Presentation on theme: "Business Essentials, 7th Edition Ebert/Griffin"— Presentation transcript:

1 Business Essentials, 7th Edition Ebert/Griffin

Pricing, Distributing and Promoting Products Business Essentials, 7th Edition Ebert/Griffin Instructor Lecture PowerPoints PowerPoint Presentation prepared by Carol Vollmer Pope Alverno College © 2009 Pearson Education, Inc. 1

2 © 2009 Pearson Education, Inc.

Determining Prices Pricing to Meet Business Objectives Pricing objectives The goals that sellers hope to achieve in pricing products for sale Profit-maximizing pricing objectives Setting prices to sell the number of units that will generate the highest possible total profits Revenues = Selling Price x Units Sold Market share objectives Using pricing to establish market share—a company’s percentage of the total industry’s sales for a specific product type First we will examine the determination of prices for goods and services. Pricing should be set to meet business objectives. Marketing managers set pricing objectives: These are the goals that sellers hope to achieve in pricing products for sale. Pricing objectives can be set to meet different goals: Profit-maximizing pricing objectives Profit-maximizing pricing objectives set prices to sell the number of units that will generate the highest possible total profits Revenues = Selling Price x Units Sold Market share objectives Market share pricing objectives use pricing to establish market share, which is a company’s percentage of the total industry’s sales for a specific product type. Teaching Tips: Please form a new team of two students. In your teams, choose one of the two pricing objectives we have just discussed and give an example of a company or product that would use that type of pricing. Answers will vary. © 2009 Pearson Education, Inc.

3 Determining Prices (cont’d)

Price-Setting Tools Cost-Oriented Pricing Considers the firm’s desire to make a profit and its need to cover production costs Variable costs: Costs that change with the number of units of a product produced and sold Fixed costs: Costs such as insurance and utilities that must be paid regardless of the number of units produced and sold Selling price = Seller’s cost + profit Another price-setting tool is called cost-oriented pricing. This form of price-setting tool considers the firm’s desire to make a profit and its need to cover production costs. It addresses variable costs, which are costs that change with the number of units of a product produced and sold. It also incorporates fixed costs, which are costs such as insurance and utilities that must be paid regardless of the number of units produced and sold. Using this tool, the selling price = the seller’s cost + a profit Another way to refer to this is called markup percentage. Markup percentage = markup/sales price. Teaching Tips: Imagine a company that makes a rocking chair. In order to produce one rocking chair, the company must pay insurance of $1,000 per year, utilities of $2,000 per year, rent of $3,600 per year. In addition, to produce the rocker itself takes wood that costs $10 per chair, varnish and stain that costs $5 per chair, and labor to make one chair. Assume it takes five hours to make one chair, and the cost per hour for labor is $20 per hour. The company would like to make a profit of 100% on each chair sold. In your teams, please determine the selling price and the markup percentage for this product. Answer: Fixed costs = $6,600, even for one chair. Variable costs = $115 per chair. What should the sales price be per chair? Have students figure out the math. © 2009 Pearson Education, Inc.

4 Determining Prices (cont’d)

Breakeven Analysis Shows, at any selling price, the amount of loss or profit for each possible volume of sales Breakeven point: Number of products that must be sold so total revenues exactly cover both fixed and variable costs Another tool that we need to correctly analyze and answer the last question about the rocking chair production and pricing is breakeven analysis. Breakeven analysis shows, at any selling price, the amount of loss or profit for each possible volume of sales. The breakeven point is the number of products that must be sold so total revenues exactly cover both fixed and variable costs. The formula is this: Breakeven point (in number of units produced) = Total Fixed Costs/price-variable cost. Teaching Tips: Once again, let’s go back to our rocking chair example. We know that total fixed costs are $6,600. We know that variable cost is $115 per chair. We set a price in our teams during the last question. Please use that price to determine the breakeven point or total number of rocking chairs that need to be produced to break even and start making a profit. Have the students do the math! © 2009 Pearson Education, Inc.

5 FIGURE 12.1 Breakeven Analysis

Figure 12.1 shows a graphic version of a breakeven analysis. In this example, fixed costs = $100,000. Variable costs = $8 per CD produced. So the total cost curve begins at the point of fixed costs, or $100,000, and rises from there based on the incremental costs that are variable costs for each CD produced. Total revenue, of course, starts at $0. It rises based on the number of units sold. If you were to apply the formula from our last slide to this problem, you would determine that the breakeven point in numbers of CDs produced is approximately 14,000 CDs. Teaching Tips: In your student teams, please prepare a breakeven graph for your rocking chair example. Answers and graphs will vary based on the selling price used by the students. © 2009 Pearson Education, Inc.

