POM Chapters 9-11

Which of the following statements is true regarding initiating price​ cuts?

Cutting prices in an industry loaded with excess capacity may lead to price wars.

Carefully orchestrating the​ store's layout and​ displays, background​ music, colors, and smells is related to​ ________.

Experiential retailing

product line pricing

Setting prices across an entire product line management must determine the price steps to set between the various products in a line. The price steps should take into account cost differences between products in the line. More important, they should account for differences in customer perceptions of the value of different features. EX: For example, at a Mr. Clean car wash, you can choose from any of six wash packages, ranging from a basic exterior-clean-only "Bronze" wash for $5; to an exterior clean, shine, and protect "Gold" package for $12; to an interior-exterior "Signature Shine" package for $27 that includes the works, from a thorough cleaning inside and out to a tire shine, underbody rust inhibitor, surface protectant, and even air freshener. The car wash's task is to establish perceived value differences that support the price differences.

You go to the local jewelry store to choose a birthday gift for a friend. Which type of retailer is the jewelry​ store?

Specialty store A specialty store is one that carries a narrow product line with a deep assortment.

Which channel partners in a​ company's supply chain are upstream from a manufacturer or​ producer?

Suppliers

​Geared2Beer, a craft beer​ brand, identifies a market segment that is willing to pay premium prices for its craft​ beer, and Geared2Beer managers select an ideal selling price. Managers then determine the costs to create craft beer that meets the ideal selling price. The​ company's pricing approach is referred to as​ ________.

Target Costing

Allowances

another type of reduction from the list price. For example, trade-in allowances are price reductions given for turning in an old item when buying a new one. Trade-in allowances are most common in the automobile industry, but they are also given for other durable goods. Promotional allowances are payments or price reductions that reward dealers for participating in advertising and sales-support programs.

indirect marketing channels

containing one or more intermediaries. Although consumer and business marketing channels with even more levels can sometimes be found, these are less common. From the producer's point of view, a greater number of levels means less control and greater channel complexity. Moreover, all the institutions in the channel are connected by several types of flows. These include the physical flow of products, the flow of ownership, the payment flow, the information flow, and the promotion flow. These flows can make even channels with only one or a few levels very complex.

Fixed costs (also known as overhead)

costs that do not vary with production or sales level. For example, a company must pay each month's bills for rent, heat, interest, and executive salaries regardless of the company's level of output.

Online marketers taking business from traditional​ brick-and-mortar retailers is an example of​ _____.

disintermediation

direct marketing channel

has no intermediary levels—the company sells directly to consumers. For example, Mary Kay Cosmetics and Amway sell their products through home and office sales parties and online Web sites and social media; companies ranging from GEICO insurance to Omaha Steaks sell directly to customers via the Internet, mobile, and telephone.

Good-Value Pricing

offering just the right combination of quality and good service at a fair price In many cases, this has involved introducing less-expensive versions of established brand name products or new lower-price lines. In other cases, good-value pricing involves redesigning existing brands to offer more quality for a given price or the same quality for less. Some companies even succeed by offering less value but at very low prices.

Total costs

sum of the fixed and variable costs for any given level of production Management wants to charge a price that will at least cover the total production costs at a given level of production.

If a company wishes to sell the exact number of units to cover both its variable and fixed​ costs, what type of pricing strategy is it​ using?

​Break-even pricing is when a marketer sets the price of a product to break even on the costs of making and marketing a product.

Offering just the right combination of quality and good service at a fair price is known as which type of​ strategy?

​Good-value pricing is offering just the right combination of quality and good service at a fair price.

Supermarket

A relatively large, low-cost, low-margin, high-volume, self-service operation designed to serve the consumer's total needs for grocery and household products. Kroger, Safeway, SuperValu, Publix

Convenience Store

A relatively small store located near residential areas, open 24/7, and carrying a limited line of high-turnover convenience products at slightly higher prices 7-Eleven, Circle K, Speedway, Sheetz

specialty store

A store that carries a narrow product line with a deep assortment, such as apparel stores, sporting-goods stores, furniture stores, florists, and bookstores. REI, Sunglass Hut, Sephora, Williams-Sonoma

Department Store

A store that carries several product lines—typically clothing, home furnishings, and household goods—with each line operated as a separate department managed by specialist buyers or merchandisers. Macy's, Sears, Neiman Marcus

Discount Store

A store that carries standard merchandise sold at lower prices with lower margins and higher volumes. Walmart, Target, Kohl's

Off-price retailer

A store that sells merchandise bought at less-than-regular wholesale prices and sold at less than retail. These include factory outlets owned and operated by manufacturers; independent off-price retailers owned and run by entrepreneurs or by divisions of larger retail corporations; and warehouse (or wholesale) clubs selling a limited selection of goods at deep discounts to consumers who pay membership fees. Mikasa (factory outlet); TJ Maxx (independent off-price retailer); Costco, Sam's Club, BJ's (warehouse clubs)

Superstore

A very large store that meets consumers' total needs for routinely purchased food and nonfood items. This includes supercenters, combined supermarket and discount stores, and category killers, which carry a deep assortment in a particular category. Walmart Supercenter, SuperTarget, Meijer (discount stores); Best Buy, Petco, Staples, Bed Bath & Beyond (category killers)

International pricing

Adjusting prices for international markets

Psychological pricing

Adjusting prices for psychological effect For example, consumers usually perceive higher-priced products as having higher quality. When they can judge the quality of a product by examining it or by calling on past experience with it, they use price less to judge quality. But when they cannot judge quality because they lack the information or skill, price becomes an important quality signal. For instance, who's the better lawyer, one who charges $50 per hour or one who charges $500 per hour? You'd have to do a lot of digging into the respective lawyers' credentials to answer this question objectively; even then, you might not be able to judge accurately. Most of us would simply assume that the higher-priced lawyer is better.

