Download Product, Distribution, Price

Entrepreneurship - Chapter 9
The Marketing Mix:
Product, Distribution, Price
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The 4 “P’s” is universal speak for the marketing mix (a blending of these elements to
reach a target market):
– Product
– Distribution (Place)
– Price
– Promotion
Product
• Product Mix - the different products (or services) a business sells
• Product Features - include color, size, quality, store hours, warranties,
delivery and installation
Positioning is placing a product in a certain market to get a desired customer
response
Distribution (Place)
• Channels of Distribution are the routes that products and services take
from the time they are produced to the time they are consumed
– The entrepreneur needs to find the most efficient way to ship
products to desired locations in a timely manner
– By having efficient channels of distribution a business owner should
be able lower his/her costs…these savings may be passed onto their
customer in the form of lower prices or the business owner could
choose not to pass the savings onto the customer, but instead
increase his/her profitability
Channels of Distribution for Retail Goods:
• Convenient Hours (nights/weekends)
• Catalogs, Fliers and ads for non-area customers
• Take orders by phone/fax and send to customers
• Create a Web Site for your business
– Lets you to provide Product Information and allows your
customers to place an order through the Internet
Receiving Goods to Sell:
• All businesses need to buy supplies, materials, and goods and
services to resell…You need to locate distributors, wholesalers,
and manufacturers through:
– The Thomas Register, AT&T Business Buyer’s Guide, The
American Wholesalers and Distributors Directory, Trade
Magazines
Channels of Distribution for Service Businesses:
• Service businesses have a single direct channel because
production and consumption of a service happens at the same
time (e.g. restaurants, tax service, electricians, etc)
Channels of Distribution for Manufacturing Businesses:
• Manufacturing businesses usually don’t sell directly to
consumers
• Manufacturing businesses sell to retailers who then sell to the
final customer…they may sell to many different retailers or
may sell only to very select retailers
Physical Distribution:
• Includes not only transportation, but also storage and
handling of products within a channel
• It is important for storage facilities to be adequate and safe
Price
• Your pricing must be low enough to beat competition
BUT
• High enough to cover costs and earn a profit
• Before you can select a pricing strategy, you will need to establish
objectives for your pricing program. Examples of pricing objectives include:
– Maximize sales
– Increase profits
– Maintain Image
– Attract customers
– Discourage competition
• Once you have considered your pricing objectives you must then determine
the possible prices to charge…there are 3 possible pricing methods:
– Demand-Based Pricing - pricing is determined by how much
customers are willing to pay for the product or service.
– Cost-Based Pricing - pricing is determined by using the wholesale
cost of an item as the basis for the price charged.
• Markup Price - price is determined by adding an amount to the
wholesale cost of an item. The formula you use is:
• Wholesale Cost X Percentage Markup = Markup Amount
then
• Wholesale Cost + Markup Amount = Retail Price
Example of Markup Pricing…
Assume a can of artichokes hearts costs you $1.77 and you decide to
add 40% to your wholesale cost to determine your retail price that
you charge your customers…
Wholesale Cost X Percentage Markup = Markup Amount
$1.77 X .40 = $.71
then you add the markup amount to your wholesale cost
Wholesale Cost + Markup Amount = Retail Price
$1.77 + .71 = $2.48
• Markdown Price - price is determined by subtracting an
amount from the retail price of an item
– Competition-Based Pricing - pricing is determined by considering
what your competitors charge for the same product or service
Pricing a Service:
Time-Based Pricing is when the price you charge your customers for the service is
based on how long it takes to complete the service. (lawyers, plumbers, cleaning
service)
Example…assume you are a lawyer and you charge your clients $150.00 per
hour. Next, assume that you spent 22 hours on Mr. Slob’s case…how much do you
charge him?
Bundling is when you bundle or combine a number of services and charge one
price for all of the services instead of charging the customer separately for each
service (Triple Play)
Breakeven Point is the lowest price identified in the price range is based on the
costs of the product or service sold to the seller. When using this method you
must include all of the expenses involved in making and selling the service or
product.
To determine the breakeven point you…
Total fixed costs / (selling price - variable costs) = breakeven point
Promotion
The Promotional Mix is a strategy for promoting your business by using some or
all of the following:
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Advertising
Publicity
Sales Promotion
Personal Selling
Advertising
Advertising is a paid form of communication sent out by a business about a
product or service. Advertising should help a business convey a positive image.
Public Relations is the act of establishing a favorable relationship with customers
and the general public.
Advertising should clearly communicate your intended message and image you
want. For example, if you want to be known as the business with the lowest
prices then you should make sure that your advertising highlights your good
prices.
There are different forms of advertising some include:
Television Advertising – best way to reach a large number of people quickly, but
it costs a lot and often reaches a too broad.
Radio Advertising – reaches a lot of people and you can target the channel that
plays to the same group of people that you consider your target market. It has
the disadvantage of being purely audio message and you can’t show your
products.
Newspaper Advertising – good for small businesses because it:
o Is relatively inexpensive
o Targets a limited geographic area
o Reaches a large number of people
Telephone Directory Advertising – Disadvantage is that people only look in the
directory when they are already in search of the particular type of business.
Direct Mail Advertising
Magazine Advertising
Outdoor/Billboards Advertising
Transit Advertising
Publicity
Publicity - free promotion generated by media coverage
Press Release – a written statement meant to inform the media of an event or
product
Personal Selling
Personal selling is direct communication between a prospective buyer and a sales
representative in which the sales representative attempts to influence the
perspective buyer in a purchase situation.
Sales representatives should know:
1. Product Knowledge – sales rep must understand the features of the
product and the benefits that the buyer will enjoy if they make the
purchase.
2. Determine Customer Needs and Wants – sales rep must know what needs
or wants will be fulfilled by buying the product.
Other Types of Promotion
Sales Promotion is the act of offering an incentive to customers in order to
increase sales. Sales promotion might take the form of:
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Contests
Free samples
Coupons
Rebates
Frequent buyer program
Gifts
Special events
Rebates- a rebate is a refund offered to people who purchase a product
Telemarketing is using the phone to market your product or service.
Miscellaneous Marketing Concepts and Terms
Market Share is the percentage of a market owned by a business. The total
market for a product must be known in order for a market share to be
determined. Your market share will depend on the level of competition in your
market. If you create a market for an entirely new product or service you will
have 100% of market share…at least for a while until other competitors enter the
market.
There are many ways to increase your Market Share…as we already know some
ways are…
Lower prices
More advertising and promotion
Providing a better product or service than your competitors
Providing better customer service
More convenient hours for your customers
But there is also…
Networking is establishing informal ties with people who can help your business
grow. Joining organizations like the Rotary Club, trade associations, local sport
leagues, the Chamber of Commerce, the alumni association of your college.