Distribution
In the simplest of terms, distribution relates to the way in which goods reach the consumer from the manufacturer (Arestis, 1997). Ideally it is through distribution that the end user gets the goods. Distribution thus is critical to a business, and it is imperative for a business to adopt an effective distribution channel. An effective distribution channel from a consumer’s point of view means that they will get the goods at the shortest time possible, which is especially important for a restaurant business. From the manufacturer’s perspective, the channel should move more goods with little overall added costs.
The most effective method of distribution for a restaurant business is direct distribution. Through direct distribution, the restaurant will deliver its products to the consumers directly, using its own staff and machinery. This is advantageous to the restaurant as it will enable the restaurant to maximize on profits, a fraction of which would go to intermediaries to enable them make a profit. Additionally, it will assist the restaurant to ensure that goods reach the consumer timely and with utmost quality, which is quite critical in a restaurant business. Direct distribution would also assist the restaurant to interact directly with the consumer, which enables the business to monitor trends in the market and also changes in the preferences of the consumer.
Direct distribution would be optimal where the target market is not very big or geographically spread over large areas. Where the target market is big or spread, the restaurant may need to set up a warehouse to cater for the consumers that are not within the restaurant’s reach. Warehousing will however introduce other costs that would be avoided if the restaurant utilizes an intermediary. In some cases, these additional costs are more than the profits the business forfeits when it uses an intermediary. This is one of the disadvantages of direct distribution. Another demerit is that the restaurant will not be able to optimally market its goods; this is due to lack of expertise and time.
Accordingly, the most effective method of distribution for the restaurant will depend on the target market. For small markets, direct distribution is the most effective. For large markets, a combination of direct and intermediary distribution would do.
Pricing
The first step to pricing is establishing the objectives of the price; this is the goal the business wants to achieve with the price. For instance, if the business wants its products to endure in the market, it should set a minimum price for it. This especially applies where the business or the product is new in the market. If also the business’ objective is to make lots of sales, the price should be minimal. If on the other hand the business wants to make maximum profit from the product, it should assign a maximum price to the product.
The second step is to estimate the demand, cost, and profits. Determining the demand assists the business to know whether the price will increase or decrease the demand for the product. In this regard, it is imperative to note that ordinarily demand and price are inversely rated, i.e. if the product is highly priced, the demand will be low and vice versa. Estimating costs relates to evaluation of the cost of production and the price, vis-à-vis the expected return or profits.
It is also important to consider the price the competitors in the market are charging for the product vis-à-vis the value of their product. If the business offers relatively more value, the price should be slightly higher. If the value is similar, the price should be the same or slightly lower, depending on the business’ level of penetration in the market. If the value is lower than the competitor’s, the price should be lower.
The third step is to choose a pricing method. There are more than four price setting methods, and thus it is critical to pick the best that suite the business. The pricing methods include value pricing, perceived value pricing, going rate pricing, mark-up pricing, and target – return pricing.
The final step is to set the price. This is usually a culmination of the foregoing steps, which if followed it is easy to determine the final price. Some additional consideration in this step include the business’ pricing policy (if it has one) and the impact of the price on intermediaries should the business at one point wish to utilize them.
Website sales
Website sales are some form of direct distribution, thus no intermediary is involved. Therefore, the price for a product sold on the website would be relatively cheaper than if the product was to be sold through an intermediary; since there is no need to factor in the profit the intermediary will get. The price would be much cheaper if the consumer will pick the product from the business. If however the consumer requires the product to be packaged and delivered, either through shipping or other form of delivery, the price would be a bit expensive. Depending on the product, the consumer may cater for the costs of delivery or alternatively cater for the half of the costs. In such regard, prices for the products would be listed exclusive of such costs.
Alternative sales venues
If a convenience store purchase 1, 000 pies the price would be definitely cheaper than a website sale. This is because the overall cost of the sale is relatively cheaper than website sale, which has other additional charges such as the costs of running the website. Additionally, the sale to the store is comparatively less risky and requires less effort than a website sale. On the other hand selling pies individually on the street, at a food fair or on eBay will be cheaper than the two other sales. This is primarily because the consumers in these markets are not necessarily in need of pies, but a good bargain might motivate them to buy the pie. The best bargain for such consumers is low prices. Accordingly, the low prices would be used to attract more consumers.
References
Arestis, P. (1997). Money, Pricing, Distribution, and Economic Integration. New York: St.
Martins Press. Print.
