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BUS 100: Chapter 7 (Distribution & Pricing)
Transcript of BUS 100: Chapter 7 (Distribution & Pricing)
Distribution & Pricing
This uses psychology to influence sales. One example is odd pricing, which refers to ending prices in numbers below even dollars and cents.
Loss Leader Pricing
Closely related to high/low pricing, this strategy refers to pricing a handful of items (called "loss leaders") temporarily below cost to drive traffic.
A low price designed to help a product enter the market and gain market share rapidly.
A group of organizations that moves products from their producer to consumers.
This refers to the actual movement of products along the channel of distribution.
This occurs when producers sell their products directly to customers without a middle man, which is known as a channel intermediary.
Channel of Distribution
Channels for Consumer Products
Makes a product available in as many outlets as possible.
Uses only a small proportion of all available outlets to expose products.
Exists when a manufacturer gives a middleman or retailer the sole right to sell a product.
Role of Distributors
Why not cut out the middle man?
Distributors can add utility (or value) in these ways:
This provides customer satisfaction by converting inputs into finished products. For example, Kellogg's provides form utility by transforming wheat into cereal.
This adds value by making products available at a convenient time for consumers. For example, a vending machine is a "distributor" that provides 24/7 service.
This satisfies customer needs by providing the right products in the right place. Multiple fast food restaurants, for instance, might be clustered together near a highway exit.
This adds value by making it easier for customers to actually possess the goods and services that they purchase. Providing credit, or accepting credit cards, are examples.
This boosts customer satisfaction by providing helpful information. At GameStop, for instance, you will likely be served by an employee who is highly knowledgeable about gaming.
This adds value by providing fast, friendly, personalized service. For example, receiving a haircut at your favorite salon.
Some wholesalers are owned by producers and others by retailers, but the vast majority are independent wholesaling businesses. These companies represent a number of different producers, distributing a range of customers. Independent wholesalers fall into two categories.
These represent about 80% of all wholesalers. They take legal title to the goods they distribute, which reduces the risk of producers' products being damaged or stolen.
These connect buyers and sellers and facilitate transactions in exchange for commissions.
Agents and Brokers
They represent the last stop on the distribution path, since they sell goods and services directly to the consumers.
Traditional stores account for more than 90% of total retail. Both retailers and producers who distribute through them must carefully consider their distribution strategy.
Also known as "e-tailing", online retailing grew at nearly 25% per year for most of the 2000s.
While most retail dollars flow through brick-and-mortar stores, here are some nonstore channels:
This category includes catalogs, telemarketing and advertising such as infomercials. These are meant to elicit direct consumer sales.
This channel includes all methods of selling directly to customers in their homes or workplaces.
Modern vending machines have evolved past soda, chips and candy. You can now purchase fresh-cooked foods, specialty coffee drinks, and even electronics through vending machines.
This refers to the emerging trend of encouraging consumers to buy through different venues.
The supply chain for a product includes not only its distribution channels, but also the string of suppliers who deliver products to the producers. Planning and coordinating this movement is known as supply chain management (SCM). Logistics is a subset of SCM that focuses more on tactics than strategy.
These pricing strategies are used to increase sales and gain market share.
This aims to achieve long-term profitability through volume.
This tries to increase traffic in retail stores by special sales on a limited number of products, and higher everyday prices on others.
Since long-term profitability is a fundamental goal of most businesses, profitability targets are often the starting point for pricing strategies.
Matching the Competition
The key goal is to set prices based on what everyone else is doing. Usually, the idea is to wipe out price as a point of comparison.
The core goal is to use price to send consumers a message about the high quality and exclusivity of a product. The higher the price, the better the product.
This is a subset of prestige pricing, and it involves offering new products at a premium price to "skim" the top off the market.
How do concepts such as supply and demand and price elasticity affect pricing decisions? Here are some measures used to ensure pricing will allow a business to cover costs and achieve objectives.
This is a simple process and formula that determines the number of a units a firm must sell to cover all costs. Sales above this point will generate a profit and sales below a loss.
Many firms determine upfront how much money they need to make for each item they sell. The profit margin can be expressed as a dollar amount or a percent.