MKTG exam 3

Reorder point

- Marketer must know the order lead time, the usage rate, and the amount of safety stock required -The order lead time refers to the average time lapse between placing the order and receiving it -The usage rate is the rate at which a product's inventory is used or sold during a specific time period -Safety stock is the amount of extra inventory a firm keeps to guard against stockouts resulting from above-average usage rates and/or longer-than-expected lead times -Reorder Point = (Order Lead Time x Usage Rate) + Safety Stock

Physical distribution

-"Logistics" -Manage transportation, warehousing, materials handling, inventory control, and communication -Activities used to move products from producers to consumers and other end users -Must meet the needs of supply chain and customers

Truck wholesalers

-"Truck jobbers" -Limited-service wholesalers that transport products directly to customers for inspection and selection -Often small operators who own and drive their own trucks -Usually have regular routes, calling on retailers and other institutions to determine their needs

Uniform geographic pricing

-"postage stamp pricing" -Charging all customers the same price, regardless of geographic location

External reference price

-A comparison price provided by others -This provides a reference point for consumers unfamiliar with the product category -Ex: Some grocery and electronics stores, for example, will show other stores' prices next to their price of a particular good if their price is lower than the competitor's price

Electronic data interchange (EDI)

-A computerized means of integrating order processing with production, inventory, accounting, and transportation -Within the supply chain, EDI functions as an information system that links marketing channel members and outsourcing firms together -Reduces paperwork for all members of the supply chain and allows them to share information on invoices, orders, payments, inquiries, and scheduling

Television home shopping

-A form of selling in which products are presented to television viewers, who can buy them by calling a toll-free number and paying with a credit card

Demand curve

-A graph of the quantity of products expected to be sold at various prices if other factors remain constant -As price falls, quantity demanded usually rises -Depends on other factors in the marketing mix, including product quality, promotion, and distribution -Many types of demand exist, and not all conform to the classic demand curve (prestige products have a vertically curved curve)

Vertical marketing system (VMS)

-A marketing channel managed by a single channel member to achieve efficient, low-cost distribution aimed at satisfying target market customers -VMSs account for a large share of retail sales in consumer goods -Take one of three forms: corporate, administered, contractual

Price elasticity of demand

-A measure of the sensitivity of demand to changes in price -The percentage change in quantity demanded caused by a percentage change in price is much greater for elastic demand than for inelastic demand

Internal reference price

-A price developed in the buyer's mind through experience with the product -Reflects a belief that a product should cost approximately a certain amount

F.O.B. destination

-A price indicating the producer is absorbing shipping costs -Absorbs the costs of shipping the merchandise to the customer

Trade discounts

-A reduction off the list price a producer gives to an intermediary for performing certain functions -To attract and keep effective resellers by compensating them for performing certain functions, such as transportation, warehousing, selling, and providing credit -Ex: A college bookstore pays about (functional) one-third less for a new textbook than the retail price a student pays.

General merchandise retailer

-A retail establishment that offers a variety of product lines that are stocked in considerable depth -Department stores, discount stores, convenience stores, supermarkets, superstores, hypermarkets, warehouse clubs, and warehouse showrooms

Category management

-A retail strategy of managing groups of similar, often substitutable, products produced by different manufacturers

Supply-chain management

-A set of approaches used to integrate the functions of operations management, logistics management, supply management, and marketing channel management so products are produced and distributed in the right quantities, to the right locations, and at the right time -Manufacturing, research, sales, advertising, and shipping -Involves all entities that facilitate product distribution and benefit from cooperative efforts

Exclusive dealing

-A situation in which a manufacturer forbids an intermediary from carrying products of competing manufacturers -Three tests for legality: If the exclusive dealing blocks competitors from as much as 15 percent of the market, the sales volume is large, and the producer is considerably larger than the retailer, then the arrangement is considered anticompetitive -If dealers and customers in a given market have access to similar products or if the exclusive-dealing contract strengthens an otherwise weak competitor, the arrangement is allowed

Convenience store

-A small self-service store that is open long hours and carries a narrow assortment of products, usually convenience items -7-eleven

Full-line forcing

-A supplier requires that channel members purchase the supplier's entire line to obtain any of the supplier's products -Manufacturers sometimes use full-line forcing to ensure that intermediaries accept new products and that a suitable range of products is available to customers

Direct-response marketing

-A type of marketing in which a retailer advertises a product and makes it available through mail or telephone orders -Ex: Television commercial offering exercise machines, cosmetics, or household cleaning products available through a toll-free number; newspaper or magazine advertisement for a series of children's books available by filling out the form in the ad or calling a toll-free number

Catalog marketing

-A type of marketing in which an organization provides a catalog from which customers make selections and place orders by mail, telephone, or the Internet -Began in 1872 with Montgomery Ward -Advantages: include efficiency and convenience for customers because they do not have to visit a store, retailer can locate in remote, low-cost areas, save on expensive store fixtures, and reduce both personal selling and store operating expenses -Disadvantages: inflexible, provides limited service, and is most effective for a selected set of products

Power shopping center

-A type of shopping center that combines off-price stores with category killers

Lifestyle shopping centers

-A type of shopping center that is typically open air and features upscale specialty, dining, and entertainment stores -Near affluent neighborhoods

Neighborhood shopping centers

-A type of shopping center usually consisting of several small convenience and specialty stores

Community shopping centers

-A type of shopping center with one or two department stores, some specialty stores, and convenience stores

Regional shopping centers

-A type of shopping center with the largest department stores, widest product mixes, and deepest product lines of all shopping centers

Superregional shopping centers

-A type of shopping center with the widest and deepest product mixes that attracts customers from many miles away -Ex: Mall of America

Category killers

-A very large specialty store that concentrates on a major product category and competes on the basis of low prices and product availability -Expand rapidly and gain sizable market shares, taking business away from smaller, higher-cost retail outlets -Ex: Home Depot and Lowe's (home improvement), Staples, Office Depot, and OfficeMax (office supply)

Freight absorption pricing

-Absorption of all or part of actual freight costs by the seller

Cost-based pricing

-Adding a dollar amount or percentage to the cost of the product -Does not necessarily take into account the economic aspects of supply and demand, nor must it relate to just one pricing strategy or pricing objective -Cost-plus and markup pricing

