Pricing, Distributing, and Promoting Products

business essentials -- part 11 -- summary

In pricing, managers decide what the company will get in exchange for products. Pricing objectives refer to the goals that producers hope to attain as a result of pricing decisions. These objectives can be divided into two major categories: (1) pricing to maximize profits: if prices are too low, the company will probably sell many product units but miss the chance to make additional profits on each one. If prices are set too high, it will make a large profit on each unit but will sell fewer units. (2) marketshare objectives: many companies are willing to accept minimal profits, even losses, to get buyers to try products. They may use pricing to establish market share -- a company's percentage of the total market sales for specific product type.

Managers must measure the potential impact before deciding on final prices. For this purpose, they use two basic tools (which are often combined): (1) cost oriented pricing: managers price products by calculating the cost of making them available to shoppers; when they total these costs and add a figure for profit, they arrive at a markup. (2) breakeven analysis: breakeven analysis assesses total costs vs. revenues for various sales volumes. It shows, any particular sale price, the financial results -- the amount of profit or loss -- for each possible sales volume. The number of units that must be sold for total revenue to equal total cost is the breakeven point.

The distribution mix

The success of any product depends on its distribution mix: the combination of distribution channels of the firm uses to get products to end-users. Intermediaries help to distribute a producer's goods: wholesalers sell products to other businesses, which resell them the final consumers. Retailers sell products directly to consumers.

Among the eight distribution channels, the first four are aimed at getting products to consumers, the fifth is for consumers or business customers, and the last three are aimed at getting products to business customers.
Channel 1 involves direct sales to consumers
Channel 2 includes a retailer
Channel 3 in involves both a retailer in a wholesaler
Channel 4 includes an agent or broker
Channel 5 includes only an aged between the producer and consumer
Channel 6, which is used extensively for e-commerce, involves a direct sale to an industrial user
Channel 7 entails selling to business users through wholesalers
Channel 8 includes retail superstores they get products from producers or wholesalers (or both) for reselling to business customers

Retailing

U.S. retail operations fall under two classifications.
Product line retailers featuring broad product lines include department stores in supermarkets. Small specialty stores are clearly defined market segments by offering full product lines in their rope product fields. Bargain retailers carry wide range is a products income in many forms, including discount houses, catalog showrooms, factory outlets, warehouse clubs (or wholesale clubs), and convenience stores.

Nonstore retailing includes direct response retailing, in which firms make direct contact with customers to inform them about products and take sales orders. Mail order (or catalog marketing) is a form of direct response retailing, as is telemarketing. Electronic retailing uses communications networks that allow sellers to connect to consumers computers. Internet retail shopping includes electronic storefronts where customers can examine the stores products, place orders, and make payments electronically. Customers can also visit cyber malls -- a collection of virtual storefronts representing a variety of product lines on the Internet.

Physical Distribution

Physical distribution refers to all the activities needed to move products from producers to consumers, so that products are available when and where customers want them at reasonable cost. Physical distribution activities include providing customer services, warehousing, and transportation of products. Warehouses provide storage for products and may be either public or private. Transportation operations physically move products from suppliers to customers. Trains, railroads, planes, water carriers (boats and barges), and pipelines are major transportation modes used in the distribution process.

Promotions

Although the ultimate goal of promotion is to increase sales, other roles include communicating information, positioning a product, adding value, and controlling sales volume. In deciding on the appropriate promotional mix -- the best combination of promotional tools (for example advertising, personal selling, public relations) -- marketers must consider the good or service being offered, characteristics of the target audience and the buyer's decision process, and of course the promotional mix budget.

Advertising media includes television, newspapers, direct mail, radio, magazines, outdoor advertising, and the Internet, as well as other channels such as Yellow Pages, movies, special events, and door-to-door selling. The combination of media that a company chooses is called its media mix.

Personal Selling

Personal selling tasks include order processing, creative selling (activities that helped persuade buyers), and missionary selling (activity that promoted firms and products). Point-of-purchase (POP) displays are intended to grab attention and help customers find products in stores. Purchasing incentives include samples (which let customers try products without having to buy them) and premiums (rewards for buying products). At trade shows, seller's rent booths to display products to customers who have an interest in buying. Contests are intended to increase sales by stimulating buyers interest in a product.