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Chapter 13: DISTRIBUTION AND PRICING. Right Product, Right Person, Right Place, Right Price. DISTRIBUTION: GETTING YOUR PRODUCT TO YOUR CUSTOMER. Distribution is a key element of the marketing mix Where should the product be sold? How will it get to the location(s) from the factory?.

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chapter 13 distribution and pricing

Chapter 13: DISTRIBUTION AND PRICING

Right Product, Right Person, Right Place, Right Price

distribution getting your product to your customer
DISTRIBUTION: GETTING YOUR PRODUCT TO YOUR CUSTOMER
  • Distribution is a key element of the marketing mix
    • Where should the product be sold?
    • How will it get to the location(s) from the factory?

Producer

Wholesaler

Consumer

Channel of Distribution –

the network of organizations and processes

that links producers to consumers

distributing directly to the consumer
DISTRIBUTING DIRECTLY TO THE CONSUMER

Producer

Consumer

Direct Channel –

Distribution process that links the

producer and the customer with

no intermediaries.

For example, Dell

channel intermediaries
CHANNEL INTERMEDIARIES

Producer

Wholesaler

Consumer

Channel Intermediaries – informally called middlemen. They facilitate the movement of products from the producer to the consumer.

the role of distributors adding value utility
THE ROLE OF DISTRIBUTORS: ADDING VALUE (Utility)

Jamba Juice

Vending Machines

ATM’s, Gas Stations

Pay Pal

Home Depot Service

Makeover stations

the members of the channel
THE MEMBERS OF THE CHANNEL

Wholesalers –

distributors that buy

products from producers

and sell them to other

businesses or

non-final users.

Retailers – the

distributors that sell

products directly to

the ultimate users

wholesalers sorting out the options
WHOLESALERS: SORTING OUT THE OPTIONS
  • Merchant Wholesalers
    • Take legal possession/title
    • Full-service
    • Limited Service
      • Drop Shippers
      • Cash and Carry
      • Truck Jobbers
  • Agents/Brokers
    • Don’t take title of the goods
retailers the consumer connection
Store Retailers

Non-Store Retailers

Online

Direct Response

Direct Selling

Vending

RETAILERS: THE CONSUMER CONNECTION

eBay, Amazon

Catalogs, telemarketing

Door-to-door

Best Buy at airports

distribution strategy
DISTRIBUTION STRATEGY

Placing your products with only one retail outlet in a given area

EXCLUSIVE DISTRIBUTION

Tiffany, Bentley automobiles

SELECTIVE DISTRIBUTION

Placing your products with “preferred retailers”

Paintball equipment

INTENSIVE DISTRIBUTION

Placing your product in as many stores as possible

Starbucks, People magazine

Price / Product

multichannel retailing
MULTICHANNEL RETAILING
  • Retailers are encouraging consumers to buy through multiple channels

Store

Online

physical distribution planes trains and much much more
PHYSICAL DISTRIBUTION: PLANES, TRAINS, AND MUCH, MUCH MORE

Determining the best distribution channels for your product is only half the distribution strategy.

How will the product flow through the channel from producer to consumer?

Supply Chain Management –

planning and coordinating the

movement of products along

the supply chain

Logistics – focuses on

the tactics involved in

moving the products

supply chain management decisions
SUPPLY CHAIN MANAGEMENT DECISIONS
  • Warehousing
  • Materials Handling
  • Inventory Control
  • Order Processing
  • Customer Service
  • Transportation
  • Security
transportation decisions
TRANSPORTATION DECISIONS

MODES OF TRANSPORTATION:

pricing a high stakes game
PRICING : A HIGH STAKES GAME
  • Pricing plays a key role in the demand for products
  • Price is a tough variable
    • Legal constraints
    • Intermediary pricing (ie. wholesalers, distributors)
  • Stable pricing is not the norm
    • Prices must constantly be evaluated
pricing objectives and strategies
Building Profitability

Matching the Competition

Creating Prestige

Skimming Pricing

Boosting Volume

Penetration Pricing

Every-day-low Pricing

High/Low Pricing

Loss Leader Pricing

PRICING OBJECTIVES AND STRATEGIES

Prestige pricing – offering a new product at premium price – attract price insensitive buyers

Usually for newly introduced items, rock-bottom pricing to drive high volume

WalMart, need I say more!

Special sales on limited items (to attract customers), higher prices on the rest

Pricing selected items below cost to attract customers

pricing in practice a real world approach
PRICING IN PRACTICE: A REAL WORLD APPROACH

Total fixed cost (FC)

Breakeven Point (BP) =

Price/Unit (P) – Variable cost/unit (VC)

Breakeven analysis –

the process of determining the number of units that must be sold to cover costs.

using breakeven analysis
USING BREAKEVEN ANALYSIS

Businesses make decisions to adjust the product price and/or costs.

  • Raise prices
  • Decrease variable costs
  • Decrease fixed costs

Outsource labor, use cheaper components?