6 Pricing Strategies and Tactics

Pricing Existing Products A firm has three options for pricing existing products: Pricing above prevailing market prices for similar products Pricing below market prices Pricing at or near market prices Pricing New Products Price skimming Setting an initially high price to cover costs and generate a profit—may generate a large profit on each item sold Penetration pricing Setting an initially low price to establish a new product in the market Let’s look at some additional pricing strategies and tactics. A firm has three options for pricing existing products: Price it above prevailing market prices for similar products. Price it below market prices. Price it at or near the price the market will bear. When pricing new products, there are two strategies that can be used: Price skimming: With this strategy, the price is initially set high to cover costs and generate a profit. This may generate a large profit on each item sold. Penetration pricing: With this strategy, the price is set low initially to establish a new product in the market. Teaching Tips: In your student teams, please choose one of the two pricing strategies for new products. Then give two examples of products that you believe use or have used your chosen strategy. We will share our answers with the class. Answers will vary but should address the two pricing methods reviewed. © 2009 Pearson Education, Inc.

7 Pricing Strategies and Tactics (cont’d)

Fixed Versus Dynamic Pricing for E-Business To attract sales that might be lost under traditional fixed-price structures, sellers alter prices privately, on a one-to-one, customer-to-customer basis At present, fixed pricing is still the most common option for cybershoppers We are also going to examine fixed versus dynamic pricing for E-business. To attract sales that might be lost under traditional fixed-price structures, sellers alter prices privately, on a one-to-one, customer-to-customer basis. At present, fixed pricing is still the most common option for cybershoppers. Teaching Tips: In your student teams, please think of two products that are offered through e-commerce. Discuss and share with the class the type of pricing strategy that is used for each. Answers will vary. © 2009 Pearson Education, Inc.

8 Pricing Strategies and Tactics (cont’d)

Pricing Tactics Price lining Offering all items in certain categories at a limited number of prices (price points) Psychological pricing Odd-even pricing: Customers prefer prices that are not stated in even dollar amounts Discounts: Price reductions that stimulate sales There are two additional pricing tactics we will examine: The first is called price lining. This is when a company offers all items in certain categories at a limited number of prices or price points. Psychological pricing offers two methods: Odd-even pricing: Assumes that customers prefer prices that are not stated in even dollar amounts. Discounts: Price reductions that stimulate sales. Teaching Tips: In your student teams, please think of an example of price lining and an example of one type of psychological pricing. Answers will vary. © 2009 Pearson Education, Inc.

9 © 2009 Pearson Education, Inc.

The Distribution Mix Distribution Mix The combination of distribution channels by which a firm gets products to end users Intermediaries (Middlemen) Help distribute goods, either by moving them or by providing information that stimulates their movement from sellers to customers Can provide added value by saving consumers both time and money Wholesalers sell products to other businesses for resale to final consumers Retailers sell products directly to consumers Now we will talk about the distribution mix marketing element. The distribution mix is the combination of distribution channels by which a firm gets products to end users. The distribution mix usually includes intermediaries, or middlemen. These intermediaries do two things: Help distribute goods, either by moving them or by providing information that stimulates their movement from sellers to customers. Can provide added value by saving consumers both time and money. They include working with: Wholesalers, who sell products to other businesses for resale to end-user customers. Retailers, who sell products directly to consumers. Teaching Tips: In your student teams, choose a consumer goods product. Then discuss how intermediaries are or could be used by the manufacturer to bring the product to customers. We will share our answers with the class. Answers will vary but should include the material covered above. © 2009 Pearson Education, Inc.

10 The Distribution Mix (cont’d)

Distribution Channel Path a product follows from producer to end user Popular Paths Channel 1: Direct distribution (direct channel) Channel 2: Retail distribution Channel 3: Wholesale distribution Channel 4: Distribution by agents or brokers Now we will discuss distribution channels. The distribution channel is the path a product follows from the producer to the end user. There are four popular paths. Let’s look at these paths in graphic form in the next slide. © 2009 Pearson Education, Inc.

11 FIGURE 12.2 Channels of Distribution

As we just noted, there are four basic channels of distribution. These include: Channel 1: Direct distribution from the producer to the end user. Dell computers uses this model most successfully. Channel 2: Distribution to a retailer directly from a manufacturer. The retailer then sells the product to the end user. Channel 3: Distribution to a wholesaler, who then resells the product to a retailer, who sells the product to the end user. Channel 4: Used for products like food, where the product is sold by an agent or broker and then sold to the end users, sometimes through a retailer. Teaching Tips: In your student teams, think again of the product you were reviewing a few moments ago. Please analyze that product and share with the class the distribution channel type you believe the manufacturer uses to bring the product to the end user. Answers will vary. © 2009 Pearson Education, Inc.