Segmented pricing

Adjusting prices to allow for differences in customers, products, or locations the company sells a product or service at two or more prices, even though the difference in prices is not based on differences in costs. Under customer-segment pricing, different customers pay different prices for the same product or service. Museums and movie theaters, for example, may charge a lower admission for students and senior citizens. Under product form pricing, different versions of the product are priced differently but not according to differences in their costs. First class vs second class airplane seats Using location-based pricing, a company charges different prices for different locations, even though the cost of offering each location is the same. For instance, state universities charge higher tuition for out-of-state students, and theaters vary their seat prices because of audience preferences for certain locations. Finally, using time-based pricing, a firm varies its price by the season, the month, the day, and even the hour. For example, movie theaters charge matinee pricing during the daytime, and resorts give weekend and seasonal discounts. For segmented pricing to be an effective strategy, certain conditions must exist. The market must be segmentable, and segments must show different degrees of demand. The costs of segmenting and reaching the market cannot exceed the extra revenue obtained from the price difference. Of course, the segmented pricing must also be legal.

Eskimo​ Joe's sells​ branded, ready-to-wear​ clothing, hats, drink​ ware, coasters, and other products directly to end consumers. Based upon this​ description, one could say that these product categories collectively represent the​ __________ of Eskimo​ Joe's product assortment.

Breadth Product assortment breadth relates to the number of distinct product categories a given retailer sells. Retailers can be classified by the length​ (i.e. the number of items within a​ category) and the breadth​ (i.e. the number of product​ categories) of their product assortments.

Broker

Bring buyers and sellers together and assist in negotiation. Brokers are paid by the party who hired the broker and do not carry inventory, get involved in financing, or assume risk. Examples include food brokers, real estate brokers, insurance brokers, and security brokers.

Cash-and-carry wholesalers

Carry a limited line of fast-moving goods and sell to small retailers for cash. Normally do not deliver.

Competition-based pricing

Consumers will base their judgments of a product's value on the prices that competitors charge for similar products. Importantly, the goal is not to match or beat competitors' prices. Rather, the goal is to set prices according to the relative value created versus competitors. If a company creates greater value for customers, higher prices are justified.

Franchise organization

Contractual association between a franchisor (a manufacturer, wholesaler, or service organization) and franchisees (independent businesspeople who buy the right to own and operate one or more units in the franchise system). The main difference between franchise organizations and other contractual systems (voluntary chains and retail cooperatives) is that franchise systems are normally based on some unique product or service; a method of doing business; or the trade name, goodwill, or patent that the franchisor has developed. Franchising has been prominent in fast-food restaurants, motels, health and fitness centers, auto sales and service dealerships, and real estate agencies. McDonald's, Subway, Pizza Hut, Jiffy Lube, Meineke Mufflers, 7-Eleven

In addition to Eskimo​ Joe's, Stan and his partners own two other​ restaurants: Joseppis' Italian Kitchen and Mexico​ Joe's. Which type of organizational approach to retailing does this​ represent?

Corporate chain Corporate chains are two or more outlets that are commonly owned and controlled.

You paid 75 cents for a can of soda this morning.​ However, the​ seller's cost is only 50 cents. Which type of selling strategy is the soda company most likely​ using?

Cost-plus pricing is when a marketer adds a standard​ mark-up to the cost of the product.

Warehouse clubs

Costco, Sam's Club, and BJ's, operate in huge, drafty, warehouse-like facilities and offer few frills. However, they offer ultralow prices and surprise deals on selected branded merchandise. Warehouse clubs have grown rapidly in recent years. These retailers appeal not only to low-income consumers seeking bargains on bare-bones products but also to all kinds of customers shopping for a wide range of goods, from necessities to extravagances.

​________ refers to setting price based on​ buyers' perception of value rather than on the​ seller's cost.

Customer value-based pricing

After segmenting and defining their target​ markets, what should retailers do​ next?

Decide how they will differentiate and position themselves in the market.

What is the overall goal when retailers choose their product​ assortment?

Differentiate the retailer while matching target​ shoppers' expectations.

You have developed a new product and have created a website where customers can go to order the product. Which type of channel are you most likely​ utilizing?

Direct Channel A direct channel is used when there are no intermediaries and the producer of a product sells directly to the consumer or business customer.

Drop shippers

Do not carry inventory or handle the product. On receiving an order, drop shippers select a manufacturer, who then ships the merchandise directly to the customer. Drop shippers operate in bulk industries, such as coal, lumber, and heavy equipment.

Brokers and agents

Do not take title to goods. The main function is to facilitate buying and selling, for which they earn a commission on the selling price. Generally specialize by product line or customer type.

Companies that use​ ________ continually adjust prices to meet the characteristics and needs of individual customers and situations.

Dynamic pricing

channel level

Each layer of marketing intermediaries that performs some work in bringing the product and its ownership closer to the final buyer

Producers' cooperatives

Farmer-owned members that assemble farm produce for sale in local markets. Producers' cooperatives often attempt to improve product quality and promote a co-op brand name, such as Sun-Maid raisins, Sunkist oranges, or Diamond nuts.

Wholesaler

Firms engaged primarily in wholesaling activities Wholesalers buy mostly from producers and sell mostly to retailers, industrial consumers, and other wholesalers. As a result, many of the nation's largest and most important wholesalers are largely unknown to final consumers.

Purchasing agents

Generally have a long-term relationship with buyers and make purchases for them, often receiving, inspecting, warehousing, and shipping the merchandise to buyers. Purchasing agents help clients obtain the best goods and prices available.

Retailer Cooperative

Group of independent retailers who jointly establish a central buying organization and conduct joint promotion efforts. Associated Grocers (groceries), Ace Hardware (hardware)

Selling agents

Have contractual authority to sell a manufacturer's entire output. The selling agent serves as a sales department and has significant influence over prices, terms, and conditions of sale. Found in product areas such as textiles, industrial machinery and equipment, coal and coke, chemicals, and metals.

Merchant Wholesaler

Independently owned businesses that take title to all merchandise handled. There are full-service wholesalers and limited-service wholesalers.

