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Chapter 8 - Product Planning and Development Study by PricewaterhouseCoopers o ½ of plausible business ideas come from the customers, competitors, and suppliers o Imaginatik- created a technology based program that creates ideas but can help in deciding if they will work or not. Electronic suggestion box that allows people to discuss and analyze in the program o Important points: Ever company needs to develop new products to stay successful The nature of a product is as extensive as our imaginations Steps can be taken to stimulate the flow of new-product ideas Success of products are not guaranteed Product: is a set of tangible and intangible attributes, which may include packaging, color, price, quality, and brand, plus the sellers services and reputation o Customers don’t always want a product but something that benefits their needs Ie. Like sand paper no one wants sand paper they want a smooth service o Any change (design, color, size, packaging) creates another productbrings the customer a new set of appeals. Classifications of Products o Customer products: are intended for personal consumption by households o Business Products: are intended for resale, for use in producing other products, or for providing services to an organization o Convenience good: a tangible product that the consumer feels comfortable purchasing without gathering additional info and then actually buys with a minimum effort Low unit price, not bulky, not greatly affected by fad and fashion o Shopping good: a tangible product for which a consumer wants to compare quality, price, and perhaps style in several stores before making a purchase fashionable apparel, furniture, major appliances, and automobiles o Specialty goods: a tangible product for which a consumer has a strong brand preference and is willing to expend substantial time and effort locating the desired brand Men’s suits, stereo sound equipment, health foods, photographic equipment… o Unsought goods: a new product that the consumer is not yet aware of or a product that the consumer is aware of but does not want right now. Segway scooter o Raw Materials: business goods that become part of another tangible product prior to being processed in any way Minerals, land, products of the forest and seas, cotton, fruits, livestock, animal products, etc. o Fabricating Materials: business goods that become part of the finished product after having processed to come extent fit into the category of fabricating materials and parts. Undergo further processing, flour to bread, yarn to cloth, etc. o Fabricating Parts: assembled with no further change in form Zipper in clothes, semi conductor chips in computers, etc o Installation: manufactured products that are an organization’s major, expensive, and long-lived equipment Large generators in a dam, factory building, diesel engines for a railroad o Accessory Equipment: tangible products that have substantial value and are used in an organization’s operations Small power tools, forklift trucks, office desk, etc. o Operating Supplies: business good that are characterized by low dollar value per unit and a short life and that contribute to an organization’s operations without becoming part of the finished product Liberating oils, pencils, stationery, etc. Importance of Product Innovation o Rapid technological changes, can make existing products obsolete o The practice of many competitors to copy a successful product, which can neutralize an innovative product’s advantage New Products: o Really innovative, truly unique products o Replacement products that are significantly different from existing ones o Imitative products that are new to a particular firm but not new to the market New- Product Strategy: a statement identifying the role a new product is expected to play in achieving corporate and marketing goals Stages in the development process o Generating new product ideas o Screening ideas o Business analysis o Prototype development o Market test o Commercialization Producer’s Criteria for new products o Adequate market demand o Satisfy key financial criteria o Compatible with environmental standards o Fit into the company’s present market structure Middleman’s criteria for new products: o Good working relationship with the producer o Compatible distribution policies and practices o Satisfy key financial criteria New Product adoption process: the set of successive decisions an individual person or organization makes before accepting an innovation o Awareness: individual is exposed to the innovation; becomes a prospect o Interest: prospect is interested enough to seek info o Evaluation: prospect judges the advantages and disadvantages of a product and compares it to alternatives o Trial: prospect adopts the innovation on a limited basis. A consumer tries a sample, if the product can be sampled o Adoption: prospect decides whether to use the innovation on a full scale basis o Confirmation: after adopting the innovation, prospect becomes a user who immediately seeks assurances that the decision to purchase the product was correct New Product Diffusion: a new product is the process by which an innovation spreads throughout a social system over time. Adopter Categories: o Innovators: are venturesome consumers who are the first to adopt an innovation o Early adopters: purchase a new product after innovators but sooner than other customers o Early majority: more deliberate consumers who accept an innovation to save money or in response to social pressure from their peers o Late Majority: skeptical group of consumers who usually adopt an innovation to save money or in response to social pressure from their peers o Laggers: consumers who are bound by tradition and