12 © 2009 Pearson Education, Inc.

Wholesaling Wholesalers Independent operations that sell consumer or business goods Buy products from manufacturers and sell them to other businesses, and usually provide storage and delivery Provide additional value-adding services for customers Agents and Brokers Sales and merchandising representatives for producers or sellers Do not own inventory, but manage it for producers Let’s talk about wholesalers, agents and brokers. Wholesalers are businesses with independent operations that sell consumer or business goods to end users. Wholesalers buy products from manufacturers and sell them to other businesses, and usually provide storage and delivery. This is their “value add” to the product. Wholesalers also provide additional value-adding services for customers, including returning merchandise or stocking parts for a customer. Agents and brokers are sales and merchandising representatives for producers or sellers. Agents and brokers differ from wholesalers because they do not own inventory or hold it, but manage it for producers. Teaching Tips: In your student groups, please think of an example of a product that is sold through wholesalers and another product that is sold through agents or brokers. We will share our examples with the class. Answers will vary. The key difference will be who holds the inventory. For example, wine brokers do not hold the inventory. Wholesaler could be food wholesalers who purchase food from food brokers and then resell it to grocery stores. © 2009 Pearson Education, Inc.

13 FIGURE 12.3 The Value- Adding Intermediary

Let’s take a minute and look at this example that shows the value that is added by the intermediary, in this case the supermarket. Without an intermediary, hundreds of products would have to be sold to individual consumers, causing quite a web of communications! Teaching Tips: In your student teams, please think of another industry besides food and draw a similar value-added chart, which we will share with the class. Answers will vary but should look similar to the above chart. © 2009 Pearson Education, Inc.

14 © 2009 Pearson Education, Inc.

Retailing Types of Retail Outlets Product line retailers carry broad product lines Department stores and supermarkets Specialty stores carry one line of related products Bargain retailers carry wide ranges of products and come in many forms Discount houses, catalog showrooms, factory outlets, wholesale clubs Convenience stores offer accessible locations and ease of purchase Another element in the distribution mix is retailing. There are a number of types of retail outlets. Let’s examine a few: Product line retailers carry broad product lines. Examples include department stores and supermarkets. Specialty stores carry one line of related products. Bargain retailers carry wide ranges of products and come in many forms. Examples can include discount houses, catalog showrooms, factory outlets, and wholesale clubs. Convenience stores offer accessible locations and ease of purchase. Teaching Tips: In your student teams, please think of an example of a product that is sold through retailing. Then discuss which of the four types of retail outlets would be the best to offer your example product. We will share our answers with the class. Answers will vary but should relate back to the information presented above. © 2009 Pearson Education, Inc.

15 © 2009 Pearson Education, Inc.

Retailing (cont’d) Nonstore Retailing Vending machines Direct-response retailing Mail order (or catalog marketing) Telemarketing Direct selling Nonstore retailing is another type of retailing. Let’s look at some examples: Vending machines. Direct-response retailing such as: Mail order or catalog marketing. Telemarketing. Direct selling. Teaching Tips: Did any of your retail examples that you discussed fit into this model? If not, think of another example of a product that would fit into this type of retailing. We will share our examples with the class. Answers will vary. © 2009 Pearson Education, Inc.

16 The Ascent of the E-Intermediary

E-Intermediaries Internet-based channel members who perform one or both of two functions: Collect information about sellers and present it to consumers Help deliver Internet products to buyers Types of E-Intermediaries Shopping agents (e-agents) help Internet consumers by gathering and sorting information. Electronic retailing is made possible by communications networks that enable sellers to post product information on consumers’ PCs. What about e-intermediaries you might ask? These are Internet-based channel members who perform one or both of two functions. These are: Collecting information about sellers and presenting it to consumers. Helping deliver Internet products to buyers. Types of e-intermediaries include: Shopping agents or e-agents, who help internet consumers by gathering and sorting information. Electronic retailing is made possible by communications networks that enable sellers to post product information on consumers’ PCs. Teaching Tips: In your student teams, please think of an example of an e-intermediary. Answers could include everything from e-bay to netflix to carmax, etc. © 2009 Pearson Education, Inc.

17 © 2009 Pearson Education, Inc.

