Final Exam Study Guide 

What are the 3 options for channel coverage?

∙ Channel Strategy:

o Creating Time & Place Utility:

 Time Utility – Convenient & quick for customer to get  product

∙ How many retailers the company deals with; more  

= better/faster

∙ Convenience  how many stores there are, their  

location, & placement in particular stores

 Place Utility – where item is located

∙ Convenience – lots of retailers/locations

∙ Prestige – “something special” at a particular  

location

o Channels of Distribution v. Physical Distribution:

 Logistical Functions: moving products (methods of  

delivery)

∙ Asserting – variety of products, what products they  

carry

∙ Transporting

 Transactional Functions: no physical movement of product ∙ Selling – manufacturer’s agent will go to retailer to  

try & sell a bulk of product (wholesale)

What is the difference between channels of distribution and physical distribution?

We also discuss several other topics like who is the greek astronomer designed early map of the world?

∙ Risk Taking – who takes the risk when consumer  

returns/does not like product – negotiation

 Facilitating Functions: no physical movement, but  

facilitates movement

∙ Financing – terms/agreements with retailers to kepp

them and handle prducts

∙ Market Research – retailers convince manufacturers

to use them

 *Breaking Bulk – Manufacturer wants to sell product  

wholesale/by the pallet, by the truckload, but consumer  wants to buy individual units of product. Manufacturer  

will sell in bulk to retailer, who will break it down into  

individual units

o 3 Options for Channel Coverage:

 Intensive Distribution – maximize the number of retailers  to sell your product; meant for products that don’t need a  lot of support

 Selective Distribution – a lot of retailers, but not intensive; needs some support

What type of pricing stratey set in advance, and has no negotiation in the consumer market?

 Exclusive Distribution – specialized product; requires a lot  of support; well-trained retailer in a particular location We also discuss several other topics like what is virus?

o Channel Paths:

 Direct: Manufacturer  End User

 Indirect: Manufacturer  Retailer  End User (causes  We also discuss several other topics like What was an interesting aspect of the informative video by the department of health?

channel conflict)

 “Typical:” Manufacturer  Wholesaler  Retailer  End  User

o Types of Channel Members (Intermediaries): If you want to learn more check out What were the Alien and Sedition Acts, and what was their significance?

 Wholesalers:

∙ Merchant Wholesaler – completely independent of  

the manufacturer

o Distributor – does everything job related

o Jobber – carries inventory

∙ Agent – independent distributer who represents  

multiple manufacturers

o Don’t handle inventory

∙ Manufacturer’s Sales:

o Branch – similar to the distributor role, but  

the manufacturer owns it

o Sales Office – plays similar role to agent,  Don't forget about the age old question of What are the few symptoms that can be observed when oxygen level is low?

place to take order

 Retailers:

∙ Specialty Store – narrow selection, but deep

∙ Department Store – more selection, less depth,  

good service

∙ Power Retailer – Will come with notes from the  

video lecture

∙ Discounter – lots of categories, little depth

∙ Non-Store – catalogs/on-line stores/vending  

machines

o Types of Channels:

 Contractual – Franchising (Franchisee, franchisor, licensing agreement)

 Administered – “handshake deal”

 Vertically Integrated – all channel owners owned by same  entity

o Channel Captain – when one entity needs another more than  that other entity needs it (tradeoff)

o Why use the “middle man” (intermediaries)? – transaction  efficiency; ensures the deal runs smoothly

∙ Pricing Strategy:

o “Administered Pricing” – the price is set in advance, there is no  negotiation (not a street market – in-store price is what it is) in  the consumer market Don't forget about the age old question of What is Transduction?

 Participative Pricing – when there is negotiation, like in a  street market (not a consumer market)

o Purpose of Price: To capture the value of a product in the  consumer’s mind.

o Types of Competition:

 Price-Based – “lazy way to compete;” there is minimal  creativity, not sustainable unless you are the lowest cost  or can outlast competitors, and does not build brand  equity

 Non-Price-Based – selling quality (E.g. – Apple)

o Price/Quality Relationship:

 Price communicates value; the higher the price, the  greater the worth, the higher the quality (what population  believes, but is not always the case)

o Pricing Objectives:

 Sales (dollar value and unit volume)  lower price =  higher sales; give up profit

 Profits (maximize (through fees, like Verizon) and/or  satisfice (looking for a reasonable/satisfying profit))  Market Share (lower prices to gain market share)  Stability (price change over time)

 Social Responsibility:

∙ Quantity Surcharge – product @ fair price

∙ Hidden Fees – credit cards as an example

∙ Predatory Pricing – illegal, price product very low to  drive competition out of marketplace to make  

yourself the only one in the market (need deep  

pockets)

o Pricing Approaches:

 Cost-Based:

∙ Types:

o Breakeven Analysis: Quantity = Fixed Cost ÷

(Price – Unit Variable Cost); can be adjusted  

to solve for price

o Cost-Plus; Two Variants:

 Price = TC + (% of TC)

 Price = TC + Fixed Fee

o Markup (most common): % of selling price

 Price = Cost of Goods ÷ ((100 –  

Markup %)/100)

 Profit-Based:

∙ Target Profit Pricing:

o (Total FC + Total VC + Total Profit) ÷ Total  

Number of Units

∙ Target ROI Pricing:

o Profit = (Total FC + Total VC + (Investment X  

ROI)) ÷ Standard Number of Units

 Problems with Cost & Profit-Based Approaches  include: internal focus, ignores demand and  

competition, assumes all produced is sold at the

same price, and doesn’t track cost/unit changes  (economies of scale)

 Demand-Based:

∙ Skimming – use with non-price elastic customers,  start with a high price because those who really  

want it will pay more – lower price over time.