are last to adopt and innovation Adoption rate: the speed or ease with which a new product is adopted o Characteristics affecting adoption rate Relative advantage Compatibility Complexity Trialability Observability Chapter 9 Product Mix: set of all products offered for sale by the company Product Line: a broad group of products intended for essentially similar uses and having similar physical characteristics Positioning 1. Directly against competitor- suitable for firm who has solid differential advantage 2. Head to head-what NOT to do, especially when competitor has strong market position 3. Associating product with OR distancing it from a product class/ attribute i.e. “Made in the USA” 4. High quality, high price i.e. Saks Fifth Avenue Line extension: when a company adds a similar hem to an existing product line with same brand name i.e. G2 added to Gatorade Mix extension: add a new product line to the company’s present assortment i.e. Jell-O pudding pops - May be related/unrelated to current products; typically related to company because they want to capitalize on their strengths and experience Product alteration: improving on established product can be more profitable/less risky than developing new one Product mix contraction: eliminating an entire line or simplifying the assortment within a line Trading up: adding higher priced product to a line in order to attract a broader market Trading down: adding lower priced product to a company’s product line - May permanently hurt firm’s reputation - Solution= developing new brand i.e. Hewlett Packard developed Apollo for lower priced printers Product Life Cycle- applies to generic category of product 1. Introduction “pioneering stage”: most risky/expensive -most new products fail because they are not accepted -marketing aimed at stimulating demand for entire product category rather than demand 2. Growth “market acceptance stage”: sales/profits rise frequently at rapid rate - large number of competitors enter market - profits begin to fall at the end 3. Maturity: sales continue to rise but at decreasing rate - when sales level off profits decline (due to intense price competition) - seek to differentiate product 4. Decline: inevitable… - better/less expensive product developed - need for product disappears - tired of product entry strategy- first mover advantage: company that introduces new product target highest potential market segments and determine how to produce good/service and at what price Possible solutions to decline stage: -efficient marketing -prune product line -“run” our product OR cut all costs to bare minimum -improve product -if ineffective consider product abandonment Technological obsolescence: significant technical improvement results in more effective product Style obsolescence: superficial obsolescence of a product are altered so new model is differentiated from previous Chapter 10 Key Terms Producer brands (national brands) -Owned by the manufacturer Middleman brands (private brands) -Owned by the retailers or wholesalers Why Brand? For consumers: Identify goods or services - assure consistent quality/service For sellers: promotion, reduces price comparisons, reputation/loyalty Why shouldn’t you brand? With brand ownership comes responsibility to (1) promote the brand and (2) maintain consistent quality of output. If your firm is unable or unwilling to assume these responsibilities you shouldn’t brand. Brand Names The challenge is we are running out of possibilities of names One solution: combine number/letters and or words to form name or create morphemes (names that are not part of the English language) Desirable characteristics of a brand name o Suggests something about the product (benefits, use) o Easy to pronounce, spell, and remember o Be distinctive o Be adaptable to additions to the product line o Be capable of registration and legal protection Naming costs start at about $25000 Protecting a brand name – what are you safeguard against? Product counterfeiting – the crime of the 21st century – placing a highly regarded brand on their offering, disregarding that they don’t have right to the brand (think NYC – China town) Generic Usage – no simple generic name is available so public adopts the brand name as the generic name OR brand is so widely promoted that people use the names generically Branding Strategies – Producer Marketing entire output under producer’s own brands Branding of fabricating materials and parts – most effective when (1) Product is also consumer good that is bought for replacement purposes (2) The item is a key part of the finished product Marketing under Middleman brands – hopes its own brands will appeal to some loyal customers and the middleman brands will appeal to the cost-conscious shopper – helps manufacturer fully utilize plant capacity Middleman’s Strategies Carry only producers’ brands – don’t have the finances/resources to promote a brand and maintain quality Carry both producers’ and middleman’s brands – increases control over target markets, middleman brands can sell at lower prices and still yield higher gross margins than producer brands but need to be careful in determining pricing to maintain assurance of quality. ** Most successful middleman brands or consumer packaged goods such as groceries and personal care items Strategies common to producers and middlemen branding within a product mix (3 strategies) o a separate name for each product o company name combined with a product name o the company name alone o **using the company name for branding purposes = family branding = greater burden on company o maintain consistent quality among all products branding for market saturation o multiple-brand strategy = have more than one brand of essentially the same product, aimed