Key Concepts in Business Pricing and Distribution
Key Business Concepts
- Variable Costs: Those that vary with the volume of production.
- Fixed Costs: Those that remain constant.
- Total Cost: The sum of variable and fixed costs.
- Unit Cost: Variable costs plus fixed costs divided by expected sales units.
- Break-Even Point: Where income equals cost, with no profit or loss.
Pricing Strategies
- Method to Fix a Quote Price: An expected value model.
- Pricing Promotion: Conveys a message about the product, sometimes instead of advertising.
- FOB Origin Price: When the manufacturer puts products free on board.
- Price with Freight Included: The vendor assumes all or part of the freight charge.
Trade and Incentives
- Trade Disputes: Induce wholesalers and retailers to trade and support a product.
- Subsidies: Incentives for members of the distribution channel to do certain things for the product.
- Cash Discount: A price cut to encourage customers to pay on time.
- Refunds: A reduction in price by offering a refund.
- Awards: Attract buyers by offering a product or service free or cheaper as a stimulus for another purchase.
Market Analysis
- Cross Elasticity: The percentage change in sales of a product due to a 1% change in the price of a close substitute.
Distribution and Logistics
- Channel Design: The structure linking marketing strategy with market needs.
- Order Cycle: The time it takes to receive, process, and deliver an order.
- Reliability: The constancy and security of delivery.
- Brokers: Agents or representatives of factories, sales agents, brokers, commerce centers.
Retail Store Characteristics:
- Few Stores and Wide Margin: Concentrated on fast-moving items with a limited selection.
- Large Stores and Low Turnover Margin: Offer a quality assortment of unique merchandise, good customer service, and a service image.
Retail Store Coverage Categories:
- Intensive distribution
- Selective distribution
- Exclusive distribution
Hybrid System: Used separately to reach various market segments.
Grant of Franchise: Grants the right to use a company’s name, brands, and technology.
Contract Manufacturing: Ordering a product from a manufacturer in another country to sell elsewhere.
Construction Contract in Hand: The contractor starts operation and takes the project before handing it to the owner.
Co-Production: A company provides technical expertise and components in exchange for a share of production.
Unique Property: A penetration strategy involving establishing production facilities in another country.
Reverse Integration: When a retailer or wholesaler acquires ownership of institutions that preceded it in the distribution channel.
Major Franchise Systems:
- Manufacturer to retailers
- Manufacturer to wholesaler
- Wholesaler to retailer
- Retailer sponsor