Cost-plus pricing

-Adding a specified dollar amount or percentage to the seller's cost -Appropriate when production costs are unpredictable -Seller may increase stated costs to gain a larger profit base -Popular in periods of rapid inflation -In industries in which cost-plus pricing is common and sellers have similar costs, price competition will not be especially intense -Ex: Projects involving custom-made equipment and commercial construction, government

Markup pricing

-Adding to the cost of the product a predetermined percentage of that cost -Most supermarkets mark up prices by at least 25 percent, whereas warehouse clubs, like Costco and Sam's Club, have a lower average markup of around 14 percent -Vary a great deal depending on the product and the situation -Normally reflect expectations about operating costs, risks, and stock turnovers

Survival

-Adjust price levels so the firm can increase sales volume to match organizational expenses -Generally involves temporarily setting prices low, at times below costs, in order to attract more sales -Can be useful in keeping a company afloat by increasing sales volume -Most organizations will tolerate setbacks, such as short-run losses and internal upheaval, if necessary for survival

Market share

-Adjust price levels so the firm can maintain or increase sales relative to competitors' sales -High relative market shares often translate into high profits for firms -PIMS studies -Ex: Google priced its Nexus 7 tablet at less than half of an iPad Mini Retina, but offers similar features to its higher-priced competitor. Developing a product with high-end specifications that retails at a low-end price has helped Google to gain traction

Single price

-Advantages: simplicity, reduces the risk of a marketer developing an adversarial relationship with customers -Disadvantages: If the single price is too high, some potential customers may be unable to afford the product; If it is too low, the organization loses revenue from those customers who would have paid more had the price been higher

Environmental forces

-Adverse economic conditions might force an organization to use a low-cost channel, even though it reduces customer satisfaction -A growing economy may allow a company to choose a channel that previously had been too costly -New technology, government regulations, etc.

Special-event pricing

-Advertised sales or price cutting linked to a holiday, a season, or an event -Entails coordination of production, scheduling, storage, and physical distribution -Can be an effective strategy to combat sales lags

Commission merchants

-Agents that receive goods on consignment from local sellers and negotiate sales in large, central markets -"Factor merchants"

Channel management

-All activities related to selling, service, and the development of long-term customer relationships -Ex: Finding the right retailers for a product

Supply chain

-All the activities associated with the flow and transformation of products from raw materials through to the end customer

Retailing

-All transactions in which the buyer intends to consume the product through personal, family, or household use -Key is to have a strong customer focus -Increasingly international

Tying agreement

-An agreement in which a supplier furnishes a product to a channel member with the stipulation that the channel member must purchase other products as well -Means of getting rid of slow-moving inventory, or a franchisor may tie the purchase of equipment and supplies to the sale of franchises, justifying the policy as necessary for quality control and protection of the franchisor's reputation -The courts accept tying agreements when the supplier is the only firm able to provide products of a certain quality, when the intermediary is free to carry competing products as well, and when a company has just entered the market. Most other tying agreements are considered illegal

Strategic channel alliance

-An agreement whereby the products of one organization are distributed through the marketing channels of another -Can provide benefits for both the organization that owns the marketing channel and the company whose brand is being distributed through the channel

Franchising

-An arrangement in which a supplier (franchisor) grants a dealer (franchisee) the right to sell products in exchange for some type of consideration

Industrial distributor

-An independent business organization that takes title to industrial products and carries inventories -Usually sell standardized items, such as maintenance supplies, production tools, and small operating equipment -Most effective when a product has broad market appeal, is easily stocked and serviced, is sold in small quantities, and is needed on demand to avoid high losses

Manufacturers' agent

-An independent businessperson who sells complementary products of several producers in assigned territories and is compensated through commissions -Does not acquire title to the products and usually does not take possession -Acts as a salesperson on behalf of the producers -Has little or no latitude in negotiating prices or sales terms -Paid on commission -Independent intermediaries that represent two or more sellers and usually offer customers complete product lines -More than half of all agent wholesalers

Wholesaler

-An individual or organization that sells products that are bought for resale, for making other products, or for general business operations

Just-in-time (JIT)

-An inventory-management approach in which supplies arrive just when needed for production or resale -Lean distribution -Maintain low inventory levels and purchase products and materials in small quantities only when needed -Usually no safety stock -Ex: Toyota was a pioneer

Retailer

-An organization that purchases products for the purpose of reselling them to ultimate consumers -Add value to the supply chain, easier shopping experience

Marketing information

-Analyze sales data and other information in databases and information systems. Perform or commission marketing research

U.S. leading franchisors

-Anytime Fitness -Hampton Hotels -Subway -Supercuts -Jimmy John's Gourmet Sandwiches -7-Eleven Inc. -Servpro -Denny's Inc. -Pizza Hut Inc. -Dunkin' Donuts

Using both a manufacturers' agent and an industrial distributor

-Appropriate when the producer wishes to cover a large geographic area, but maintains no sales force due to highly seasonal demand or because it cannot afford one -This channel can also be useful for a business marketer that wants to enter a new geographic market without expanding its sales force

Form utility

-Assembling, preparing, or otherwise refining the product to suit individual customer needs

Legal issues in channel management

-Aware that attempts to control distribution functions might have legal repercussions -When shipping internationally, managers must also be aware of international laws and regulations that might affect their distribution activities

Functional middlemen

-Brokers in B2B -Paid on commission (percentage of sales)

Advantages of an industrial distributor

-Can perform the needed selling activities in local markets at a relatively low cost to a manufacturer and reduce a producer's financial burden by providing customers with credit services -Aware of local needs and can pass on market information to producers; by holding adequate inventories in local market -Industrial distributors reduce producers' capital requirements

Product line pricing

-Captive pricing (razor and blades, etc.) -Bait pricing (price low then raise price) -Premium -Price lining -Bait and switch (illegal) -Bundle pricing (tv services) -EDLP (walmart, customers aren't convinced)

Demand fluctuations

-Changes in buyers' needs, variations in the effectiveness of other marketing-mix variables, the presence of substitutes, and dynamic environmental factors can influence demand -Some organizations anticipate demand fluctuations and develop new products and prices to meet consumers' changing needs

Administered VMS

-Channel members are independent, but informal coordination achieves a high level of inter-organizational management -Members of an administered VMS may adopt uniform accounting and ordering procedures and cooperate in promotional activities for the benefit of all partners -Individual channel members maintain autonomy, as in conventional marketing channels -One channel member (such as a producer or large retailer) dominates the administered VMS so that distribution decisions take the whole system into account