at either the same target market or at distinct target markets co-branding (dual branding) o two separate companies or division within the same company place both of their respective brands on a particular product Building and using brand equity brand equity = the value a brand adds to a product often used to expand the market mix just because a brand has abundant equity doesn’t mean that it should always be applied to other products Trademark Licensing is considered when brands have strong brand equity Packaging and Labeling Packaging is all the activities of designing and producing the container/wrapper for a product – 4 purposes for packaging o Protect product on its way to the consumer o Protect product after it is purchased o Help persuade middlemen to accept the product o Help persuade consumers to buy the product Strategies o Packaging the product line a.k.a. family packaging o Multiple packaging – placing several units of the same product in one container Criticisms of packaging o Packaging that depletes natural resources o Forms of packaging that are health hazards o Disposal of used packages o Deceptive packaging o Expensive packaging Labeling carries information about the product and the seller (3 types) o Brand label – brand alone applied to the package/product o Descriptive label – gives objective information about the product’s use, construction, care, performance and/or other pertinent features o Grade label – identifies the product’s judged quality with a letter, number or word o Statutory labeling requirements exist – Fair Packaging and Labeling Act of 1966 Design, Color, Quality Design = arrangement of elements that collectively form a good or service; good design can improve marketability o Socially responsible design (2) Universal design = design products that are easily used by all consumer C2C = “cradle to cradle” seeks to recycle parts and components as much as possible Product color is often a determining factor in a customer’s acceptance/rejection of a product; can be registered as part of the trademark under the Lanham Act of 1995 Quality = set of features and characteristics of a good or service that determine it’s ability to satisfy needs TQM = total quality management = philosophy that commits the organization to continuous quality improvement in all activities ISO 9000 = a set of related standard of quality management adopted by more that 150 countries (companies are certified); ISO 14001 includes the implementation of an environmental management system Chapter 11- Service Marketing Services= identifiable, intangible activities that are the main object of a transaction designed to provide want-satisfaction to customers. Do not exist until they are consumed. ** 4 characteristics that differentiate services from goods: Intangibility inseparability Heterogeneity perishability Intangibility= inability to feel, see, hear or taste [unable to sample] Inseparability= unable to separate from the company. [dentist performs service] Heterogeneity= unable to produce same result every single time so focus should be on QUALITY. Perishability= fluctuation of demand and inability to take inventory causes highly perishable services. [ex: empty rooms on a cruise ship] -services as main purpose or transaction. [rental cars] -services as support or facilitate the sale of a good. [insurance for that rental car] **Service Industry is very large. -Over half of consumer expenses & 80& of business expenses. -US has worlds largest services economy. Over 2/3 from services. -Service Marketers can be either: for profit businesses or nonprofit organizations – [examples on pg 287-288 in book. ] -services should be directed at target market or for nonbusiness organizations the provider market & the client market. Non-profit organizations= provide services but does not have a profit or surplus objective. [government etc.] -Service marketing can be very costly to both non profit and profit orgs. -Service marketing took longer to catch onto the need for marketing. [ex: Utlility companies as monopolies thought they had no need for marketing] ** 4 Promotional strategies: -Visualization [cruises showing fun & happy people] -Association [connecting service to a tangible good, person, object or place to create an image] -Physical Representation [American Express using gold or platinum cards to show wealth or prestige] -Documentation [past performance & future capabilities (testimonials)] -Product Planning: what services to offer? What product mix strategies to adopt? What features (branding& support service) needed? -Distribution= 2 tasks: provide facilities to distribute the service & select the channel of distribution. * location of distribution facilities = KEY Promotional program involving: personal selling, advertising, & others [coupons, direct mail, front end incentives, back end incentives, & virtual incentives.] ** future of services marketing is through technology, increased productivity, performance measurement & management, and successful market research keeping services up to date and adaptable with the changing market. Chapter 12- Price Determination Priceline.com o Idea where customers “name your own price” o Changed their business model from just flights to include hotels and car rentals as well Price: is the amount of money and/or other items with utility needed to acquire a product o Where utility is an attribute with the potential to satisfy wants o Barter: the exchanging of goods and/or services for other products o A seller usually is pricing a combination of: The specific good/ service that is the object of the transaction Several supplementary services (warranty, etc) The want-satisfying benefits provided by the product Importance of price o Products price