When Apple Computer Company introduced its​ iPhone, its priced the new product at​ $599, considerably higher than either their iPod or competing cellular phones. Apple Computer was pursuing a​ ___________________ new product pricing​ strategy.

Market Skimming

Purchasing offices

Perform a role similar to that of brokers or agents but are part of the buyer's organization. Many retailers set up purchasing offices in major market centers, such as New York and Chicago.

Truck wholesalers (or truck jobbers)

Perform primarily a selling and delivery function. Carry a limited line of semiperishable merchandise (such as milk, bread, snack foods), which is sold for cash as deliveries are made to supermarkets, small groceries, hospitals, restaurants, factory cafeterias, and hotels.

Captive-product pricing

Pricing products that must be used with the main product Examples of captive products are razor blade cartridges, video games, printer cartridges, single-serve coffee pods, and e-books. Producers of the main products (razors, video-game consoles, printers, single-cup coffee brewing systems, and tablet computers) often price them low and set high markups on the supplies. For example, Amazon makes little or no profit on its Kindle readers and tablets. It hopes to more than make up for thin margins through sales of digital books, music, movies, subscription services, and other content for the devices. In the case of services, captive-product pricing is called two-part pricing. The price of the service is broken into a fixed fee plus a variable usage rate. Thus, at Six Flags and other amusement parks, you pay a daily ticket or season pass charge plus additional fees for food and other in-park features.

Bath​ & Body Works offers​ "three-fer" deals on its soaps and lotions​ (such as three antibacterial soaps for​ $10). This is an example of​ _______ pricing.

Product Bundle

Full-service wholesalers

Provide a full line of services: carrying stock, maintaining a sales force, offering credit, making deliveries, and providing management assistance. Full-service wholesalers include wholesale merchants and industrial distributors.

Agent

Represent either buyers or sellers on a more permanent basis than brokers do. There are four types:

Manufacturers' agents

Represent two or more manufacturers of complementary lines. Often used in such lines as apparel, furniture, and electrical goods. A manufacturer's agent is hired by small manufacturers who cannot afford their own field sales forces and by large manufacturers who use agents to open new territories or cover territories that cannot support full-time salespeople.

Wholesale Merchants

Sell primarily to retailers and provide a full range of services. General merchandise wholesalers carry several merchandise lines, whereas general line wholesalers carry one or two lines in great depth. Specialty wholesalers specialize in carrying only part of a line.

Industrial distributors

Sell to manufacturers rather than to retailers. Provide several services, such as carrying stock, offering credit, and providing delivery. May carry a broad range of merchandise, a general line, or a specialty line.

Mail-order or Web wholesalers

Send catalogs to or maintain Web sites for retail, industrial, and institutional customers featuring jewelry, cosmetics, specialty foods, and other small items. Its primary customers are businesses in small outlying areas.

Rack jobbers

Serve grocery and drug retailers, mostly in nonfood items. Rack jobbers send delivery trucks to stores, where the delivery people set up toys, paperbacks, hardware items, health and beauty aids, or other items. Rack jobbers price the goods, keep them fresh, set up point-of-purchase displays, and keep inventory records.

In addition to selling food and drink through its restaurant and​ bar, Eskimo​ Joe's sells a variety of items that feature its popular Eskimo Joe logo. These products are sold directly to final consumers for their personal use. Based upon this​ description, Eskimo​ Joe's may be categorized as a​ __________.

Service retailer Retailing for many​ retailers, the product line is actually a service. Service retailers include hotels and​ motels, banks,​ airlines, restaurants,​ colleges, hospitals, and others.

Sales branches and offices

Set up by manufacturers to improve inventory control, selling, and promotion. Sales branches carry inventory and are found in industries such as lumber and automotive equipment and parts. Sales offices do not carry inventory and are most prominent in the dry goods and notions industries.

multichannel distribution systems

Such multichannel marketing occurs when a single firm sets up two or more marketing channels to reach one or more customer segments.

Commission merchants

Take physical possession of products and negotiate sales. Used most often in agricultural marketing by farmers who do not want to sell their own output. Take a truckload of commodities to a central market, sell it for the best price, deduct a commission and expenses, and remit the balance to the producers.

integrated logistics management

This concept recognizes that providing better customer service and trimming distribution costs require teamwork, both inside the company and among all the marketing channel organizations. Inside, the company's various departments must work closely together to maximize its own logistics performance. Outside, the company must integrate its logistics system with those of its suppliers and customers to maximize the performance of the entire distribution network.

Showrooming

To the dismay of some store retailers, many shoppers now check out merchandise at physical-store showrooms but then buy it online using a computer or mobile device, sometimes while in the store

Corporate chain

Two or more outlets that are commonly owned and controlled. Corporate chains appear in all types of retailing but they are strongest in department stores, discount stores, food stores, drugstores, and restaurants. Their size allows them to buy in large quantities at lower prices and gain promotional economies. They can hire specialists to deal with areas such as pricing, promotion, merchandising, inventory control, and sales forecasting. Macy's (department stores), Target (discount stores), Kroger (grocery stores), CVS (drugstores)

Voluntary chain

Wholesaler-sponsored group of independent retailers engaged in group buying and merchandising. Independent Grocers Alliance (IGA), Western Auto (auto supply), True Value (hardware)

Manufacturers' and retailers' branches and offices

Wholesaling operations conducted by sellers or buyers themselves rather than operating through independent wholesalers. Separate branches and offices can be dedicated to either sales or purchasing.

Shopping center

a group of retail businesses built on a site that is planned, developed, owned, and managed as a unit.

marketing channel (or distribution channel)

a set of interdependent organizations that help make a product or service available for use or consumption by the consumer or business user.

intensive distribution

a strategy in which they stock their products in as many outlets as possible. These products must be available where and when consumers want them. For example, toothpaste, candy, and other similar items are sold in millions of outlets to provide maximum brand exposure and consumer convenience. Kraft, Coca-Cola, Kimberly-Clark, and other consumer goods companies distribute their products in this way.