∙ Prestige Pricing – sell at low price, raise over time;  results in high market penetration, little profit, but  

move more product

∙ Bundle Pricing – Multiple products sold in bundles  (iPhone comes with headphones & charger)

∙ “Demand-Minus” Pricing – (manufacturer to retailer  to consumer)

o Wholesale Price = Retail Price X ((100-  

Markup%) ÷ 100)

∙ Chain Markup Pricing (CMP) – same as Demand

Minus, but with more players/longer chain  

(manufacturer, distributor, and retailer)

o CMP = Retail Price X ((100 – Retail Markup %)

÷ 100) X ((100 – Distributor Markup %) ÷  

100)

 Competition-Based:

∙ Customary Pricing – customary price charged,  

followed by other companies setting similar prices  

 cannot meet and agree on prices

∙ Leader/Follower Pricing – similar to customary  

pricing

∙ Competitive Bid – seeing what other charge before  setting your price

 Value-Based:

∙ Understanding use for product

∙ Analyze product benefits

∙ Analyze the product costs

∙ Cost/Benefit tradeoffs

o Different customers place different values on

different products because of the different  

benefits

o Critical Strategic Pricing Ratio:

 Value = Total Perceived Benefit ÷ Price

∙ Some similar products have better benefits than  others

o Increase value by lowering prices (not  

sustainable generally)

o Increase value by increasing total benefits  

(harder for competition to replicate)

 Value Use Pricing – multiple similar products, but one with better benefits in an attribute  customers should be  willing to pay more for the product with the better  

benefits (saw blade example from lecture)

 Parity Pricing – we divide the market equally ∙ (overall ratingA ÷ priceA) = (overall ratingB ÷ priceB)

 Psychology & Pricing:

∙ Reference Pricing – people are bad at guessing  

prices. Internal/External judgment of what a  

product should cost (Internal – value to customer,  

compared with other products; External – seller  

shows what price was/should be like on a “for sale”  

item)

∙ Compromise Effect – with a low, medium, and high  

price; high price is not placed for purchase, but  

rather to get consume to buy the middle-priced  

product – initial goal.

∙ Decoy Price – similar to compromise effect. It is the

price you don’t expect people to pay (the higher  

price), but for no logical reason influences the  

buyers decision.

o Low price = value-based purchased

o Middle price = if removed becomes value v.  

prestige; bad deal b/c there is essentially no  

value

o High price = prestige-based; combo of low &  

middle prices; gives feeling of more for your  

money (good deal)

 “Unbundling:” Similar to value in use; it is a breakdown of  the product to show its many attributes and show the  

value of their benefits compared to the competition. –  

give impression of value reduction/more for money

∙ Advertising & Sales Promotion:

o The Advertising Industry: cyclic almost; media, producers  (clients), and ad agencies (creative ideas, strategy suggestions  (select media ads run in), tries to bring buyers and sellers  together (intermediary))

o Advertisement Objectives:

 Inform customers

 Persuade customer that the brand is best

 Sell product ASAP, in as large amounts as possible

 Reinforce the customers opinion/change it for the better  by stating the idea and strengths of the products

 Remind customers what the product is good for, what  situations

o How it works: (4 Theories):

 Hierarchy of Effects: high-involvement products

∙ Cognition (A) – create awareness & knowledge if  the product and its use

∙ Affect (B) – “liking preference;” what the product is  about and why it’s important to you

∙ Conation (C) – going to purchase the product

o Low involvement products: ACB

 Low Involvement – needs greater message quantity.  Needing greater quality is higher involvement

 Pressure Response: the more Ads, the more downward  pressure on the customer – more times ads are seen,  more likely to buy

 Elaboration Likelihood Model – 2 routes of persuasion ∙ High quality persuasive arguments; ad. Conveys  information to the customer (what’s important),  

which influences the brand perceptions/beliefs,  

which leads to brand attitude (how you feel about  

the ad.), which leads to behavior (whether  

purchase or not)

∙ Attitude forms towards ad., which influences  

attitude towards brand directly

o Media Strategy – effectively delivering the advertisement to the  customer (quantity v. quality)

o Net Reach – “ total number of consumers in target market  exposed to an ad. Campaign at least once in a given time  period”

o Gross Rating Points (GRP) = Reach X Frequency

o Rule of Thumb – “aim for avg. frequency of 3-10 exposures” o Cost per Thousand (CPM) – total cost of insertion in particular  form of media divided by the number of thousands of exposures  achieved through that form of media (vehicle) – examples in  packet

o Media Mix – total variety of media vehicles used in an  advertising campaign (TV, billboards, radio, etc.)