Channel conflict

-Channel members sometimes may disagree about the best methods for distributing products profitably and efficiently -The Internet has increased the potential for conflict and resentment between manufacturers and intermediaries (When a manufacturer makes its products available through the Internet, it is employing a direct channel that competes with the retailers that also sell its products) -When intermediaries overemphasize competing products or diversify into product lines traditionally handled by other intermediaries

Marketing channel

-Channel of distribution or distribution channel -A group of individuals and organizations that direct the flow of products from producers to customers within the supply chain -Make products available at the right time at the right place in the right quantities

Differential pricing

-Charging different prices to different buyers for the same quality and quantity of product -Market must consist of multiple segments with different price sensitivities -Can occur in several ways: negotiated pricing, secondary-market pricing, periodic discounting, and random discounting

Price-skimming

-Charging the highest possible price that buyers who most desire the product will pay -Helps a firm to recover the high costs of R&D more quickly -Provides the most flexible introductory base price (Demand tends to be inelastic in the introductory stage of the product life cycle) -Advantages: generate much-needed initial cash flows to help offset development costs; protects the marketer from problems that arise when the price is set too low to cover costs; keep demand consistent with the firm's production capabilities -Disadvantages: make the product appear more lucrative than it actually is to potential competitors; risk of misjudging demand and facing insufficient sales at the higher price

Facilitating exchanges

-Choose product assortments that match the needs of customers. Cooperate with channel members to develop partnerships

Functions of intermediaries

-Collecting -Sorting (sorting out- separate into categories, and assorting- breaking bulk and assembly) -Dispersing

Hypermarket

-Combination supermarket and discount store; larger than a superstore -Allocate 40-50% of space to grocery -Carrefour

Corporate VMS

-Combines all stages of the marketing channel, from producers to consumers, under a single owner -Ex: Inditex Group, which owns popular clothing retailer Zara, utilizes a corporate VMS to achieve channel efficiencies and maintain a maximum amount of control over the supply chain. Zara's clothing is trendy, requiring the shortest time possible from product development to offering the clothing in stores. Inventory is characterized by very high turnover and frequent changes. Because it has control over all stages of the supply chain, Inditex can maintain an advantage through speed and keeping prices low

Horizontal channel integration

-Combining organizations at the same level of operation under one management -Permits efficiencies and economies of scale in purchasing, marketing research, advertising, and specialized personnel -Problems that come with increased size; decreased flexibility, difficulties coordinating among members; need for additional marketing research and large-scale planning -Ex: The owner of a dry-cleaning firm, for example, might buy and combine several other existing dry-cleaning establishments

Vertical channel integration

-Combining two or more stages of the marketing channel under one management -More progressive approach to distribution, in which channel members become extensions of one another as they are combined under a single management -Increased bargaining power and the ease of sharing information and responsibilities

Private warehousing

-Company-operated facilities for storing and shipping products -Firm usually leases or purchases a private warehouse when its warehousing needs in a given geographic market are substantial and stable enough to warrant a long-term commitment to a fixed facility -Appropriate for firms that require special handling and storage and that want control of warehouse design and operation -Ex: Retailers like Sears find it economical to integrate private warehousing with purchasing and distribution for their retail outlets -When sales volumes are fairly stable, ownership and control of a private warehouse may be most convenient and offer cost benefits -Fixed costs, such as insurance, taxes, maintenance, and debt expense; limit firms' flexibility if they wish to move inventories to different locations

Product attributes

-Complex and expensive products and perishable goods (short channels) -Less-expensive, standardized, non-perishable products (longer channels with many intermediaries)

Distribution

-Component of the marketing mix -The decisions and activities that make products available to customers when and where they want to purchase them -Important element is the joint effort of all involved organizations to create an effective supply chain

Distribution system

-Conceptual line -Upstream firms (suppliers) -Downstream firms (wholesalers and retailers)

Value-conscious

-Concerned about price and quality of a product

Profit Impact of Market Strategies (PIMS)

-Conducted annually since the 1960s, have shown that both market share and product quality influence profitability -Marketers often use an increase in market share as a primary pricing objective

Who controls a marketing channel?

-Consensus command -Vertical integration

Containerization

-Consolidation of many items into a single, large container that is sealed at its point of origin and opened at its destination -Containers are usually 8 feet wide, 8 feet high, and 10 to 40 feet long -Their uniform size means they can be stacked and shipped via train, barge, or ship -Greatly increases efficiency and security in shipping

Customer characteristics

-Consumers vs business customers -Whether concentrated (direct) or spread out (distribution through multiple intermediaries)

Outsourcing

-Contracting of physical distribution tasks to third parties -Most physical distribution activities can be outsourced to outside firms that have special expertise in areas such as warehousing, transportation, inventory management, and information technology -Outsourcing distribution may allow a firm to leverage the expertise of another firm while focusing on its core competencies and freeing up resources to develop value-added capabilities to better serve customers

Intensive market coverage

-Convenience products (coke, pepsi, pringles) -Available in many retail outlets -Using all available outlets to distribute a product

Channel cooperation

-Cooperation enables retailers, wholesalers, suppliers, and logistics providers to speed up inventory replenishment, improve customer service, and cut the costs of bringing products to the consumer -Channel members should agree to direct efforts toward common objectives

Basis for pricing

-Cost (cost-plus and markup) -Competition (point of reference) -Demand (uber, airlines)

Fixed costs

-Costs that do not vary with changes in the number of units produced or sold

Variable costs

-Costs that vary directly with changes in the number of units produced or sold

Dual distribution legal issue

-Courts do not consider this practice illegal when it allows for competition -A manufacturer can also legally open its own retail outlets -However, the courts view a manufacturer that uses company-owned outlets to dominate or drive out of business independent retailers or distributors that handle its products as a threat to competition -Producers should use outlet prices that do not severely undercut independent retailers' prices

Possession utility

-Customer has access to the product to use or to store for future use -Can occur through ownership or through arrangements that give the customer the right to use the product, such as a lease or rental agreement

Three major dimensions price can be based on

-Demand -Cost -Competition

Drop shippers

-Desk jobbers -Limited-service wholesalers that take title to goods and negotiate sales but never actually take possession of products

Inventory management

-Developing and maintaining adequate assortments of products to meet customers' needs -Key component of any effective physical distribution system -When to order and how much?