Retailing

all the activities directly related to the sale of goods and services to the ultimate consumer for personal, nonbusiness use

Third-party logistics (3PL) provider

bundling, loading, unloading, sorting, storing, reloading, transporting, customs clearing, and tracking required to supply their factories and get products to their customers. Ryder, Penske Logistics, BAX Global, DHL Logistics, FedEx Logistics, and UPS Business Solutions.

Retailers

businesses whose sales come primarily from retailing.

marketing channel design

calls for analyzing consumer needs, setting channel objectives, identifying major channel alternatives, and evaluating those alternatives

marketing channel management

calls for selecting, managing, and motivating individual channel members and evaluating their performance over time.

multimodal transportation

combining two or more modes of transportation. Eight percent of the total cargo ton-miles are moved via multiple modes. Piggyback describes the use of rail and trucks; fishyback, water and trucks; trainship, water and rail; and airtruck, air and trucks. Combining modes provides advantages that no single mode can deliver. Each combination offers advantages to the shipper. For example, not only is piggyback cheaper than trucking alone, but it also provides flexibility and convenience. Numerous logistics companies provide single-source multi-modal transportation solutions.

Vertical conflict

conflict between different levels of the same channel

contractual VMS

consists of independent firms at different levels of production and distribution that join together through contracts to obtain more economies or sales impact than each could achieve alone. Channel members coordinate their activities and manage conflict through contractual agreements.

conventional distribution channel

consists of one or more independent producers, wholesalers, and retailers. Each is a separate business seeking to maximize its own profits, perhaps even at the expense of the system as a whole. No channel member has much control over the other members, and no formal means exists for assigning roles and resolving channel conflict.

vertical marketing system (VMS)

consists of producers, wholesalers, and retailers acting as a unified system. One channel member owns the others, has contracts with them, or wields so much power that they must all cooperate. The VMS can be dominated by the producer, the wholesaler, or the retailer.

community shopping center

contains between 15 and 50 retail stores. It normally contains a branch of a department store or variety store, a supermarket, specialty stores, professional offices, and sometimes a bank.

​Sherwin-Williams sells its paint and other branded products exclusively through​ company-owned retail stores.​ Sherwin-Williams has established​ a(n) _________.

corporate VMS

omni-channel retailing

creating a seamless cross-channel buying experience that integrates in-store, online, and mobile shopping

distribution center

designed to move goods rather than just store them. They are large and highly automated warehouses designed to receive goods from various plants and suppliers, take orders, fill them efficiently, and deliver goods to customers as quickly as possible.

shopper marketing

focusing the entire marketing process—from product and brand development to logistics, promotion, and merchandising—toward turning shoppers into buyers as they approach the point of sale. Of course, every well-designed marketing effort focuses on customer buying behavior. What differentiates the concept of shopper marketing is the suggestion that these efforts should be coordinated around the shopping process itself.

neighborhood shopping center

generally contain between 5 and 15 stores. These centers, which are close and convenient for consumers, usually contain a supermarket, perhaps a discount store, and several service stores—dry cleaner, drugstore, hardware store, local restaurant, or other stores.

price elasticity

how responsive demand will be to a change in price. If demand hardly changes with a small change in price, we say demand is inelastic. If demand changes greatly, we say the demand is elastic. If demand is elastic rather than inelastic, sellers will consider lowering their prices. A lower price will produce more total revenue. This practice makes sense as long as the extra costs of producing and selling more do not exceed the extra revenue. At the same time, most firms want to avoid pricing that turns their products into commodities. In recent years, forces such as deregulation and the instant price comparisons afforded by the Internet and other technologies have increased consumer price sensitivity, turning products ranging from phones and computers to new automobiles into commodities in some consumers' eyes.

Power Centers

huge unenclosed shopping centers consisting of a long strip of retail stores, including large, freestanding anchors such as Walmart, Home Depot, Costco, Best Buy, Michaels, PetSmart, and Office Depot. Each store has its own entrance with parking directly in front for shoppers who wish to visit only one store.

horizontal marketing system

in which two or more companies at one level join together to follow a new marketing opportunity. By working together, companies can combine their financial, production, or marketing resources to accomplish more than any one company could alone. Companies might join forces with competitors or noncompetitors. They might work with each other on a temporary or permanent basis, or they may create a separate company. For example, competing big media companies Fox Broadcasting, Disney-ABC, and NBCUniversal (Comcast) jointly own and market Hulu, the successful online subscription service that provides on-demand streaming of TV shows, movies, and other video content. Together, they compete more effectively against digital streaming competitors such as Netflix.

Wholesaling

includes all the activities involved in selling goods and services to those buying them for resale or business use

Independent off-price retailer

independents, factory outlets, and warehouse clubs independently owned and run or are divisions of larger retail corporations. Although many off-price operations are run by smaller independents, most large off-price retailer operations are owned by bigger retail chains. Examples include store retailers such as TJ Maxx, Marshalls, and HomeGoods, all owned by TJX Companies, and online sellers such as www.Overstock.com.

corporate VMS

integrates successive stages of production and distribution under single ownership. Coordination and conflict management are attained through regular organizational channels. For example, Sherwin-Williams, the largest U.S. coatings manufacturer, sells its Sherwin-Williams-branded products exclusively through more than 4,000 company-owned retail paint stores. And grocery giant Kroger owns and operates 38 manufacturing plants—17 dairies, 6 bakery plants, 5 grocery plants, 2 frozen dough plants, 2 beverage plants, 2 cheese plants, 2 ice cream plants, and 2 meat plants—that give it factory-to-store channel control over 40 percent of the more than 11,000 private-label items found on its shelves.3

Marketing logistics (physical distribution)

involves planning, implementing, and controlling the physical flow of goods, services, and related information from points of origin to points of consumption to meet consumer requirements at a profit

administered VMS

leadership is assumed not through common ownership or contractual ties but through the size and power of one or a few dominant channel members. Manufacturers of a top brand can obtain strong trade cooperation and support from resellers. For example, GE, P&G, and Apple can command unusual cooperation from many resellers regarding displays, shelf space, promotions, and price policies. In turn, large retailers such as Walmart, Home Depot, Kroger, and Walgreens can exert strong influence on the many manufacturers that supply the products they sell.