Move your plant to Mexico, advertise less?

fixed margin pricing
FIXED MARGIN PRICING
  • Cost-Based Pricing
  • Demand-Based Pricing
  • Profit Margin – the gap
  • between cost and the price
  • per product.
consumer pricing perceptions the strategic wild card
CONSUMER PRICING PERCEPTIONS: THE STRATEGIC WILD CARD
  • Consumer price perceptions can defy logic!
  • The link between price and perceived quality can be powerful
    • Consumers will use price as a quality indicator
  • Does odd pricing like $196 or $199 always mean a bargain?
psychological pricing
PSYCHOLOGICAL PRICING

A recent survey of 1,200 prices, found that 57% ended in .99 cents, and another 11% ended in .97 or .98 cents. Only about 3% were whole dollar amounts.

chapter 17 operations management

Chapter 17: OPERATIONS MANAGEMENT

Putting It All Together

operations management it isn t glamorous but it matters
OPERATIONS MANAGEMENT: IT ISN’T GLAMOROUS, BUT IT MATTERS….
  • Operations Management –planning, organizing, leading and controlling all the activities in creating value by producing goods and services and distributing them to customers
  • Good Operations Management:
    • Most efficient and effective processes
    • Produce the right goods and services
    • Produce the right quantities
    • Distribute products to the right customers at the right time
effectiveness vs efficiency
EFFECTIVENESS VS. EFFICIENCY

Efficiency –

producing output

or achieving

a goal at the

lowest cost.

Effectiveness –

completing tasks

and producing

products that

create the

greatest value.

Doing things right

Doing the right thing

“There is nothing so useless as doing efficiently that which should not be done at all”

Peter Drucker, Management Expert

what do operations managers do
WHAT DO OPERATIONS MANAGERS DO?
  • Facility Location
  • Process Selection and Facility Layout
  • Inventory Control
  • Scheduling
  • Quality
going overseas
GOING OVERSEAS
  • Low-wage labor is a key reason firms focus overseas but, low wages do not always translate into low cost
  • There are a variety of opportunities in rapidly growing foreign markets
  • Key to balance advantages with drawbacks:
    • Different laws and customs
    • Inadequate infrastructure
    • Inexperienced workers
    • Political instability
process selection and facility layout
PROCESS SELECTION AND FACILITY LAYOUT
  • Flow Shops
    • Produce Large Batches
    • Standardized Products
    • Specialized Machinery
    • Standardized Tasks
    • Assembly Line is a Flow Shop Process
  • Job Shops
    • Produce Small Batches
    • Variety of Products
    • General-purpose Machinery
    • Flexible Processes
technology of operations
TECHNOLOGY OF OPERATIONS

AUTOMATION: LET THE MACHINES DO IT

Automation – replacing

human operations and

control of machinery

and equipment with some

form of programmed control.

Robot – a

programmable machine that

is capable of manipulating

materials in order

to perform tasks.

robots
ROBOTS
  • Robots are well suited for dangerous, tedious, dirty and physically demanding tasks.
  • Robots don’t get tired
  • Robots are flexible
inventory control don t just sit there
Why hold inventories…

Smooth out production schedules

Meet demand increases

Reduce switching costs

Compensate for forecast errors

Why not…

Unsold inventory ties up funds

Inventory must be warehoused and managed

Risk of losses due to spoilage, obsolescence and pilferage

INVENTORY CONTROL: DON’T JUST SIT THERE
reducing investment in inventory just in time to the rescue
REDUCING INVESTMENT IN INVENTORY: JUST-IN-TIME TO THE RESCUE

Produce goods and services to meet actual demand. Minimize inventories

at all stages of the supply chain through coordination.

managing supply chains
MANAGING SUPPLY CHAINS
  • Supply chains can be complex
    • Wide range of functions
    • Involve many firms
    • Heavy use of technology
      • RFID Chips
    • Internet has provided great tools for supply chain management
trade off between vertical integration and outsourcing
Vertical Integration

Gain control over supply chain

Begin producing its own parts

Buying suppliers

Outsourcing

Use outside firm for producing supplies

Focus on key production areas

Cost savings

TRADE-OFF BETWEEN VERTICAL INTEGRATION AND OUTSOURCING

The trend has been to rely more on outsourcing which has become a controversial issue.

enterprise resource planning erp creating one big system
ENTERPRISE RESOURCE PLANNING (ERP) : CREATING ONE BIG SYSTEM
  • The goal of ERP is to integrate the flow of information
  • ERP systems can be costly and challenging to implement
  • Most firms that complete implementation of ERP systems, report being satisfied with the results
focus on quality
FOCUS ON QUALITY
  • Quality improves effectiveness and efficiency
  • Quality helps achieve competitive advantage
  • Lower costs, increases value
  • Poor quality costs
deming chain reaction
DEMING CHAIN REACTION

Improve Quality

Costs decrease because of less rework,

fewer mistakes, fewer delays and snags,

and better use of time and materials

W. Edwards Deming, viewed as the father of the quality movement, first proposed the relationship between quality and business in the early 1950s.

Productivity Improves

Capture the market with better

quality and lower price

Stay in business

Provide jobs and more jobs

how american firms responded to the quality challenge
HOW AMERICAN FIRMS RESPONDED TO THE QUALITY CHALLENGE
  • A broad concept of quality: Total Quality Management:
    • Customer Focus
    • Build quality throughout the organization
    • Empowerment of employees
    • Focus on prevention of errors
    • Long-run commitment to continuous improvement
international organization for standardization
INTERNATIONAL ORGANIZATION FOR STANDARDIZATION
  • Founded in 1947
  • Network of national standards institutes in 150 nations
  • ISO 9000 Certification
    • Generic quality standards
    • Updated and modified, latest version is ISO 9000:2005
    • Environmental management focused standards: ISO 14000
the baldrige national quality program
THE BALDRIGE NATIONAL QUALITY PROGRAM
  • Created by Congress in 1987 to encourage global competition
  • Participating firms are extensively evaluated
  • Detailed reports of company strengths and weaknesses

The 2011 Baldrige Award recipients include:

Concordia Publishing House, St. Louis, Mo. (nonprofit)

Henry Ford Health System, Detroit, Mich. (health care)

Schneck Medical Center, Seymour, Ind. (health care)

Southcentral Foundation, Anchorage, Alaska (health care)