Pricing strategies

-Differential -New product pricing -Product line -Psychological -Professional -Promotional

How to minimize total distribution costs

-Direct shipments to reseller -Establish a warehouse -Establish an assembly plant -Establish a production facility

Retail transaction

-Directly to consumer for use

Issues unique to business pricing

-Discounts, geographic pricing, and transfer pricing

What major distribution problems are solved through marketing channels?

-Discrepancy in assortment -Discrepancy in number

Prestige-sensitive

-Drawn to products that signify prominence and status

Nonprice competition

-Emphasizing factors other than price to distinguish a product from competing brands -Allows a company to increase its brand's unit sales through means other than changing the brand's price -Firm can build customer loyalty toward its brand -Still cannot ignore competitor's prices -Ex: Mars has an upscale candy line called Ethel's Chocolate. With the tagline "eat chocolate, not preservatives," Ethel's Chocolate competes on the basis of taste, attractive appearance, and hip packaging, and, thus, has little need to engage in price competition

Price competition

-Emphasizing price as an issue and matching or beating competitors' prices -Firm should be the low-cost seller of the product -Firms that stress low price as a key marketing-mix element tend to market standardized products -A seller competing on price may change prices frequently, or at least must be willing and able to do so

Odd-even pricing

-Ending the price with certain numbers to influence buyers' perceptions of the price or product -(Even prices give customer's the feeling that a product is upscale)

Price

-Establish pricing policies and terms of sales -The value paid for a product in a marketing exchange -Key element in the marketing mix because it relates directly to the generation of total revenue -Easy to change

Marketing management

-Establish strategic and tactical plans for developing customer relationships and organizational productivity

Negotiated pricing

-Establishing a final price through bargaining between seller and customer -Occurs in a number of industries and at all levels of distribution (houses, cars, and used equipment) -Managing personal chemistry

Product-line pricing

-Establishing and adjusting prices of multiple products within a product line -Provide marketers with pricing flexibility -Must evaluate relationships of products -Set prices so that one product is profitable, whereas another is less profitable but increases market share by virtue of having a low price and, therefore, selling more units -Captive pricing, premium pricing, bait pricing, and price lining

Inelastic demand

-Ex: Oil and gas. When the price goes up, consumers do not significantly reduce consumption, and when the price goes down, they do not significantly increase their consumption. -Parallel

Warehouse showroom

-Facility in a large, low-cost building with large on-premises inventories and minimal service -IKEA

Factory outlet malls

-Feature discount and factory outlet stores carrying traditional manufacturer brands, such as Polo Ralph Lauren, Nike, and Guess

Professional pricing

-Fees set by people with great skill or experience in a particular field -May charge a standard fee regardless of the problems involved in performing the job -Professionals have an ethical responsibility not to overcharge customers

Determination of a specific price

-Final step in the pricing process

Mega carriers

-Freight transportation firms that provide several modes of shipment

Limited-line wholesalers

-Full-service wholesalers that carry only a few product lines but many products within those lines

Specialty-line wholesales

-Full-service wholesalers that carry only a single product line or a few items within a product line

General-merchandise wholesalers

-Full-service wholesalers with a wide product mix but limited depth within product lines

Rack jobbers

-Full-service, specialty-line wholesalers that own and maintain display racks in stores -Rpecialize in non-food items with high profit margins, such as health and beauty aids, books, magazines, hosiery, and greeting cards

What are the major types of retail stores?

-General merchandise retailer -Specialty stores

Full service merchant middlemen

-General merchandise wholesaler (wide product mix) -Limited line (narrower, more depth) -Specialty (specialize, rack jobber)

Two major types of retail stores

-General-merchandise retailers -Specialty retailers

Base-point pricing

-Geographic pricing that combines factory price and freight charges from the base point nearest the buyer

Superstore

-Giant retail outlets that carry food and nonfood products found in supermarkets, as well as most routinely purchased consumer products -Originated in Europe -Walmart supercenter, SuperTarget

Pricing objectives

-Goals that describe what a firm wants to achieve through pricing -Form the basis for decisions for other stages of the pricing process -Must be stated explicitly, in measurable terms, and include a time frame for accomplishing them -Survival, profit, ROI, market share, cash flow, status quo, product quality

Time utility

-Having products available when you want them -Ex: Netflix allows consumers to watch movies whenever they want

Profit

-Identify price and cost levels that allow the firm to maximize profit -Tend to be set at levels that the owners and top-level decision makers view as satisfactory and attainable -Specific profit objectives may be stated in terms of either actual dollar amounts or a percentage of sales revenues

ROI

-Identify price levels that enable the firm to yield targeted ROI -Generally requires some trial and error (unusual for all data and inputs required to determine the necessary ROI to be available when first setting prices) -Many pharmaceutical companies use ROI pricing objectives because of the high level of investment in research and development required

Status quo

-Identify price levels that help stabilize demand and sales -Can focus on several dimensions, such as maintaining a certain market share, meeting (but not beating) competitors' prices, achieving price stability, and maintaining a favorable public image -Can reduce a firm's risks by helping to stabilize demand for its products -Competitive tool, which could lead to a climate of nonprice competition -Professionals such as accountants and attorneys often operate in such an environment

Retail positioning

-Identifying an unserved or underserved market segment and serving it through a strategy that distinguishes the retailer from others in the minds of consumers in that segment -Ex: H&M is a low-priced, fashion forward retailer

Marketing channel selection

-Impacted by: customer characteristics, product attributes, type of organization, competition, marketing environmental forces, and characteristics of intermediaries

Competition

-In a highly competitive market, it is important for a company to maintain low costs so it can offer lower prices than its competitors if necessary to maintain a competitive advantage

Supply management

-In its broadest form, refers to the processes that enable the progress of value from raw material to final customer and back to redesign and final disposition -Purchasing, procurement, sourcing

Allowance discount

-In the case of a trade-in allowance, to assist the buyer in making the purchase and potentially earning a profit on the resale of used equipment; in the case of a promotional allowance, to ensure that dealers participate in advertising and sales support programs -A concession in price to achieve a desired goal -Ex: A farm equipment dealer takes a farmer's used tractor as a trade-in on a new one. Nabisco pays a promotional allowance to a supermarket for setting up and maintaining a large, end-of-aisle display for a 2-week period.