A discount store​ (for example,​ Target, Kohl's, or​ Walmart) sells standard merchandise at lower prices. To do​ this, discount stores accept which of the following two​ conditions?

lower margins and higher sales volume

value delivery network

made up of the company, suppliers, distributors, and, ultimately, customers who "partner" with each other to improve the performance of the entire system. For example, Pepsi makes great beverages. But to make and market just one of its many lines—say, its classic colas—Pepsi manages a huge network of people within the company, from marketing and sales people to folks in finance and operations. It also coordinates the efforts of thousands of suppliers, bottlers, retailers ranging from Kroger and Walmart to Papa John's Pizza, and advertising agencies and other marketing service firms. The entire network must function together to create customer value and establish the brand's "Pepsi: Live for Now" positioning.

Supply Chain Management

managing upstream and downstream value-added flows of materials, final goods, and related information among suppliers, the company, resellers, and final consumers

Factory outlets

manufacturer-owned and operated stores by firms such as J.Crew, Gap, Levi Strauss, and others—sometimes group together in factory outlet malls and value-retail centers. At these centers, dozens of outlet stores offer prices as much as 50 percent below retail on a wide range of mostly surplus, discounted, or irregular goods. Whereas outlet malls consist primarily of manufacturers' outlets, value-retail centers combine manufacturers' outlets with off-price retail stores and department store clearance outlets. A growing number of outlet malls now feature luxury brands such as Coach, Polo Ralph Lauren, Dolce & Gabbana, Giorgio Armani, Burberry, and Versace.

franchise organization

most common type of contractual relationship. In this system, a channel member called a franchisor links several stages in the production-distribution process. There are three types of franchises. The first type is the manufacturer-sponsored retailer franchise system—for example, Ford and its network of independent franchised dealers. The second type is the manufacturer-sponsored wholesaler franchise system—Coca-Cola licenses bottlers (wholesalers) in various world markets that buy Coca-Cola syrup concentrate and then bottle and sell the finished product to retailers locally. The third type is the service-firm-sponsored retailer franchise system—for example, Burger King and its nearly 12,100 franchisee-operated restaurants around the world.

disintermediation

occurs when product or service producers cut out intermediaries and go directly to final buyers or when radically new types of channel intermediaries displace traditional ones. Thus, in many industries, traditional intermediaries are dropping by the wayside, as is the case with online marketers taking business from traditional brick-and-mortar retailers. For example, online music download services such as iTunes and Amazon MP3 have pretty much put traditional music-store retailers out of business. In turn, streaming music services such as Spotify and Vevo are now disintermediating digital download services

limited-service wholesalers

offer fewer services than full-service wholesalers

reference price

prices that buyers carry in their minds and refer to when looking at a given product. The reference price might be formed by noting current prices, remembering past prices, or assessing the buying situation. Sellers can influence or use these consumers' reference prices when setting price. For example, a grocery retailer might place its store brand of bran flakes and raisins cereal priced at $2.49 next to Kellogg's Raisin Bran priced at $3.79. Or a company might offer more expensive models that don't sell very well to make its less expensive but still-high-priced models look more affordable by comparison. For example, Williams-Sonoma once offered a fancy bread maker at the steep price of $279. However, it then added a $429 model. The expensive model flopped, but sales of the cheaper model doubled.

​Increasingly, different types of retailers now sell the same products at the same prices to the same consumers. This trend is called​ ___________.

retail convergence

​________ refers to the activities involved in selling products or services directly to final consumers for their​ personal, nonbusiness use.

retailing

target costing

reverses the usual process of first designing a new product, determining its cost, and then asking, "Can we sell it for that?" Instead, it starts with an ideal selling price based on customer value considerations and then targets costs that will ensure that the price is met.

By performing the channel function of​ ________, wholesalers' sales forces help manufacturers reach many small customers at a low cost.

selling and promoting

Self-service retailers

serve customers who are willing to perform their own locate-compare-select process to save time or money. Self-service is the basis of all discount operations and is typically used by retailers selling convenience goods (such as supermarkets) and nationally branded, fast-moving shopping goods (such as Target or Kohl's).

Which type of business are you staying at when you stay at a hotel for a family​ vacation?

service retailer Service retailers are those in which the consumer purchases a​ service, not a good.

Cost-based pricing

setting prices based on the costs of producing, distributing, and selling the product plus a fair rate of return for effort and risk

The practice of coming into retail stores to check out merchandise and prices but making purchases online using a computer or mobile device is called​ _______.

showrooming

Lifestyle Centers

smaller, open-air malls with upscale stores, convenient locations, and nonretail activities, such as a playground, skating rink, hotel, dining establishments, and a movie theater complex. The most recent lifestyle centers often consist of mixed-use developments, with ground-floor retail establishments and apartments or condominiums above, combining shopping convenience with the community feel of a neighborhood center.

Which type of retailer carries a narrow product line with deep assortments within those​ lines?

specialty stores

Limited-service retailers

such as Sears or JCPenney, provide more sales assistance because they carry more shopping goods about which customers need information. Their increased operating costs result in higher prices.

Full-service retailers

such as high-end specialty stores (for example, Tiffany or Williams-Sonoma) and first-class department stores (such as Nordstrom or Neiman Marcus) assist customers in every phase of the shopping process. Full-service stores usually carry more specialty goods for which customers need or want assistance or advice. They provide more services, which results in much higher operating costs. These higher costs are passed along to customers as higher prices.

category killers

superstores that are actually giant specialty stores for example, Best Buy, Home Depot, Petco, and Bed Bath & Beyond). They feature stores the size of airplane hangars that carry a very deep assortment of a particular line. Category killers are found in a wide range of categories, including electronics, home-improvement products, books, baby gear, toys, home goods, party goods, sporting goods, and even pet supplies.