Electronic Retailing Electronic Catalogs (E-catalogs) Use the Internet to display products Electronic Storefronts (virtual storefronts) A website from which consumers collect information about products, place orders, and pay for purchases Cybermalls Collections of virtual storefronts representing diverse products Interactive and Video Marketing Lets viewers shop at home by phoning in or ing orders Electronic retailing is another up-and-coming method of shopping. Let’s look at some examples: Electronic catalogs or e-catalogs, which use the Internet to display products. Electronic storefronts, also called virtual storefronts, which are websites from which consumers collect information about products, place orders and pay for purchases. Cybermalls, which are a collection of virtual storefronts representing diverse products. Interactive and video marketing, which lets viewers shop at home by phoning in or ing orders. Teaching Tips: In your student teams, please think of two examples of products that could be offered through electronic retailing. We will share our examples with the class. Answers will vary. © 2009 Pearson Education, Inc.

18 TABLE 12.1 Top 10 Online Retailers

Let’s look at the top-10 online retailers. Teaching Tips: In your student teams, discuss why you think eBay and Amazon hold the highest share of online retailing sales. We will share our answers with the class. Answers will vary. © 2009 Pearson Education, Inc.

19 Physical Distribution

The activities needed to move products from manufacturer to consumer Makes goods available when and where consumers want them Keeps costs low Provides services to satisfy customers Another element of distribution is the physical distribution of products. Physical distribution includes the activities needed to move products from the manufacturer to the consumer. There are three key benefits of physical distribution: Physical distribution makes goods available when and where consumers want them. Physical distribution keeps costs low. Physical distribution provides services to satisfy customers. Teaching Tips: In your student teams, please give two examples of physical distribution. We will share our answers with the class. Answers could include everything from semi truck transport companies like Schneider to package delivery services like FedEx, UPS, etc. © 2009 Pearson Education, Inc.

20 Physical Distribution (cont’d)

Warehousing Operations Private warehouses are owned by producers Public warehouses provide rented storage space Transportation Operations Principal differences are speed and cost Transportation Modes Trucks Planes Water carriers Railroads Pipelines There a few other physical distribution elements that we need to review. These include: Warehousing operations. Private warehouses that are owned by producers. Public warehouses that provide rented storage space. Transportation operations. The principal differences are speed and cost. Transportation modes. These include: Trucks. Planes. Water carriers. Railroads. Pipelines. Teaching Tips: Please think of some products that use the transportation modes we just discussed. We will share our examples with the class. Answers will vary. © 2009 Pearson Education, Inc.

21 Physical Distribution (cont’d)

Physical Distribution and E-Customer Satisfaction Order fulfillment Involves getting the product to each customer in good condition and on time Distribution as a Marketing Strategy Distribution is an increasingly important way of competing for sales. For some firms distribution is a cornerstone of business strategy In addition, we need to look at physical distribution and e-customer satisfaction. One key component of this involves order fulfillment. This involves getting the product to each customer in good condition and on time. When we look at distribution as a marketing strategy, we need to understand that distribution is an increasingly important way of competing for sales. It is also a cornerstone business strategy for some firms. Teaching Tips: In your student teams please think of two examples of companies where distribution is a cornerstone of their business strategy. We will share our answers with the class. Answers will vary. They could include again the examples of FedEx or use of FedEx or UPS for inventory management and distribution, or it could be a freight forwarder. © 2009 Pearson Education, Inc.

22 The Importance of Promotion

The techniques a firm uses for communicating information about products Promotional Objectives To communicate information To position products To add value To control sales volume Positioning Establishing an easily identifiable product image in the minds of consumers by fixing, adapting, and communicating the nature of the product itself Now we will move on to the fourth P and look at the importance of promotion in the marketing strategy. Promotion includes the techniques a firm uses for communicating information about products or services. Promotional objectives can include the following: Communicating information. Positioning products. Adding value. Controlling sales volume. Another important element of promotion is positioning. This involves establishing an easily identifiable product image in the minds of consumers by fixing, adapting, and communicating the nature of the product itself. Teaching Tips: In your student teams, please think back to one of the products you were discussing earlier today. What type of promotional objective would that product take? We will share our examples with the class. Answers will vary based on the promotional objectives stated above. © 2009 Pearson Education, Inc.

23 The Importance of Promotion (cont’d)

Promotional Mix Tools Advertising Personal selling Sales promotions Publicity and public relations Promotional Mix The combination of promotional tools Promotional mix tools are at the heart of any promotional strategy for a company. These include: Advertising. Personal selling. Sales promotions. Publicity and public relations. The promotional mix is the combination of these and other promotional tools. Teaching Tips: In your student teams, please think again of the product you discussed over the last few slides. Which promotional mix tool or tools would you recommend as part of the promotional mix strategy for your product? Why? We will share our answers with the class. Answers will vary but will include the above promotional mix elements. © 2009 Pearson Education, Inc.