influences wages, rent, interest, and profits o 4 types of shoppers: brand loyal: relatively uninterested in price system beaters: prefer certain brands but try to buy them at reduced prices deal shoppers: driven by low prices volveds: seemingly not motivated by either brand or low price o Value: is the ratio of perceived benefits to price and any other incurred costs Pricing objectives: o Profit-oriented: To achieve a target return To maximize profit o Sales-oriented: To increase sales volume To maintain or increase market share o Status quo-oriented: To stabilize price To meet competition Base Price (list price): refers to the price of one unit of the product at its point of production or resale Estimating demand o Steps: Determine whether there is a price the market expects Estimate what the sales volume might be at different prices o Expected price: is the price at which customers consciously or unconsciously value it- what they think the product is worth o Inverse demand: the higher the price, the greater the unit sales Competitive Reactions o Directly similar products: nike vs. adidas o Available substitutes: DHL air express vs. Schneider National truck o Unrelated products seeking the same consumer dollar: DVD player vs. bicycle Marketing-mix elements o Product o Distribution channels o Promotions Cost of a product o Fixed cost: such as rent, executive salaries, or property tax, remain constant regardless of how many items are produced. o Total fixed costs: is the sum of all fixed costs o Average fixed costs: is the total fixed cost divided by the number of units produced o Variable costs: such as labor or materials, is directly related to production. Variable costs can be controlled in the short run simply by changing the level of production o Total variable costs: is the sum of all variable costs o Average variable costs: is the total variable cost divided by the number of units produced o Total cost: is the sum of total fixed cost and total variable cost o Average total cost: is total cost divided by the number of units produced o Marginal cost: is the cost of producing and selling one more unit o Average fixed cost curve: declines as output increases, because the total of the fixed costs is spread over an increasing number of units o Average variable cost curve: usually U-shaped. It starts high because average variable costs for the first few units or outputs are high. o Average total cost curve: is the sum of the first two curves- average fixed cost and average variable costs. Starts high, reflecting the fact that total fixed costs are spread over so few units of output. As output increases, the average total cost curve decline because unit fixed cost and unit variable cost are decreasing o Marginal cost curve: has more pronounced U-shape than the other curves. Cost-plus pricing: setting the price of one unit of a product equal to the total cost of the unit plus the desired profit on the unit Break-even analysis: a method of calculating the level of output at which total revenue equals total costs, assuming a certain selling price o Break-even point: is the quantity of output at which total revenue equals total costs, assuming a certain selling price Marginal revenue: is the income derived from the sale of the last unit Average revenue: is the unit price at a given level of unit sales; it is calculated by dividing total revenue by the number of units sold o The optimum volume of output is the quantity level at which marginal cost equals marginal revenue Perfect competition: a market structure in which product differentiation is absent, buys and sellers are well informed, and the seller has no discernible control over the selling of the product Kinked demand: a condition in which total revenue declines when a product’s price is increased or decreased in relation to the prevailing market level Oligopoly: a market structure dominated by a few firms, each marketing similar products Pricing below competition: one form of market-based pricing in which price is set below the level of your main competition Pricing above competition: one form of market-based pricing in which price is set above the prevailing market level Chapter 13 – Pricing Strategies -Price competition= regularly offering products priced as low as possible typically accompanied by few, if any services. [move price up & down depending on demand] -Value pricing= form of price competition aiming to improve a product’s value [ratio of benefits to its price & related costs]. To implement value pricing: 1) lower prices with same or added benefits. 2) seek ways to cut expenses so profits don’t suffer. -Non-price competition= maintain stable prices and attempt to improve their market positions by emphasizing other aspects of their marketing programs. [product or promotion differentiation, etc.] -Market skimming pricing= relatively high price for new product. -market-penetration pricing= relatively low product price for new product. -Quantity discounts= more amount of products earn lower price -trade discounts= reduction in price in payment for marketing functions the buyer will perform for them. -cash discounts= pay bills on time to get credits or money back. -others: rebates, coupons, promotional allowance, seasonal discount. Robinson Patman Act: passed in 1936 intended to curb price discrimination by large retailers. Price discrimination is unlawful when the effect may be to substantially injure competition. **Price differential + Injury to competition= Robinson- Patman Violation UNLESS price differential = cost differential. -Geographic Price strategies: Point of production pricing: seller quotes selling price at point of production and buyer selects mode of transportation and pays freight costs Uniform