Regional shopping center

the largest and most dramatic shopping center, has from 50 to more than 100 stores, including two or more full-line department stores. It is like a covered mini-downtown and attracts customers from a wide area.

exclusive distribution

the producer gives only a limited number of dealers the exclusive right to distribute its products in their territories. Exclusive distribution is often found in the distribution of luxury brands.

Service retailers

the product line is actually a service include hotels and motels, banks, airlines, restaurants, colleges, hospitals, movie theaters, tennis clubs, bowling alleys, repair services, hair salons, and dry cleaners.

demand curve

the relationship between the price charged and the resulting demand level shows the number of units the market will buy in a given time period at different prices that might be charged. In the normal case, demand and price are inversely related—that is, the higher the price, the lower the demand. In short, consumers with limited budgets probably will buy less of something if its price is too high.

When the company has defined its channel​ objectives, it should next identify its major channel alternatives in terms of the types of​ intermediaries, the number of​ intermediaries, and​ __________________.

the responsibilities of channel members

selective distribution

the use of more than one but fewer than all of the intermediaries who are willing to carry a company's products. Most consumer electronics, furniture, and home appliance brands are distributed in this manner. For example, outdoor power equipment maker STIHL doesn't sell its chain saws, blowers, hedge trimmers, and other products through mass merchandisers such as Lowe's, Home Depot, or Sears. Instead, it sells through a select corps of independent hardware and lawn and garden dealers.

One retail trend resulting from economic conditions is​ ________.

tighter consumer spending

Variable costs

vary directly with the level of production. Each PC produced by HP involves a cost of computer chips, wires, plastic, packaging, and other inputs. Although these costs tend to be the same for each unit produced, they are called variable costs because the total varies with the number of units produced.

Webrooming

which consumers first check out merchandise online, then buy it in a store. The key for store retailers is to convert showrooming shoppers into buyers when they visit the store.

Which of the following functions do intermediaries not​ perform?

Production

You have decided to open a retail store that offers many products. When choosing a wholesaler to work​ with, you need one that will provide financing and has stock available on short notice. Which type of wholesaler should you​ choose?

Wholesale merchant A wholesale merchant is a type of​ full-service wholesaler that sells primarily to retailers. They provide a full range of​ services, including carrying stock and offering credit.

One major objective associated with a​ market-penetration pricing strategy is to​ ________.

Win a larger market share

UPS charges different prices for shipping depending on an​ item's destination. The more distant the city the package is being shipped​ to, the higher the price UPS charges. Which geographic pricing method is UPS​ using?

Zone pricing

Which technology could one day make the entire supply chain intelligent and​ automated?

Radio frequency identification

Geographical pricing

Adjusting prices to account for the geographic location of customers

Producers of convenience products typically use​ ______ distribution.

Intensive

Dynamic pricing

Adjusting prices continually to meet the characteristics and needs of individual customers and situations Dynamic pricing is especially prevalent online, where the Internet seems to be taking us back to a new age of fluid pricing. Such pricing offers many advantages for marketers. For example, online sellers such as L.L.Bean, Amazon.com, and Dell can mine their databases to gauge a specific shopper's desires, measure his or her means, check out competitors' prices, and instantaneously tailor offers to fit that shopper's situation and behavior, pricing products accordingly. Services ranging from retailers, airlines, and hotels to sports teams change prices on the fly according to changes in demand, costs, or competitor pricing, adjusting what they charge for specific items on a daily, hourly, or even continuous basis. Done well, dynamic pricing can help sellers to optimize sales and serve customers better. However, done poorly, it can trigger margin-eroding price wars and damage customer relationships and trust. Companies must be careful not to cross the fine line between smart dynamic pricing strategies and damaging ones

​A(n)_______ is a layer of intermediaries that performs some work in bringing the product and its ownership closer to find the final buyer.

Channel Level

Eskimo​ Joe's sells it merchandise through its​ on-site store, via an​ e-commerce website, and using a direct mail catalog. Based upon this​ description, Eskimo​ Joe's is​ a(n) __________.

Omni-channel retailer Omni-channel retailing involves creating a seamless​ cross-channel buying experience that integrates​ in-store, online, and mobile shopping.

market-penetration pricing

Companies set a low initial price to penetrate the market quickly and deeply—to attract a large number of buyers quickly and win a large market share. The high sales volume results in falling costs, allowing companies to cut their prices even further. Several conditions must be met for this low-price strategy to work. First, the market must be highly price sensitive so that a low price produces more market growth. Second, production and distribution costs must decrease as sales volume increases. Finally, the low price must help keep out the competition, and the penetration pricer must maintain its low-price position. Otherwise, the price advantage may be only temporary

After researching products similar to yours in the​ industry, you decide that your product has superior value. As​ such, you decide to price your product above the other products in the same industry. Which type of pricing strategy are you most likely​ using?

Competition-based pricing is when a marketer sets prices based on​ competitor's strategies,​ prices, costs, and market offerings.

Sunoco is an example of which type of​ retailer?

Convenience store Convenience stores are relatively small stores located near residential​ areas, open​ 24/7, and carrying a limited line of​ high-turnover convenience products at slightly higher prices.

As a​ marketer, you decide to focus not on the cost of producing the​ product, but rather on the​ customer's perception of the value of the product. Which type of pricing are you engaged​ in?

Customer​ value-based pricing involves setting prices based on​ buyers' perceptions of value rather than on the​ seller's cost.

Stan and the staff at Eskimo​ Joe's believe that creating a​ fun, one-of-a-kind restaurant and store atmosphere for its target customers will move them to visit more often and buy Eskimo Joe branded products. In so​ doing, Eskimo​ Joe's exemplifies​ __________ retailing.

Experiential Many successful retailers seek to create a unique store​ experience, carefully orchestrating virtually every aspect of the consumer store experience to suit the target market and move customers to buy. These companies employ experiential retailing​ techniques, manipulating atmospheric elements of the store to elevate the shopping experience.