24 The Importance of Promotion (cont’d)

Matching Promotional Tools with Stages in the Buyer Decision Process: Buyers recognize the need to make a purchase Best tool: advertising and publicity Buyers search for information about products Best tool: advertising and personal selling Buyers compare benefits and features of competing products Best tool: personal selling Buyers choose products that are a good value and buy them Best tool: sales promotion and personal selling Buyers evaluate products after the purchase It is also important to match promotional tools with the different stages in the buyer decision process. Let’s examine these stages: Buyers recognize the need to make a purchase: Best tools are advertising and publicity. Buyers search for information about products: Best tools are advertising and personal selling. Buyers compare benefits and features of competing products: Best tool is personal selling. Buyers choose products that are a good value and buy them: Best tools are sales promotion and personal selling. Buyers evaluate products after the purchase: Best tools are advertising and personal selling. Teaching Tips: In your student teams, please refer back to one of the products you have been discussing today. Please choose one of the five stages in the buyer decision process, and then develop a brief example of the type of promotional mix or elements the product might use based on the strategies we have reviewed. We will share our examples with the class. Answers will vary but should reflect the advice on best tools provided above. © 2009 Pearson Education, Inc.

25 Advertising Promotions

Paid, non-personal communication by which an identified sponsor informs an audience about a product Advertising Media The specific communication devices for carrying a seller’s message to potential customers Media Mix The combination of media through which a company advertises Let’s examine for a moment the promotional tool of advertising. Advertising is paid, non-personal communication by which an identified sponsor informs an audience about a product. Advertising media include the specific communication devices for carrying a seller’s message to potential customers. The media mix includes the combination of media through which a company advertises. Teaching Tips: In your student teams, please discuss the type of advertising media that might be most effective and efficient for your product you have been discussing. We will share our answers with the class. Answers will vary. © 2009 Pearson Education, Inc.

26 FIGURE 12.4 Top 10 National Advertisers

Here is a graph showing the top-10 national advertisers. Look at the huge gap between Proctor & Gamble and the rest of the firms. Teaching Tips: Engage the class in a discussion about why P&G spending might be so high. It could relate to the vast numbers of products they offer to the marketplace. © 2009 Pearson Education, Inc.

27 TABLE 12.2 Media Use, Strengths and Weaknesses

A few moments ago we were discussing the types of media we would suggest to the sponsoring company of the product we chose. Teaching Tips: How do these percentage of outlays and strengths and weaknesses relate to those you chose for your product? This discussion should engage the students in examining all the types of media and their strengths and weaknesses as well as their frequency of use. © 2009 Pearson Education, Inc.

28 © 2009 Pearson Education, Inc.

Personal Selling Personal Selling A salesperson communicates one-to-one with potential customers to identify their needs and align them with the seller’s products Can be the most expensive form of promotion Personal Selling Tasks Order processing Creative selling Missionary selling Personal selling is a very important element in the promotional mix. In personal selling, a salesperson communicates one-to-one with potential customers to identify their needs and align them with the seller’s products. This can be the most expensive form of promotion. Personal selling tasks include: Order processing. Creative selling. Missionary selling. Teaching Tips: In your student teams, discuss what type of products would be best suited for personal selling. Please address both the consumer products market as well as the industrial market. Answers will vary. © 2009 Pearson Education, Inc.

29 © 2009 Pearson Education, Inc.

Sales Promotions Sales Promotions Short-term promotional activities designed to encourage consumer buying, industrial sales, or cooperation from distributors Types of Sales Promotions Samples Coupons Premiums Contests Point-of-sale displays Trade shows Sales promotions are short-term promotional activities designed to encourage consumer buying, industrial sales, or cooperation from distributors. Type of sales promotions can include the following items: Samples. Coupons. Premiums. Contests. Point-of-sale displays. Trade shows. Teaching Tips: As you continue to discuss promotional elements in your student teams, please provide two examples of sales promotions that a company might offer. Be sure to include the company, the product they are offering and the type of sales promotion that would best fit that product. Answers will vary. © 2009 Pearson Education, Inc.

30 Publicity and Public Relations

Information about a company, a product, or an event transmitted by the general mass media to attract public attention Public Relations Company-influenced publicity that seeks either to build good relations with the public or to deal with unfavorable events Finally, let’s talk about publicity and public relations. Publicity includes information about a company, a product or an event transmitted by the general mass media to attract public attention. Public relations is company-influenced publicity that seeks either to build good relations with the public or to deal with unfavorable events. Teaching Tips: In your student teams, please give two examples of publicity or public relations for one of the products you have discussed. We will share our answers with the class. Answers will vary. © 2009 Pearson Education, Inc.