Business in the Global Economy

Unit 4 marketingUnit 4.03Price and Distribute ProductsPrice

Distribution

Channel of Distribution

Channel Members

Retailer

Key termsBuyers usually want to pay the lowest price possible

Sellers want to charge the highest price possible

Car buying 59% hate experience

Value and price

Supply and DemandLimited supply Higher priceHigh demand Higher priceChristmas toys

Pricing factors

UniquenessIf product has few close competitors because it is unique Higher priceExample: Hammacher Schlemmer

Pricing factors

The 20 Animated Triceratops$350,000AgeWhen new product first introduced Higher price Example:iPhone

Pricing factors

SeasonPrices higher just before new seasonPrices lower after season endsExample:Holiday salesWinter bootsAir conditioners

Pricing factors

ComplexityHighly complex and technical products have higher prices than simple productsMore features and options higher prices

Pros:New and innovative

Pricing factorsConsMore difficult to understandMore fragile than counterpartsMore breakage/recalls

The money a customer must pay for a product or service

Selling Price price paid by the customer for the product

Product Costs costs to the manufacturer to make the product or price paid by businesses to buy the product

Operating expenses all expenses of operating the business that are associated with the producti.e. salaries, storage and display equipment, facilities, utilities, taxes

Profit amount of money available after all costs and expenses have been paid

Price a productSelling Price FormulaProduct costs + Operating expenses + Profit = Selling pricedifference between the selling price and the product costs

Amount of money on hand to pay operating expenses and profit

Example:REI buys a canoe from the supplier for $200It costs REI $50 (prorated) to run the store (staff, insurance, electricity, etc.)REI makes a profit of $125 on each canoeHow much is canoe sold for?What is gross margin?

Gross marginGross Margin = Selling price + Product costsAmount added to the cost of a product to set the selling price

Markup = expected gross marginStated as a percentage of the cost or selling pricei.e. if a product costs $15 and has a 100% markup, the selling price is $30

MarkupMarkup FormulasMarkup on CostProduct costs x Percent markup = markup on costMarkup on Selling PriceGross margin Selling price = Percent markup on selling priceA reduction from the original selling price

A pricing mistake

Reduces the amount of money the business has to cover operating expenses and profits

If customer demand is not as high as projected

If selling season is ending

If there is a flaw in the product

markdownThe locations and methods used to make a product or service available to the target marketdistribution

Channel of Distribution the route a product follows and the businesses involved in moving a product from the producer to the final consumer

Why important?Then exchange bushel of apples for a yard of fabricNow businesses specialize with mass production around worldNeed for distributionSantas WorkshopThe businesses that take part in a channel of distribution

Direct Channel of Distribution products move from the producer straight to the consumer

Indirect Channel of Distribution one or more other businesses between the producer and consumerWholesalers intermediaries between manufacturers and retailersRetailers the final business organization for consumer products Channel members