Merchant wholesalers

-Independently owned businesses that take title to goods, assume ownership risks, and buy and resell products to other wholesalers, business customers, or retailers -Full-service and limited service

What are the three levels of market coverage?

-Intensive (convenience products) -Selective (shopping products) -Exclusive

Brokers

-Intermediaries that bring buyers and sellers together temporarily -Food brokers, real estate brokers, other brokers

Selling agent

-Intermediaries that market a whole product line or a manufacturer's entire output -Perform every wholesaling activity except taking title to products

Agents

-Intermediaries that represent either buyers or sellers on a permanent basis -Manufacturer's agents, selling agents, commission merchants

Department store

-Large retail organizations characterized by a wide product mix and organized into separate departments to facilitate marketing efforts and internal management -Macy's, Sears, etc.

Distribution centers

-Large, centralized warehouses that focus on moving rather than storing goods -Designed for rapid flow of products -Generally one-story with access to transportation networks

Supermarket

-Large, self-service stores that carry a complete line of food products, along with some nonfood products -Kroger, Safeway

Warehouse club

-Large-scale, members-only establishments that combine features of cash-and-carry wholesaling with discount retailing -Sam's Club, Costco

Type of organization

-Larger firms are in a better position to deal with vendors or other channel members, likely to have more distribution centers, which reduce delivery times to customers, can use an extensive product mix as a competitive tool -Smaller company that uses regional or local channel members might be in a strong position to cater its marketing mix to serve customers in that particular area, compared with a larger and less-flexible organization

Mail-order wholesalers

-Limited-service wholesalers that sell products through catalogs -Enables buyers to choose and order particular catalog items for delivery through various mail carriers -Ex: cosmetics, specialty foods, sporting goods, office supplies, and automotive parts

Cash-and-carry wholesalers

-Limited-service wholesalers whose customers pay cash and furnish transportation -Usually handle a limited line of products with a high turnover rate, such as groceries, building materials, and electrical or office supplies -Many small retailers that other types of wholesalers will not take on because of their small size survive because of cash-and-carry wholesalers

Important strategic issues in retailing

-Location -Retail positioning -Store image -Use of technology

Place utility

-Making products available in locations where customers wish to purchase them -Ex: Zappos allows customers to shop for shoes and accessories anywhere they have access to a mobile device and an Internet connection

Restricted sales territory

-Manufacturer may try to prohibit intermediaries from selling outside of designated sales territories -Intermediaries often favor this practice because it provides them with exclusive territories where they can minimize competition -Courts have deemed restricted sales territories a restraint of trade among intermediaries handling the same brands (except for small or newly established companies) but have also held that exclusive territories can actually promote competition among dealers handling different brands -At present, the producer's intent in establishing restricted territories and the overall effect of doing so on the market must be evaluated for each individual case

Sales branches

-Manufacturer-owned intermediaries that sell products and provide support services to the manufacturer's sales force

Sales offices

-Manufacturer-owned operations that provide services normally associated with agents

Two approaches to understanding demand, cost, and profit relationships

-Marginal analysis and break-even analysis

Marginal analysis

-Marginal analysis is only a model from which to work -It offers little help in pricing new products before costs and revenues are established -On the other hand, in setting prices of existing products, especially in competitive situations, most marketers can benefit by understanding the relationship between marginal cost and marginal revenue

Tasks of marketing intermediaries

-Marketing information -Marketing management -Facilitating exchanges -Promotion -Price -Physical distribution

Direct selling

-Marketing products to ultimate consumers through face-to-face sales presentations at home or in the workplace -Top five global direct selling companies are Amway, Avon, Herbalife, Vorwerk, and Natura Cosmeticos

Disadvantages of an industrial distributor

-May be difficult to control because they are independent firms -Often stock competing brands, so a producer cannot depend on them to sell its brand aggressively -Incur expenses from maintaining inventories and are less likely to handle bulky or slow-selling items, or items that need specialized facilities or extraordinary selling efforts -In some cases, industrial distributors lack the specialized knowledge necessary to sell and service technical products

Major objectives of physical distribution managers

-Meeting or exceeding a customer service standard -Minimizing total distribution costs

Major types of wholesalers

-Merchant Middlemen (full service, limited function) -Functional Middlemen

Full service wholesalers

-Merchant wholesalers that perform the widest range of wholesaling -Customers rely on them for product availability, suitable product assortments, breaking large quantities into smaller ones, financial assistance, and technical advice and service -Full-service wholesalers handle either consumer or business products and provide numerous marketing services to their customers

Limited-service wholesalers

-Merchant wholesalers that provide some services and specialize in a few functions

Marketing intermediaries

-Middlemen that link producers to other intermediaries or ultimate consumers through contractual arrangements or through the purchase and resale of products -Most channels have marketing intermediaries -Key role in CRM (distribution activities and maintaining databases and information systems) -Ex: wholesalers and retailers

Contractual VMS

-Most popular type of vertical marketing system -Channel members are linked by legal agreements spelling out each member's rights and obligations -Ex: Franchise organizations, such as McDonald's and KFC; wholesaler-sponsored groups, such as IGA stores, in which independent retailers band together under the contractual leadership of a wholesale; retailer-sponsored cooperatives, which own and operate their own wholesalers

Strategic issues in marketing channels

-Must retain a strategic focus on certain competitive priorities, including developing channel leadership, fostering cooperation between channel members, managing channel conflict, and possibly consolidating marketing channels through channel integration

Evaluation of competitor's prices

-Not always easy -Sometimes intentionally slightly more expensive than competitors to show high quality

Intensity of market coverage

-Number and kinds of outlets in which a product will be sold -Depends on the characteristic of the product and the target market -Distribution must correspond to buying behavior

Order handling

-Once an order is entered, it is transmitted to a warehouse to verify product availability and to the credit department to set terms and prices and to check the customer's credit rating -If the credit department approves the purchase, warehouse personnel assemble the order. In many warehouses, automated machines carry out this step -If the requested product is not in stock, a production order is sent to the factory, or the customer is offered a substitute. -When the order has been assembled and packed for shipment, the warehouse schedules delivery with an appropriate carrier -If the customer pays for rush service, overnight delivery by an overnight carrier is used

Unit loading

-One or more boxes are placed on a pallet or skid -These units can then be loaded efficiently by mechanical means, such as forklifts, trucks, or conveyer systems

