Chapter 11: Small Business Pricing, Distribution, and Location

direct sales

methods of going directly to your customer in order to sell your product. vending machines, door-to-door salespeople, leasing space a ta craft fair, farmer's markets, party sales, and most industrial sales are examples.

markup pricing

a price-setting method where an amount is added to the cost of a product to set the retail price and provide a profit

telemarketing

contact via telephone for the express purpose of selling a product or service; can either be inbound (customer calls company) or outbound (company calls customer)

indirect exporting

exporting using intermediaries such as agents, export management companies, or export trading companies

guerrilla marketing

the use of creative and relatively inexpensive ways to reach your customer. Examples include doorknob hangers, flyers under windshield wipes, T-shirts, balloons, and messages written on sidewalks

multichannel marketing

the use of several different channels to reach your customers; for example, a website, direct mail, and traditional retailing

fulfillment center

a company that will warehouse your products and fill your customers' orders for you

internal reference price

a consumer's mental image of what a product's price should be based on experience and the consumer's estimate of what the comparative value might be

referral discount

a discount given to a customer who refers a friend to the business

letter of credit

a document issued by a bank that guarantees a buyer's payment for a specified period of time upon compliance with specified terms

documentary draft

a draft that can be exercised only when presented with specified shipping documents

sales promotion

a form of communication that encourages the customer to act immediately, such as coupons, sales, or contests

born internationals

a new firm that opens a website immediately, thus being exposed to customers from around the world

e-tailer

an electronic retailer; a store that exists only on the internet

external reference price

an estimation of what a price should be based on information external to a consumer, such as advice, advertisements, or comparison shopping

markup

the amount an entrepreneur adds to cost to provide a profit

margin

the amount of profit, usually stated as a percentage of the total price

law of supply and demand

the economic theory that describes how the demand for products (or services) and the supply of them affect each other

manufacturer

the entity that produces a product or service to be sold

Optimum price

the highest price that will produce your desired level of sales in your intended market

just-in-time inventory

the practice of purchasing and accepting delivery of inventory only after it has been sold to the final customer

direct mail

a method of selling in which catalogues, brochures, letters, videos, and other pieces of marketing materials are mailed directly to customers from which they can mail in, call in, or email an order. Direct faxing and direct emailing are more modern forms of direct mail

direct exporting

exporting using no intermediaries

channels

people and firms who connect producers of goods and services with customers

price lining

the practice of setting (usually) three price points: good quality, better quality, best quality

microinventory

the purchase of inventory only after a sale is made; very typical with internet firms

questions for Exporting:

are we ready? where should we go? whom do we contact over there?

random discounting

a sale run on a schedule that is unpredictable to the customer

manufacturer's suggested retail price

a target price set by a manufacturer for a product or service intended to provide profit for each intermediary in the distribution channel

wholesaler

an intermediary business that buys (typically in large quantities) and sells (typically in smaller quantities) to businesses rather than consumer

agent

an intermediary business that represents a manufacturer's product or service to other business-to-business intermediary firms

retailer

an intermediary business that sells to consumers or end users of a product (typically in single or small quantities)

price gouging

charging an outrageously high price for something

off-peak pricing

charging lower prices at certain times to encourage customers to come during slack periods

multiple or bonus pack

combining more than one unit of the same product and pricing it lower than if each unit were sold separately

bundling

combining two or more products in one unit and pricing it less than if the units were sold separately

freight forwarders

firms specializing in arranging international shipments - packaging, transportation, and paperwork

elasticity

from economics, the idea that the market's demand for a product or service is sensitive to changes in its price

direct response advertising

placing an advertisement in a magazine or newspaper, on television or radio, or in any other media. The ad contains and order blank with a phone number and email address with the intent of having the customer place an immediate order

elastic product

product for which there are any number of substitutes and for which a change in price makes a difference in quantity purchased

inelastic product

product for which there are few substitutes and for which a change in price makes very little difference in quantity purchased

periodic discounting

sales conducted at predictable intervals, such as before major holidays

mail order

sales made from ads in newspapers or magazines, with purchases taken online or by phone as well as by mail

direct marketing

selling your goods or services to consumers without intermediaries, typically to select customer groups and typically with tracking of the results

premium pricing

setting a price above that of the competition to indicate a higher quality

prestige pricing

setting a price above that of the competition to indicate your product is a status symbol

skimming

setting a price at the highest level the market will bear, usually because there is no competition at the time

odd-even pricing

setting a price that ends in the number 5, 7, or 9. (numbers that are multiples of 10 are psychological hurdle for customers)

partitioned pricing

setting the price for a base item and then charging extra for each additional component

captive pricing

setting the price for an item relatively low and then charging much higher prices for the expendables it uses