Horizontal conflict

Horizontal conflict occurs among firms at the same level of the channel. For instance, some Ford dealers in Chicago might complain that other dealers in the city steal sales from them by pricing too low or advertising outside their assigned territories.

Smashburger is seeking to attract customers who eat out at casual dining​ restaurants, like P.F.​ Chang's and​ Applebee's. The average ticket price for customers at these restaurants is​ $13. For these​ customers, $13 is a​ __________ in considering the relative value of​ Smashburger's offerings.

Reference price

A key element of​ Smashburger's pricing strategy is determining price steps between its​ quarter-pound, one-third​ pound, and​ half-pound hamburgers. The practice of setting prices for different products offered by a company within a single category is known as​ __________.

In product line​ pricing, management must determine the price steps to set between the various products in a line. The price steps should take into account cost differences between products in the line. More​ importantly, it should account for differences in customer perceptions of the value of different features.

The average Toyota car contains more than​ 10,000 moving​ parts, all manufactured by hundreds of independent suppliers that Toyota neither owns nor controls. The process by which Toyota identifies and ensures that parts arrive on time to its manufacturing facilities is known as​ __________.

Inbound Logistics Inbound logistics involves moving products and materials from suppliers to the factory. Companies can gain a powerful competitive advantage by using improved​ inbound, outbound, and reverse logistics to give customers better service and overall lower channel costs.

Toyota develops intimate relationships with many of its key​ suppliers, many of whom build distribution facilities in close proximity to​ Toyota's relay centers and assembly plants. For new car​ models, these suppliers often work together with Toyota engineers during the early stages of the design process and work collaboratively to come up with innovations that lower costs and improve the quality of its finished vehicles. This type of team approach is referred to as​ __________ logistics management.

Integrated Integrated logistics management is an approach that recognizes that providing better customer service and trimming distribution costs requires teamwork​, both inside the company and outside the company.

​Full-line forcing is a practice whereby a producer agrees to sell a brand to a dealer only if the dealer agrees to sell some or all of the rest of its line. Which of the following statements is true regarding​ full-line forcing?

It may or may not be legal

Toyota suppliers are required to adopt information and automated communication technologies that ensure that​ Toyota's relay centers and assembly plants have just the right amount of parts on hand to satisfy sales forecasts and the corresponding production schedule. This inventory management practice is described in the book and video as​ __________ logistics.

Just in time With​ just-in-time inventory management​ systems, producers and retailers carry only small inventories of parts or​ merchandise, often enough for only a few days of operations. New stock arrives exactly when the manufacturer needs​ it, rather than being stored in inventory until it is needed.

market-skimming pricing (or price skimming)

Many companies that invent new products set high initial prices to skim revenues layer by layer from the market. In this way, each new iPhone model starts at a high price, then works its way down as new models are introduced. Apple skims the maximum amount of revenue from the various segments of the market. Market skimming makes sense only under certain conditions. First, the product's quality and image must support its higher price, and enough buyers must want the product at that price. Second, the costs of producing a smaller volume cannot be so high that they cancel the advantage of charging more. Finally, competitors should not be able to enter the market easily and undercut the high price.

Your favorite ice cream travels from the​ producer, who manufacturers the​ product, through several other organizations before arriving at the local grocery​ store, where you purchase the product. What is this set of organizations​ called?

Marketing Channel Marketing channels are a set of interdependent organizations that help make a product or service available for use or consumption by the consumer or business user.

Which of the following is a reason that producers use marketing channels and channel​ intermediaries?

Marketing channel members are able to transform the assortments of products made by producers into the assortments wanted by consumers.

Discounts

One form of discount is a cash discount, a price reduction to buyers who pay their bills promptly. A typical example is "2/10, net 30," which means that although payment is due within 30 days, the buyer can deduct 2 percent if the bill is paid within 10 days. A quantity discount is a price reduction to buyers who buy large volumes. A seller offers a functional discount (also called a trade discount) to trade-channel members who perform certain functions, such as selling, storing, and record keeping. A seasonal discount is a price reduction to buyers who buy merchandise or services out of season.

Selling below cost with the intention of punishing a competitor or gaining higher​ long-run profits by putting competitors out of business is an illegal practice called​ _______.

Predatory Pricing

Smashburger is investigating adding a​ half-pound burger to the menu at a lower price point. It has performed​ market-pricing experiments, with the new burger listed at either​ $4.29 or​ $3.99. The company has found little change in sales at the lower price. Based upon this​ finding, one could say that demand for the new burger is​ ___________.

Price elasticity refers to how responsive demand will be to a change in price. If demand hardly changes with a small change in​ price, we say demand is inelastic. If demand changes​ greatly, we say the demand is elastic.

Product bundle pricing

Pricing bundles of products sold together Price bundling can promote the sales of products consumers might not otherwise buy, but the combined price must be low enough to get them to buy the bundle.

By-product pricing

Pricing low-value by-products to get rid of or make money on them the company seeks a market for these by-products to help offset the costs of disposing of them and help make the price of the main product more competitive. The by-products themselves can even turn out to be profitable—turning trash into cash. For example, cheese makers in Wisconsin have discovered a use for their leftover brine, a salt solution used in the cheese-making process. Instead of paying to have it disposed of, they now sell it to local city and county highway departments, which use it in conjunction with salt to melt icy roads.

Optional-product pricing

Pricing optional or accessory products sold with the main product For example, a car buyer may choose to order a navigation system and premium entertainment system. Refrigerators come with optional ice makers. And when you order a new computer, you can select from a bewildering array of processors, hard drives, docking systems, software options, and service plans. Pricing these options is a sticky problem. Companies must decide which items to include in the base price and which to offer as options.

Which of the following channel structures would be best suited for a ballpoint ink​ pen?

Producer-wholesaler-retailer-consumer The wholesaler would buy extremely large quantities of the​ product, store​ them, and break them down into smaller units that the retailer​ orders, who in turn makes them available to the consumer.

