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Chapter 12
Pricing, Distributing, and Promoting Products
© 2007 Prentice Hall, Inc. All rights reserved.
After reading this chapter, you should be able to:
Identify the various pricing objectives that govern pricing
decisions and describe the price-setting tools used in making
these decisions.
Discuss pricing strategies that can be used for different
competitive situations and identify the pricing tactics that can be
used for setting prices.
Explain the meaning of distribution mix and identify the different
channel of distribution.
Describe the role of wholesalers and explain the different types of
Describe the role of e-intermediaries and explain how they add
value for advertisers and consumers on the Internet.
Define physical distribution and describe the major activities in
the physical distribution process.
Identify the important objectives of promotion, discuss the
considerations in selecting a promotional mix, and discuss
advertising promotions.
© 2007 Prentice Hall, Inc. All rights reserved.
What’s in It for Me?
By understanding this chapter’s methods for
pricing, distributing, and promoting products,
you, too, can benefit in three ways:
 As both employee and manager, you’ll be prepared
to use the concepts of pricing, distributing, and
promoting products in your career.
 As a consumer, you’ll have a clearer picture of how a
product’s promotion and distribution affect its selling
price, causing it to rise or fall.
 As a future investor, you’ll be prepared to evaluate a
company’s marketing program and its competitive
potential before buying the company’s stock.
© 2007 Prentice Hall, Inc. All rights reserved.
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
 Market share objectives
Using pricing to establish market share—a company’s
percentage of the total industry’s sales for a specific
product type
© 2007 Prentice Hall, Inc. All rights reserved.
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
 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
© 2007 Prentice Hall, Inc. All rights reserved.
Determining Prices (cont’d)
Cost-Oriented Pricing
Markup percentage 
Sales price
Breakeven Analysis
Total fixed costs
Breakeven point (in units) 
Price - Variable cost
© 2007 Prentice Hall, Inc. All rights reserved.
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
© 2007 Prentice Hall, Inc. All rights reserved.
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
© 2007 Prentice Hall, Inc. All rights reserved.
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
© 2007 Prentice Hall, Inc. All rights reserved.
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.
© 2007 Prentice Hall, Inc. All rights reserved.
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
© 2007 Prentice Hall, Inc. All rights reserved.
 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
© 2007 Prentice Hall, Inc. All rights reserved.
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
© 2007 Prentice Hall, Inc. All rights reserved.
Retailing (cont’d)
Nonstore Retailing
 Vending machines
 Direct-response retailing
Mail order (or catalog marketing)
Direct selling
© 2007 Prentice Hall, Inc. All rights reserved.
The Ascent of the E-Intermediary
 Internet-based channel members who perform one
or both of two functions:
1. Collect information about sellers and present it to
2. Help deliver Internet products to buyers
© 2007 Prentice Hall, Inc. All rights reserved.
The Ascent of the E-Intermediary (cont.)
Types of E-Intermediaries
 Syndicated sellers offer other web sites a
commission for referring customers.
 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.
© 2007 Prentice Hall, Inc. All rights reserved.
Electronic Retailing
Electronic Catalogs (E-catalogs)
Use the Internet to display products
Electronic Storefronts (virtual storefronts)
A Web site from which consumers collect information
about products, place orders, and pay for purchases
Collections of virtual storefronts representing diverse
Interactive and Video Marketing
Lets viewers shop at home by phoning in or e-mailing
© 2007 Prentice Hall, Inc. All rights reserved.
Physical Distribution
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
© 2007 Prentice Hall, Inc. All rights reserved.
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
© 2007 Prentice Hall, Inc. All rights reserved.
Physical Distribution (cont’d)
Physical Distribution and E-Customer
 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
© 2007 Prentice Hall, Inc. All rights reserved.
The Importance of Promotion
 The techniques a firm uses for communicating
information about products
Promotional Objectives
 To
 To
 To
 To
communicate information
position products
add value
control sales volume
 Establishing an easily identifiable product image in
the minds of consumers by fixing, adapting, and
communicating the nature of the product itself
© 2007 Prentice Hall, Inc. All rights reserved.
The Importance of Promotion (cont’d)
Promotional Tools
 Advertising
 Personal selling
 Sales promotions
 Publicity
 Public relations
Promotional Mix
 The combination of promotional tools
© 2007 Prentice Hall, Inc. All rights reserved.
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
best tool: advertising and personal selling
© 2007 Prentice Hall, Inc. All rights reserved.
Advertising Promotions
 Paid, nonpersonal communication by which an
identified sponsor informs an audience about a
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
© 2007 Prentice Hall, Inc. All rights reserved.
Advertising Promotions (cont’d)
Advertising Media
 Television
 Direct mail
 Newspapers
 Magazines
 Radio
 Internet
 Outdoor
 Other
© 2007 Prentice Hall, Inc. All rights reserved.
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
© 2007 Prentice Hall, Inc. All rights reserved.
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
© 2007 Prentice Hall, Inc. All rights reserved.
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
© 2007 Prentice Hall, Inc. All rights reserved.