of products and their added-values § Increase product preference § Increase product purchase o Create Satisfying Exchanges § A more attractive product  Objectives regarding product awareness also include positioning the product in the minds of consumers. Promotion must convey an image of the product which allows consumers to position it relative to other products on the market with regards to price, quality, and features. Promotional Objectives  Communicate Information o Awareness and education o Written, verbal or visual  Position Products o Establishing an easily identifiable image of a product in the minds of consumers § Try to appeal to a specific market segment  Add Value o added benefits. For example, consumer discounts  Control Sales Volume o achieve more stable sales despite seasonal sales patterns Promotion Strategies  Push Strategy o Firm promotes aggressively to intermediaries. o Commonly used by industrial product manufacturers.  Pull Strategy o Firm promotes directly to final consumers, who demand the product from intermediaries. o Commonly used for consumer product producers.  Many firms use a combination of both strategies. Promotional Mix  The combination chosen to sell a product of o Advertising o Personal selling

o Sales promotions o Publicity o Public relations  Affected by o The nature of the product o The nature of the audience o Promotional budget o The cost of different promotional methods  The different promotional methods have different costs. Personal selling is very expensive per contact and is used more frequently with higher priced products or services, or in the industrial market.  Advertising is expensive overall but reaches a large group of people at a single time. This makes it appropriate for most consumer products that have a broad market, as well as new products with an information-based ad appeal. Promotional Techniques  Advertising – Any paid form of non-personal communication by a sponsor. o Persuading or informing customers about the product via various media.  Personal Selling – Selling using sales representatives. o Commonly used for industrial marketing.  Sales Promotion – Using specialty items & methods to promote the product. o Gifts, coupons, package inserts, samples  Public Relations – Used to build good relations with buyers, suppliers and other stakeholders. o Charitable donations and sponsorship  Publicity – Any non-paid communication about a firm and/or its products. o Outside the control of the firm o Press articles Advertising Strategies  Informative Advertising o Increase awareness among potential buyers o Generate primary (initial) demand § Typical life cycle stage: Introduction  Persuasive Advertising o Influence the customer to buy the firm’s product over that of the competition § Typical life cycle stage: Growth to maturity  Comparative Advertising o Influence customers to switch brands o Involves direct or indirect comparison § Typical life cycle stage: Maturity  Reminder Advertising o Keep the product’s name in front of consumers

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Typical life cycle stage: Late maturity

Advertising Media  The media to be used in the mix are listed below. o Newspapers o Television o Direct mail o Radio o Magazines o Outdoor o Word-of-mouth o Internet o Virtual o Other – A miscellaneous category containing Yellow Pages, skywriting, telephone calls, special events and door-to-door communications.  Media Mix – combination of media company chooses to use.  Newspaper is the most widely used medium, followed by television. Media Comparisons

Advertising Campaigns 1. Identify the target audience 2. Establish an advertising budget 3. Define the objectives of the messages 4. Create advertising messages 5. Select appropriate media

6. Evaluate advertising effectiveness  Advertising Agency – A firm that creates and places ads for clients Personal Selling Situations  Most expensive form of promotion o Telemarketing more popular due to lower cost o Retail: Selling to consumers § Buyer usually comes to seller o Industrial: Selling to business users § Seller usually goes to buyer  Sales force management – Setting goals for salespeople, organizing a sales force, implementing and evaluating the sales program.  Personal Selling Process o Prospecting & Qualifying Leads § Prospecting - identifying potential customers. § Qualifying - process of determining whether potential customers have the authority to buy the product and the ability to pay for it. o Approaching - The initial part of a sales presentation which opens the dialogue between sales rep and customer and establishes credibility and rapport. o Presenting & Demonstrating – Presenting and showing the product. o Handling Objections - Overcoming prospect’s questions or concerns about the product. o Closing – Closing the sale by asking the customer to purchase directly or indirectly. o Following Up – Order processing, delivery, follow-up to ensure satisfaction. o Creative selling involves skillful use of a sales presentation. Sales Promotions  Short-term promotional activities designed to stimulate buying or cooperation from distributors. o Coupons o Point-of-purchase (POP) displays o Purchase incentives/premiums § free item or bargain price o Trade shows o Contests and sweepstakes Publicity and Public Relations  Publicity o Information made available to consumers via the news media o Company has no control over it o Free to the company  Public relations o Public service announcements initiated by the firm

o Designed to enhance the firm’s image § sponsorship, charity work or donations Distribution Mix  Combination of distribution channels a firm uses.  Distribution channel – The path a product follows from producer to end-user.  Intermediary – An entity other than the producer who participates in the distribution of the product. o Wholesaler – An intermediary who sells products to other businesses for resale (other wholesalers, retailers). o Retailer – An intermediary who sells product to final consumers. Typical Channels

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The use of intermediaries can make a channel more efficient. Intermediaries are specialists in offering the services they offer. As such, a longer channel of distribution does not necessarily increase prices to end-users. If the intermediary was eliminated, all distribution tasks would still have to be performed, and many would be performed less efficiently, eliminated the cost-savings of a shorter distribution channel.

Distribution of Consumer Products  Direct channel – No intermediaries  Non-direct distribution – Each intermediary adds cost and adds value o Save consumers time and money o If no intermediaries, still have cost of their functions o Sales agent (or broker)

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Independent Represents a business and receives commission Does not take legal possession of the product

Distribution Strategies  Intensive – As many channels and members as possible o Low-cost consumer goods (candy bars)  Selective – Use of a limited number of outlets o Consumer products with special displays (hand tools)  Exclusive – Use of only one intermediary in a market area o High-cost prestige items (Jaguar cars)  Each of them provides different degrees of market coverage.  The type of product dictates how accessible the product must be to customers. Product Line Retailers  Department Stores – Organized into specialized departments with a range of products and brands. o Supermarkets § Divided into departments of similar products (produce, bakery, meats, personal care, pharmacy) § Emphasis on self-service, low prices, & wide selection  Specialty Stores – Small retailers that carry one line of related products o Category killers – Larger specialized retailers with a deep selection of goods, greater expertise, & usually lower prices (Toys’R’Us, Home Depot) Other Retailers  Warehouse Clubs (wholesale club) o Membership-only retail outlets (Costco) o 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 o Prices tend to be higher (Mac’s, 7-Eleven) Non-store & Electronic Retailing  Vending machines  Direct-Response o Direct selling § e.g. door-to-door o Mail-order o Telemarketing  Electronic o Electronic (e-tailing) o Video marketing

E-Retailing  E-intermediaries – Internet-based channel members who perform one or both of two functions: 1) Collect information about sellers and present it to consumers. 2) They help deliver internet products to buyers. 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.  Materials handling – Transporting goods, arrangement and orderly retrieval of goods.  Unitization – Amaterials handling method that standardizes inventory by unit size and type to streamline the storage process.  Automation and computerization has dramatically decreased the cost of materials handling in modern warehouse facilities. Transportation...