While working at a grocery​ store, you notice a man who always works in the magazine area. He keeps the area​ clean, pulls outdated​ magazines, and restocks the shelves with the newest magazine editions. Which type of wholesaler does he most likely work​ for?

Rack jobber Rack jobbers serve grocery and drug​ retailers, mostly in nonfood items. Rack jobbers send delivery trucks to​ stores, where the delivery people set up​ toys, paperbacks, hardware​ items, health and beauty​ aids, and other items.

Value-Added Pricing

Rather than cutting prices to match competitors, they attach value-added features and services to differentiate their offers and thus support their higher prices. For example, even as frugal consumer spending habits linger, some movie theater chains are adding amenities and charging more rather than cutting services to maintain lower admission prices:

Discount and allowance pricing

Reducing prices to reward customer responses such as volume purchases, paying early, or promoting the product

Promotional pricing

Temporarily reducing prices to spur short-run sales companies will temporarily price their products below list price—and sometimes even below cost—to create buying excitement and urgency. Promotional pricing takes several forms. A seller may simply offer discounts from normal prices to increase sales and reduce inventories. Sellers also use special-event pricing in certain seasons to draw more customers. Thus, TVs and other consumer electronics are promotionally priced in November and December to attract holiday shoppers into the stores. Limited-time offers, such as online flash sales, can create buying urgency and make buyers feel lucky to have gotten in on the deal. Manufacturers sometimes offer cash rebates to consumers who buy the product from dealers within a specified time; the manufacturer sends the rebate directly to the customer. Rebates have been popular with automakers and producers of mobile phones and small appliances, but they are also used with consumer packaged goods. Some manufacturers offer low-interest financing, longer warranties, or free maintenance to reduce the consumer's "price." This practice has become another favorite of the auto industry.

break-even pricing ; target return pricing

The firm tries to determine the price at which it will break even or make the target return it is seeking. Target return pricing uses the concept of a break-even chart, which shows the total cost and total revenue expected at different sales volume levels. The major problem with this analysis, however, is that it fails to consider customer value and the relationship between price and demand. As the price increases, demand decreases, and the market may not buy even the lower volume needed to break even at the higher price. Thus, although break-even analysis and target return pricing can help the company to determine the minimum prices needed to cover expected costs and profits, they do not take the price-demand relationship into account. When using this method, the company must also consider the impact of price on the sales volume needed to realize target profits and the likelihood that the needed volume will be achieved at each possible price.

cost-plus pricing (or markup pricing)

The simplest pricing method adding a standard markup to the cost of the product. For example, an electronics retailer might pay a manufacturer $20 for a flash drive and mark it up to sell at $30, a 50 percent markup on cost. The retailer's gross margin is $10. If the store's operating costs amount to $8 per flash drive sold, the retailer's profit margin will be $2. The manufacturer that made the flash drive probably used cost-plus pricing, too. If the manufacturer's standard cost of producing the flash drive was $16, it might have added a 25 percent markup, setting the price to the retailers at $20.

Many of​ Smashburger's competitors combine a​ burger, fries, and a drink offered at a reduced​ "combo" price. This practice is known as​ __________.

Using product bundle​ pricing, sellers often combine several products and offer the bundle at a reduced price. Price bundling can promote the sales of products consumers might not otherwise​ buy, but the combined price must be low enough to get them to buy the bundle.

Toyota works closely with its​ suppliers, distributors,​ and, ultimately, customers who collaborate with each other to improve overall channel performance. This intricate and evolving system of downstream and upstream partners can be described as​ a(n) __________.

Value Delivery Network A value delivery network is made up of the​ company, suppliers,​ distributors, and,​ ultimately, customers who​ "partner" with each other to improve the performance of the entire system.

​New, premium movie theaters offer features such as online reserved​ seating, high-backed leather executive chairs with armrests and​ footrests, the latest in digital​ sound, super-wide​ screens, and other amenities for which they charge a higher price. This is an example of which type of​ pricing?

Value-added pricing

According to the​ video, by offering an a la carte​ menu, premium​ ingredients, and gourmet side​ dishes, Smashburger is able to extract a price premium from its loyal customers. This type of pricing approach is referred to as​ __________ pricing.

Value-added pricing is a form of​ value-based pricing. Rather than cutting prices to match​ competitors, Smashburger attaches​ value-added features and services to differentiate its offers and thus support its higher prices.

What are the four major functions of​ logistics?

Warehousing, inventory​ management, transportation, logistics information management

Toyota sources parts from suppliers​ globally, ships them to manufacturing plants all over the world for vehicle​ assembly, and sells the finished new automobiles to end consumers through an international network of franchised and​ company-owned dealerships. The process by which the company manages upstream and downstream​ value-added flows of​ materials, final​ goods, and related information is known as​ __________.

supply chain management Supply chain management involves managing upstream and downstream​ value-added flows of​ materials, final​ goods, and related information among​ suppliers, the​ company, resellers, and final consumers.

Price

the amount of money charged for a product or a service. More broadly, price is the sum of all the values that customers give up to gain the benefits of having or using a product or service. Prices have a direct impact on a firm's bottom line. A small percentage improvement in price can generate a large percentage increase in profitability. More important, as part of a company's overall value proposition, price plays a key role in creating customer value and building customer relationships. So, instead of shying away from pricing, smart marketers are embracing it as an important competitive asset.2

Why do producers use​ intermediaries?

to increase efficiency Producers use intermediaries because they create greater efficiency in making goods available to target markets.

Customer value-based pricing

uses buyers' perceptions of value as the key to pricing. Value-based pricing means that the marketer cannot design a product and marketing program and then set the price. Price is considered along with all other marketing mix variables before the marketing program is set. The company first assesses customer needs and value perceptions. It then sets its target price based on customer perceptions of value. The targeted value and price drive decisions about what costs can be incurred and the resulting product design. As a result, pricing begins with analyzing consumer needs and value perceptions, and the price is set to match perceived value.