o Types of TV Ad. Placements: TV shows create audiences for ads.  Network Television – overly aired networks with affiliated  networks; all over country (E.g. – ABC, CBS, CNN)

 Spot TV – networks willing to sell to spot tv market; pin pointing particular regions (major cities)

 Cable Ad – cable network; wherever cable is

∙ Spot Cable – particular cable goes to particular  

regions

 Syndicated – independent entrepreneur buys the rights to  reshow old shows (if multiple seasons) (e.g. – Seinfeld) ∙ Insert your own ads and ads of your choosing – sell  ad space  like making your own channel

o Non-TV Advertising:

 Radio: problem is measuring audience size

 Magazines/Newspapers: problem is there are alternate,  free ways to access information

 Outdoor: billboards

 Online: growth of digital market (social media)

∙ Audi Campaign example

 Branded Entertainment: when a company associates its  name with a product/form of entertainment (E.g. – videos  of events on the RedBull YouTube channel)

∙ Product Placement: place the product into the form  

of entertainment (E.g. – ChexMix in the soap opera  

show)

 Weird New Stuff: Placing ads. Where you normally  

wouldn’t; tends to be relatively intrusive (E.g. – ads. As  

messages on phones, axe ad. At bottom of swimming  

pool, etc.)

o Types of Sales Promotions:

 Push Promotion Strategy: Manufacturer (M)  Retailer (R)   Consumer (C)

∙ M “pushes” product on R, who pushes it on C

∙ E.g. – Coupons, Rebates, sampling, etc.

 Pull Promotion Strategy: M  R  C (Trade)

∙ M directly aims product on consumer, which pulls  

them to R, which pulls them to M

∙ E.g. – dealer contests, trade allowances, trade  

shows

∙ Retailing:

o Retail Functions: “How retailers add value…”

 Providing assortments; people look to buy multiple  

products generally when they shop (location & selection  are key)

 Breaking Bulk – separating units of product from their  initial pallets sold from wholesale in order to provide  

individual units to customers

 Holding inventory; so customers only buy individual/a few  units

 Providing services; complement products (call center,  employee service, customer service, cashier, etc.)

o Common Types of General Merchandise Retailers:  Discount Stores: low service & price, broad selection with  no depth

∙ High breadth of selection, low value-added

∙ E.g. – Walmart, Target, Kmart

 Department Stores: moderate prices, more service,  relatively broader and deeper selection

∙ High selection, high value-added

∙ E.g. – Macy’s, JCPenney, Sears

 Specialty Stores: limited line of products, higher prices &  level of service, greater depth, & rely on the image of the  store

∙ Low selection, low value-added

∙ E.g. – GAP, Foot Locker

 Power Retailers; Category Killers: low price, service varies, narrow selection with great depth

∙ Low selection, high value-added

∙ E.g. – Best Buy, Office Depot, Toys “R” Us

o Retail Strategy:

 Positioning  refer to “Common Types of General  Merchandise Retailers”

 Location:

∙ Regional mall

∙ Strip center – roads with many small stores (e.g. –  Niagara Falls Blvd.)

∙ Power Center – strip center with power retailer

∙ Central Business District – dying business  

environment generally (e.g. – downtown Buffalo)

∙ Stand-Alone Store – particular category products;  boats, cars, furniture

∙ Lifestyle Center – places/shopping centers to enjoy  life, with activities, restaurants and stores

o Macro Factors:

 Economic Environment – income level,

employment rate, size of community

 Demographic/Psychographic Profile

 Competition

 Business Climate – property taxes,  

zoning regulations, etc.

o Micro Factors:

 Accessibility – easy to get to, easy to  

leave, easy to get around

 Visibility – from road, signage, etc.

 Traffic/Congestion (e.g. – parking)

 Rent – attractive location & cost to  

rent

 Cannibalization – removing customers  from other owned stores previously  existing

 Image/Atmospherics:

∙ Store layout

∙ Merchandise display

∙ Fixtures & signage

∙ Lighting & color

∙ Music & scents

o Retail Productivity Measures: analyze departments within a store  Net Sales per Square Foot = Total Sales – Returns  Stockturn Rate = COGS ÷ Avg. Inventory

∙ Avg. Inventory = (Beg. Inv. + End. Inv.) ÷ 2

o Non-Store Retailing:

 Door-to-Door: Network marketing; try to get others  involved in selling product (not directly to customers)  Telemarketing:

∙ Outbound – calls made out to customers

∙ Inbound – provide phone number for customers to  call

 Catalogs: part of retail mix

 TV Home Shopping: “stars”/celebrities sell products  Online: rapid growth

∙ Multi-Channel Retailing – selling through multiple  channels such as online & brick-and-mortar

o Issues in Retail Management:

 Brand Management – maximize performance of brand  Category Management – maximize performance of  category (multiple brands – like in retail stores or multiple  branded companies)