Noncumulative discounts

-One-time price reductions based on the number of units purchased, the dollar value of the order, or the product mix purchased -Quantity discount

Tibbr and Yammer

-Online programs that integrate business data into a social networking site format

Key tasks in supply chain management

-Operations management -Supply management -Logistics management -Channel management

Three tasks of order processing

-Order entry, order handling, and order delivery

Major physical distribution functions

-Order processing -Inventory management -Materials handling -Warehousing -Transportation

Factors that affect pricing decisions

-Organizational and marketing objectives -Pricing objectives -Costs -Other marketing mix variables -Channel member expectations -Customer interpretation and response -Competition -Legal and regulatory issues

Freight forwarders

-Organizations that consolidate shipments from several firms into efficient lot sizes

Bundle pricing

-Packaging together two or more complementary products and selling them at a single price -Single price generally is markedly less than the sum of the prices of the individual products -Help sell slow-moving inventory -Ex: banking and travel services, computers, and automobiles with option packages

Multiple unit pricing

-Packaging together two or more identical products and selling them at a single price -Discount stores and warehouse clubs

Materials handling

-Physical handling of tangible goods, supplies, and resources -Important factor in warehouse operations, as well as in transportation from points of production to points of consumption

Logistics management

-Planning, implementing, and controlling the efficient and effective flow and storage of products and information from the point of origin to consumption to meet customers' needs and wants -Cost of business logistics in the U.S. at nearly 1.3 trillion (GDP is 15 trillion)

Showrooming

-Practice where consumers come into their stores, find what they want to purchase, and then purchase it online at a lower price -Best Buy had issues with this

Two strategies for new product pricing

-Price skimming -Penetration pricing

Promotional pricing

-Price-leaders ( -Special-event pricing -Comparison discounting

Transfer pricing

-Prices charged in sales between an organization's units -Actual full cost: calculated by dividing all fixed and variable expenses for a period into the number of units produced. -Standard full cost: calculated based on what it would cost to produce the goods at full plant capacity. -Cost plus investment: calculated as full cost plus, the cost of a portion of the selling unit's assets used for internal needs. -Market-based cost: calculated at the market price less a small discount to reflect the lack of sales effort and other expenses.

Referential pricing

-Pricing a product at a moderate level and displaying it next to a more expensive model or brand -Expected to view the moderate price more favorably than he or she would if the product were considered alone -Based on the "isolation effect," (alternative is less attractive when viewed by itself than when compared with other alternatives)

Bait pricing

-Pricing an item in a product line low with the intention of selling a higher-priced item in the line -May generate customer resentment -Ex: Producers of smartphones and tablets may engage in bait pricing, selling ultra-low-priced models that lure in customers but charging extra for the most desirable features

Demand-based pricing

-Pricing based on the level of demand for the product -Marketer must be able to estimate the quantity of a product consumers will demand at different times and how demand will be affected by changes in the price -Places a firm in a better position to reach high profit levels, as long as demand is strong at times and buyers value the product at levels sufficiently above the product's cost

Zone pricing

-Pricing based on transportation costs within major geographic zones

Competition-based pricing

-Pricing influenced primarily by competitors' prices -Common method among producers of relatively homogeneous products -To stay ahead of the competition, Amazon adjusts its prices more than 2.5 million times each day. To compare, Walmart and Best Buy change their prices about 50,000 times each month

Customary pricing

-Pricing on the basis of tradition -Less common pricing strategy now than it was in the past. -Ex: 25-cent gumballs sold in gumball machines—the price has remained at that level for probably as long as you can remember

Every day low prices (EDLP)

-Pricing products low on a consistent basis -Not deeply discounted but set low enough -Walmart, Proctor & Gamble -Customers may feel like it isn't a good deal

Psychological pricing

-Pricing that attempts to influence a customer's perception of price to make a product's price more attractive -Encourage purchases based on consumers' emotional responses, rather than on economically rational ones. These strategies are used primarily for consumer products (not business)

Captive pricing

-Pricing the basic product in a product line low, while pricing related items higher -Ex: printer ink

Premium pricing

-Pricing the highest-quality or most versatile products higher than other models in the product line -Ex: small kitchen appliances, beer, ice cream

What components make up the longest marketing channel?

-Producer --> agent --> wholesaler --> retailer --> consumer

Direct trade

-Producer to manufacturer

Price leaders

-Products priced near or even below cost -Ex: Supermarkets and restaurants to attract customers by offering them especially low prices on a few items, with the expectation that they will purchase other items as well

Wholesale transaction (versus retail)

-Products purchased to make other products -Products purchased for resale -Products purchased for daily operations

Driving force behind marketing channel decisions

-Providing customer satisfaction

Cumulative discounts

-Quantity discounts aggregated over a stated time period

RFID

-Radio Frequency Identification -Greatly improves shipment tracking and reduced cycle times -Hundreds of RFID tags can be read at a time, which represents an advantage over barcodes -Broad applications, from tracking inventory to paying for goods and services, asset management, and data collection -Ex: Disney World wristbands

Geographic pricing

-Reductions for transportation and other costs related to the physical distance between buyer and seller

Forms of psychological pricing

-Reference pricing, bundle pricing, multiple-unit pricing, everyday low prices (EDLP), odd-even pricing, customary pricing, and prestige pricing

Online retailing

-Retailing that makes products available to buyers through computer connections

Avoiding channel conflict

-Role of each channel member must be clearly defined and adhered to, all members must be able to expect unambiguous performance levels from one another -Members of channel partnerships must agree on means of coordinating channels, which requires strong, but not polarizing, leadership -Producers or other channel members may provide competing resellers with different brands, allocate markets among resellers, define policies for direct sales to avoid potential conflict over large accounts, negotiate territorial issues among regional distributors, and provide recognition to certain resellers for their importance in distributing to others

Discount store

-Self-service, general-merchandise stores that offer brand-name and private-brand products at low prices -Walmart, Target, K-mart

Disadvantages of a manufacturers' agent

-Seller has little control over the actions of manufacturers' agents -Prefer to concentrate on larger accounts -Reluctant to spend time following up with customers after the sale, putting forth special selling efforts, or providing sellers with market information because they are not compensated for these activities and they reduce the amount of productive selling time -Limited ability to provide customers with parts or repair services quickly

Marketing channels

-Serve many functions, including creating utility and facilitating exchange efficiencies. -Most functions are accomplished through both independent and joint efforts of channel members