Delivered Pricing: same delivered price is quoted to all buyers regardless of their locations. Zone-delivered pricing: divides sellers market into a limited # of geographic locations and sets uniform delivery price to each zone. Freight absorption pricing: seller quotes customer a delivery price equal to the factory price and then adds in shipping costs that would be charged in the customers location. Special Pricing Strategies & situations: -One Price- one price for everyone -Flexible price – similar customers pay different prices when purchasing identical products. -Flat rate pricing- one price for as little/ much of product [ex: buffet] -Single price- entire product line by company sold for single price [ex: 99 cent store] -price lining- selecting numerous prices to sell products at. [ex: shoe store selling group of shoes at 19.99, 29.99, & 39.99] -odd pricing- 19.95 instead of 20 to appear less money & up sales. -leader pricing & unfair practices- prices on “leaders” are cut in order to attract customers. Unfair practices are used to regulate leader pricing by prohibiting company to sell product for less than invoice cost plus some stipulated amount. -high low pricing & everyday low pricing- high prices and then sudden low prices on popular items to indicate lower prices. [frequent fluctuations] OR everyday involving consistent low prices with rare fluctuations. -resale price maintenance involves the control of price that middlemen resell their product for. Used to protect brands name. [ex: “suggested retail price”] Chapter 14 Middleman = business firm that renders services related directly to the sale/purchase of a product as it flows from producer to consumer; act as sales specialists for their suppliers Merchant Middlemen – take title to the products they help market (wholesalers and retailers) Agent Middlemen – never own the products, they arrange the transfer of title (real estate brokers, manufacturer’s agents, travel agents) Disintermediation = process of eliminating middlemen form the channel – doesn't always lower the cost Distribution Channel = set of people and firms involved in the transfer of title to a product as it moves from producer to ultimate consumer or business firm without changing its form. When the product’s form is altered a new product emerges and a new channel begins. Intermediaries (banks, insurance companies, transportation companies) are involved but not formally included in the distribution channel. Company wants the distribution channel to meet the customer’s needs and also provide a differential advantage o Specify the role of distribution o Select the type of channel Direct – no middlemen, product from producer to customer Indirect – producer, final customer, and at least one level of middlemen o Determine intensity of distribution o Choose specific channel members Distribution of consumer goods o Producer → final consumer o Producer → retailer → consumer o Producer → wholesaler → retailer → consumer o Producer →agent → retailer →consumer o Producer → agent → wholesaler →retailer →consumer Distribution of business goods (merchant wholesaler & industrial distributor are synonymous) o Producer → user o Producer → industrial distributor → user o Producer → industrial distributor → reseller → user o Producer → agent → user o Producer → agent → industrial distributor → user Distribution of Services o Producer → consumer o Producer → agent → consumer Multiple distribution channels = used to reach two or more target markets or avoid dependence on a single arrangement o Used to reach different types of markets when selling (1) the same product to consumers and business markets (2) relatively unrelated products o Used to reach different segments within the same market when (1) size of buyers varies greatly (2) geographic concentration differs across parts of the market o Dual distribution = selling the same brand to a single market through channels that compete with each other Vertical Marketing Systems (VMS) - has become the dominant form of distribution channel = a tightly coordinated distribution channel designed specifically to improve operating efficiency and marketing effectiveness. Corporate VMS = a firm at one level of a channel owns the firms at the next level or owns the entire channel Contractual VMS = independent producers, wholesalers, and retailers operate under contracts specifying how they will try to improve the effectiveness and efficiency of their distribution Administered VMS = coordinates distribution activities through (1) the market and/or economic power of one channel member or (2) the willing cooperation of channel members Factors affecting choice of channels Market considerations – needs, structure, and buying behavior of the target market o Type of market, Number of potential customers, Geographic concentration of market, Order size Product Considerations - (1) unit value (2) perishability (3) technical nature Middlemen Considerations (1) Services provided by middlemen(2) Availability of desired middlemen (3) Producer’s and middlemen’s policies Company considerations Desire for channel control, Services provided by the seller, Ability of management, Financial resources Intensity of distribution = how many middlemen will be used at the wholesale and retail levels in a particular territory **Optimal intensity for a producer is having just enough middlemen to meet the desires of the target market. Intensive distribution – producer sells product through every available outlet in the market where the consumer might reasonably look for it. (retailers often control if this strategy can be implemented) Selective distribution - producer sells product through multiple but not all possible outlets in the market where the consumer