Cash flow

-Set price levels to encourage rapid sales -May have the support of a marketing manager if he or she anticipates a short product life cycle -Oversimplifies the contribution of price to profits -If results in high prices, competitors with lower prices may gain a large share of the market

Product quality

-Set prices to recover research and development expenditures and establish a high-quality image -Generally more expensive for the firm, as the costs of materials, research, and development may be greater

Promotion

-Set promotional objectives. Coordinate advertising, personal selling, sales promotion, publicity, and packaging

Price lining

-Setting a limited number of prices for selected groups or lines of merchandise -Ex: A shop may sell men's ties only at $22 and $37. This strategy is common in clothing and accessory stores -It eliminates minor price differences from the buying decision—both for customers and for managers who buy merchandise to sell in these stores

Comparison discounting

-Setting a price at a specific level and comparing it with a higher price -The higher price may be the product's previous price, the price of a competing brand, the product's price at another retail outlet, or a manufacturer's suggested retail price -Federal Trade Commission has established guidelines

Secondary-market pricing

-Setting one price for the primary target market and a different price for another market -Give an organization an opportunity to use excess capacity and stabilize the allocation of resources -Ex: Geographically-isolated domestic market, a market in a foreign country, and a segment willing to purchase a product during off-peak times (such as "early-bird" diners at restaurants and off-peak hour cell phone users)

Prestige pricing

-Setting prices at an artificially high level to convey prestige or a quality image -Ex: perfumes, liquor, jewelry, cars, and some food items

Penetration pricing

-Setting prices below those of competing brands to penetrate a market and gain a significant market share quickly -Less flexible than price skimming (hard to raise prices and maintain buyers) -May use after skimming

Selective market coverage

-Shopping products (iPods, shoes) -Available in some outlets -Using only some available outlets in an area to distribute a product

New product pricing

-Skimming and penetration pricing

Direct marketing channels

-Some -Product goes directly from producer to consumer -Ex: order pears online from Harry & David, the product is sent from the manufacturer to the customer

Exclusive market coverage

-Specialty products (BMWs, Fendi handbags) -Available in very few outlets -Using a single outlet in a fairly large geographic area to distribute a product

Public warehouses

-Storage space and related physical distribution facilities that can be leased by companies -Sometimes provide distribution services -Useful to firms that have seasonal production or demand, low-volume storage needs, and inventories that must be maintained in many locations, firms that are testing or entering new markets or require additional storage space -Serve as collection points during product-recall programs -Variable (and possibly lower) costs because users rent space and purchase warehousing services only as needed -Ex: Distribution Unlimited Inc., for example, offers a wide range of such services through its facilities in New York, which contain more than 8 million square feet of warehouse space

Off-price retailers

-Stores that buy manufacturers' seconds, overruns, returns, and off-season merchandise for resale to consumers at deep discounts -Establish long-term relationships with suppliers that can provide large quantities of goods at reduced prices

Traditional specialty retailers

-Stores that carry a narrow product mix with deep product lines -Limited line or single line retailers

Price-conscious

-Striving to pay low prices -Don't care if product is low quality -Ex: McDonalds

Merchant middlemen

-Take title to products -Full service, limited function

Periodic discounting

-Temporary reduction of prices on a patterned or systematic basis -Annual holiday sales, and some apparel stores have regular seasonal sales -Disadvantage: Customers can predict when the reductions will occur and may delay their purchases until they can take advantage of the lower prices

Random discounting

-Temporary reduction of prices on an unsystematic basis -Buyers cannot predict price reductions -Common with new grocery store items

Tensile pricing

-Tensile pricing involves making a broad statement about price reductions, as opposed to detailing specific price discounts -Ex: statements like "20 to 50 percent off," "up to 75 percent off," and "save 10 percent or more." -Generally, the tensile price that mentions only the maximum reduction (such as "up to 50 percent off") generates the highest customer response

Channel power

-The ability of one channel member to influence another member's goal achievement

Marginal revenue (MR)

-The change in total revenue resulting from the sale of an additional unit of a product

Warehousing

-The design and operation of facilities for storing and moving goods -Provides time utility by enabling firms to compensate for dissimilar production and consumption rates -Helps stabilize prices and availability of seasonal items -Two categories: private and public (or combination)

Channel captain

-The dominant leader of a marketing channel or a supply channel -May be a producer, wholesaler, or retailer -May establish channel policies and coordinate development of the marketing mix -Must possess channel power

Marginal cost (MC)

-The extra cost incurred by producing one more unit of a product -Marginal cost equals average total cost at the latter's lowest level

Average fixed cost

-The fixed cost per unit produced -Average fixed cost declines as output increases

Amazon

-The gold standard for supply chain management

Transportation

-The movement of products from where they are made to intermediaries and end users -Basic transportation modes for moving physical goods are railroads, trucks, waterways, airways, and pipelines

Telemarketing

-The performance of marketing-related activities by telephone -Increasingly restrictive telemarketing laws have made it a less appealing and less popular marketing method

Atmospherics

-The physical elements in a store's design that appeal to consumers' emotions and encourage buying

Break even point

-The point at which the costs of producing a product equal the revenue made from selling the product -To calculate the break even point in terms of dollar sales volume, the seller multiplies the break even point in units by the price per unit -To use break even analysis effectively, a marketer should determine the break even point for each of several alternative prices -Assumes that the quantity demanded is basically fixed (inelastic) and that the major task in setting prices is to recover costs -breakeven point = fixed costs/per-unit contribution to fixed costs =fixed costs/price - variable costs

F.O.B. factory

-The price of merchandise at the factory before shipment -Excludes shipping

Order processing

-The receipt and transmission of sales order information -Efficient order processing facilitates product flow -Computerized order processing provides a platform for information management, allowing all supply-chain members to increase their productivity -When carried out quickly and accurately, order processing contributes to customer satisfaction, decreased costs and cycle time, and increased profits

Nonstore retailing

-The selling of products outside the confines of a retail facility -Direct selling -Direct marketing (catalogs, direct response, telemarketing, tv home shopping, online) -Vending

Total cost

-The sum of average fixed and average variable costs times the quantity produced -Increases if average fixed cost increases

Average total cost

-The sum of the average fixed cost and the average variable cost -Average total cost follows a U shape -Because average total cost continues to fall after average variable cost begins to rise, its lowest point is at a higher level of output than that of average variable cost -Average total cost decreases as long as marginal cost is less than average total cost and increases when marginal cost rises above average total cost

Cycle time

-The time needed to complete a process -Reducing cycle time while maintaining or reducing costs and/or maintaining or increasing customer service is a winning combination in supply chains and ultimately leads to greater end-customer satisfaction.