might reasonably look for it (firm may chose this strategy to enhance the image of the products, strengthen customer service, improve quality control and/or maintain some influence over prices) Exclusive distribution – supplies agrees to sell its product only to a single wholesaling middleman (exclusive distributorship) and/or retailer (exclusive dealership) in a given market. Middleman may promote product more vigorously, producer suffers if middleman doesn’t serve its customers well, if middleman becomes too dependent on the producer and the producer fails the middleman also fails. Channel Conflict exists when one channel member perceives another to be acting in a way that prevents them from reaching their distribution objectives. Horizontal conflict is among firms on the same level of distribution (Toys R us vs. Walmart) and the primary source of conflict is scrambled merchandising – middlemen diversify by adding product lines not traditionally carried by their type of business. Vertical Conflict is between producers and (1) wholesalers - because of differing points of view on the aspects of their relationships – and (2) retailers – because of competition in sales, terms of sale or conditions of their relationship, or slotting fees (fee to place a manufacturer’s product on store shelves) Channel control = firm that is able to regulate the behavior of the other members of channel Channel power = ability to influence/determine the behavior of another channel member Sources of power (1) expertise (2)rewards (3) sanctions Ideally channels should be viewed as a partnerships; benefits = lower inventory and operational costs, improved quality of products and service; risks = sensitive info sharing that may end up in the wrong hands. Legal considerations in managing channels Distribution control becomes unlawful when it is judge to (1) substantially lessen competition (2) create a monopoly (3) restrain trade. Exclusive dealing = manufacturer prohibits its dealers from carrying products offered by the producers competitors (legal or illegal depending on the manufacturer’s sale volume given the total volume in the market and the size of the contracted distribution pg 402) Tying contracts = when a supplier sells a product to a middleman only under the condition that the middleman but another (possibility unwanted ) products from the supplier (legal when a new company is trying to enter a market or when an exclusive dealer is required to carry the manufacturers full product line but not prohibits from carrying competing products) Refusal to deal = producer may refuse to sell to certain middlemen o Illegal when dropped from a middleman for (1) carrying competitors’ products (2) resisting a tying contract (3) setting prices lower than desired my the producer Exclusive-territory policy = producer requires each middleman to sell only to customers located within an assigned territory o Legal when… (1) company is small or a new to the market (2)corporate vertical marketing is in place and producer holds ownership of the product until it reaches the final buyer (3) producer uses independent middleman to distribute under consignment – middleman doesn’t pay supplier until after product is sold. Chapter 15 - Retailing o Nature and Importance of Retailing Retailing – the sale and all related activities of selling goods and services Brick and Mortar retailer (physical stores) Click and Modem retailer (online stores) o Economic Justification for Retailing Low startup costs to become a retailer o Size of Markets and Firms Total sales increasing over past 30 years Understand target market Provide what customer wants o Specialty stores Offer distinctive/exclusive merchandise o Physical Facilities Location Size Design Layout o Retailers Classified by Form of Ownership Corporate Chains Two or more stores US Bureau of the Census considers 11 stores a chain Central ownership Can be inflexible because of standardized decisions from upper management Independent Contractual Vertical Marketing Systems Independently wned firms join together under a contract specifying how they will operate o Retailer Cooperatives and Voluntary Chains Retail cooperative – a group of small retailers that agree to establish and operate a wholesale warehouse Voluntary chain – sponsored by a wholesaler that enters into a contract with interested retailers o Franchise Systems A continuous relationship in which a parent company provides management assistance and the right to use its trademark Product and trade name franchising – supplier authorizes a dealer to sell a product line (ex. Cars and gasoline) Business format franchising – sells the right to operate a business in a different geographical location o Retailers Classified by Marketing Strategies Marketing Mix Breadth and depth of product assortment Price level Amount of customer services Department Stores Advantage through a combination of distinctive, appealing merchandise and numerous customer services such as alterations, credit plans, and bridal registry Discount chains pulling department store customers away Discount Stores Low prices as a major selling point Dollar store & Wal-Mart Limited-Line Stores Specialty Stores o A particular product line o Strive to maintain manufacturers suggested prices May offer store brand at lower price Off-Price Retailers o Aims to capture a large portion os sales in a specific product category (ex. Borders and IKEA) Supermarkets o Several related product lines o a high degree of service o largely centralized checkout o competitive prices Convenience Stores o Surfaced to satisfy consumers’ increasing desire for convenience o Compete with supermarkets and fast food restaurants Warehouse Clubs o Grown in popularity since 1980s o Pay for subscription ($25-$50) o Extremely low prices o Often large quantities o Nonstore Retailing Direct Selling Personal contact between a sales persona and a consumer away from a store that results in a sale Door to door vs party plan Good for products requiring extensive demonstrations Telemarketing Telephone selling Products that can be bought without being seen (ex. Pest control) May encounter hostile people on the phone Automatic Vending The sale of products through a machine with no personal contact between buyer and seller $40 billion in annual sales o Over 1% of retail trade Online Retailing Using a website to offer products for sale and then individual organizations use their computer to make purchases from this company Direct Marketing Using advertising to contact consumers who in turn buy products without wisiting a retail store o Direct mail o Catalog retailing o Televised shopping Chapter 16 Wholesaling: the sale and all activities directly related to the sale of goods and services to businesses and other organizations for (1.) resale (2.) use in producing other goods or services or (3.) operating an organization i.e. when a business firm sells shirts and blouses to a clothing store that intends to resell them to final consumers Merchant wholesaler: an independently owned firm that engages primarily in wholesaling and takes title to (that is, owns) the products being distributed; sometimes referred to as wholesalers, jobbers or industrial distributors - Largest segment of wholesaling firms when measured by either number of establishments or sales volumes Agent wholesaling middleman: an independently owned firm that engages primarily in wholesaling by actively negotiating the sale or purchase of products on behalf of other firms but that does not take title to the products being distributed Manufacturer’s sales facility: an establishment that engages primarily in wholesaling and is owned and operated by a manufacturer but is physically separated from manufacturing plants; common in fields ranging from major appliances to plumbing equipment to electrical supplies Manufacturers sales branch: carries an inventory of the product being sold a manufacturer’s sales does not Total operating expenses for wholesaling middlemen average about about 11% of wholesale sales; Expenses for retailers run about 28% of retail sales Full-service wholesaler: an independent merchant middleman that performs a full range of wholesaling functions - May handle consumer and/or business products that may be manufactured or nonmanufactured To remain competitive and boost profits, full-service wholesalers are striving to improve their operations. Three common avenues are enhanced quality, advanced technology and value-added services. Truck jobber: also called a truck distributor carries a limited line of perishable products and delivers them by truck to stores - Jobbers furnish fresh products so frequently that retailers can buy perishable goods in small amounts to minimize the risk of loss Drop shipper: also known as a desk jobber sells merchandise for delivery directly from the producer to the consumer but does not physically handle the product - Drop shippers are common in a few product categories including coal, lumber and building materials; typically sold in very large quantities and that have freight costs in relation to their unit value Merchant wholesalers vs. Wholesaling middlemen - **DO NOT take title from products** - Typically perform fewer services Manufacturer’s agent: an independent agent wholesaling middleman that sells part or all of a manufacturer’s product mix in an assigned geographic territory - used extensively in distributing many types of consumer and business goods - because a manufacturer’s agent sells in a limited territory, each producer uses multiple agents to cover its total market - have year-round relationships with the companies (often called principals) they represent - each agent usually serves several noncompeting manufacturers of related products - most helpful to: 1. A small firms that has a limited number of products and no sales force 2. A business that wants to add a new possibly unrelated line to its existing product mix but its present sales force lacks familiarity with either the new line or market 3. A firm that wants to enter a new market that is not sufficiently developed to warrant the use of its own sales force Broker: an independent agent wholesaling middleman that brings buyers and sellers together and provides market information to one party or the other - Some brokers do not physically handle the products being distributed; others provide warehousing services - Most brokers work for sellers although some represent buyers - Brokers are used in selling real estate and securities but are most prevalent in the food field Selling agent: essentially substitutes for a marketing department by marketing a manufacturer’s entire output; play a key role in distributing textile products and coal Auction company: helps assembled buyers and sellers complete their transactions Import-export agent: brings together sellers and buyers from different countries; export agents work in the country in which the product is made, import agents are based in the country where the product will be sold Physical distribution: consists of all activities involved in moving the right amount of products ot the right place at the right time - For distributors: includes the flow of raw materials from their sources of supply to the production line and the movement of finished goods from the end of production line to the final user’s locations. - Middlemen on the other hand mange the flow of goods onto their shelves as well as from their shelves to the customer’s homes, stores, etc.