Operations management

-The total set of managerial activities used by an organization to transform resource inputs into products, services, or both

Barter

-The trading of products -Oldest form of exchange -Barter among businesses, because of the relatively large values of the exchanges, usually involves trade credit -Corporate barter amounts to an estimated $12 billion -Certain websites help facilitate B2B bartering.

Automatic vending

-The use of machines to dispense products

Direct marketing

-The use of the telephone, Internet, and nonpersonal media to introduce products to customers, who can then purchase them via mail, telephone, or the Internet -Nonstore retailing -Sales through direct marketing activities are large, accounting for about 8.7 percent of the entire U.S. GDP -Catalog marketing, direct-response marketing, telemarketing, television home shopping, and online retailing

Dual distribution

-The use of two or more marketing channels to distribute the same products to the same target market

Average variable cost

-The variable cost per unit produced -Average variable cost follows a U shape

Four types of utility created by marketing channels

-Time -Place -Possession -Form

Seasonal discount

-To allow a marketer to use resources more efficiently by stimulating sales during off-peak periods -A price reduction given to buyers for purchasing goods or services out of season -Ex: Florida hotels provide companies holding national and regional sales meetings with deeply discounted accommodations during the summer months.

Quantity discount

-To encourage customers to buy large quantities when making purchases and, in the case of cumulative discounts, to encourage customer loyalty -Ex: Large department store chains purchase some women's apparel at lower prices than do individually owned specialty stores -Deductions from the list price for purchasing in large quantities -Cumulative and noncumulative

Cash discount

-To reduce expenses associated with accounts receivable and collection by encouraging prompt payment of accounts -A price reduction given to buyers for prompt payment or cash payment -Ex: Numerous companies serving business markets allow a 2 percent discount if an account is paid within 10 days.

Discount categories

-Trade, quantity, cash, seasonal, and allowance

Specialty retailers

-Traditional (Victoria's secret) -Category killers -Off-price specialty retailers

Wholesaling

-Transactions in which products are bought for resale, for making other products, or for general business operations

Intermodal transportation

-Two or more transportation modes used in combination -Combines the flexibility of trucking with the low cost or speed of other forms of transport -Containerization facilitates intermodal transportation by consolidating shipments into sealed containers for transport by piggyback (using truck trailers and railway flatcars), fishyback (using truck trailers and water carriers), and birdyback (using truck trailers and air carriers) -Gaining popularity

Advantages of a manufacturers' agent

-Usually possess considerable technical and market information and have an established set of customers -For an organizational seller with highly seasonal demand, a manufacturers' agent can be an asset because the seller does not have to support a year-round sales force -Economical alternative for a firm that has highly limited resources and cannot afford a full-time sales force (paid on commission)

Target market's evaluation of price

-Varies from product to product -Depends on the purchase situation (movie snacks) -Value (more than price)

Characteristics of intermediaries

-When an organization believes that an intermediary is not promoting its products adequately or does not offer the correct mix of services, it may reconsider its channel choices

Order entry

-When customers or salespeople place purchase orders via telephone, regular mail, e-mail, or website -Electronic ordering has become the most common (less time-consuming than a paper-based ordering system and reduces costs) -In some companies, sales representatives receive and enter orders personally and also handle complaints, prepare progress reports, and forward sales order information

When is horizontal channel integration efficient?

-When distribution functions for the various units can be performed more efficiently under unified management than under the previously separate managements

What are two very important inventory management issues?

-When to order? -How much to order?

Refusal to deal

-Within existing distribution channels, suppliers may not legally refuse to deal with wholesalers or dealers merely because these wholesalers or dealers resist policies that are anticompetitive or in restraint of trade -Suppliers are further prohibited from organizing some channel members in refusal-to-deal actions against other members that choose not to comply with illegal policies

Pricing stages

1. Develop pricing objectives 2. Assess target market's evaluation of price 3. Determine demand 4. Analyze demand, cost and profit relationships 5. Evaluate competitors prices 6. Select a basis for pricing 7. Select a pricing strategy 8. Determine a specific price

Up to X% of a firm's cost base can be traced to X

70%; supply chain

Trucks

Cost: high Speed: fast Dependability: high Load flexibility: average Accessibility: very high Frequency: high Products: Clothing, computers, books, groceries and produce, livestock

Pipelines

Cost: low Speed: slow Dependability: high Load flexibility: very low Accessibility: very limited Frequency: very high Products: Oil, processed coal, natural gas

Railroads

Cost: moderate Speed: average Dependability: average Load flexibility: high Accessibility: high Frequency: low Products: Coal, grain, lumber, paper and pulp products, chemicals

Airplanes

Cost: very high Speed: very fast Dependability: high Load flexibility: low Accessibility: average Frequency: average Products: Flowers, food (highly perishable), technical instruments, emergency parts and equipment, overnight mail

Waterways

Cost: very low Speed: very slow Dependability: average Load flexibility: very high Accessibility: limited Frequency: very low Products: Chemicals, bauxite, grain, motor vehicles, agricultural implements

Profit is the highest where...

MC = MR

Broker services

Physical possession of merchandise: No Long-term relationship with buyers or sellers: No Representation of competing product lines: Yes Limited geographic territory: No Credit to customers: No Delivery of merchandise to customers: No

Selling agent services

Physical possession of merchandise: Some Long-term relationship with buyers or sellers: Yes Representation of competing product lines: No Limited geographic territory: No Credit to customers: Yes Delivery of merchandise to customers: Yes

Manufacturers' agent services

Physical possession of merchandise: Some Long-term relationship with buyers or sellers: Yes Representation of competing product lines: No Limited geographic territory: Yes Credit to customers: No Delivery of merchandise to customers: Some

Commission merchant services

Physical possession of merchandise: Yes Long-term relationship with buyers or sellers: Yes Representation of competing product lines: Yes Limited geographic territory: No Credit to customers: Some Delivery of merchandise to customers: Yes

Formulas for profit

Profit = total revenue - total costs Profit = (price x quantity sold) - total costs

Supply chain management should begin with a focus on...

The customer