CHAPTER 13: DISTRIBUTION AND PRICINGRight Product, Right Person, Right Place, Right Price

DISTRIBUTION: GETTING YOUR PRODUCT TO YOUR CUSTOMERChannel of Distribution the network of organizations and processes that links producers to consumersDistribution 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?

DISTRIBUTING DIRECTLY TO THE CONSUMERDirect Channel Distribution process that links the producer and the customer with no intermediaries.

CHANNEL INTERMEDIARIESChannel Intermediaries informally called middlemen. They facilitate the movement of products from the producer to the consumer.

DISTRIBUTORS: STREAMLINING CONSUMER TRANSACTIONSGrocery Store

THE ROLE OF DISTRIBUTORS: ADDING VALUE (Utility)

THE MEMBERS OF THE CHANNELRetailers the distributors that sell products directly to the ultimate usersWholesalers distributors that buy products from producers and sell them to other businesses or non-final users.

WHOLESALERS: SORTING OUT THE OPTIONSMerchant WholesalersTake legal possession/titleFull-service Limited Service Drop ShippersCash and Carry Truck JobbersAgents/BrokersDont take title of the goods

RETAILERS: THE CONSUMER CONNECTIONStore RetailersNon-Store RetailersOnlineDirect ResponseDirect Selling Vending

DISTRIBUTION STRATEGYPrice / Product

MULTICHANNEL RETAILINGRetailers are encouraging consumers to buy through multiple channelsStore

PHYSICAL DISTRIBUTION: PLANES, TRAINS, AND MUCH, MUCH MOREDetermining 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

ELEMENTS OF THE SUPPLY CHAIN

SUPPLY CHAIN MANAGEMENT DECISIONSWarehousingMaterials HandlingInventory ControlOrder ProcessingCustomer ServiceTransportationSecurity

TRANSPORTATION DECISIONSMODES OF TRANSPORTATION:

ModePercentage of U.S. VolumeCostSpeedOn-Time DependabilityFlexibility in HandlingFrequency of ShipmentsAvailabilityRail39.5%MediumSlowMediumMediumLowExtensive

Truck28.6%HighFastHighMediumHighMost ExtensiveShip12.0%LowestSlowestLowestHighestLowestLimited

Plane0.3%HighestFastestMediumLowMediumMedium

Pipeline19.6LowSlowHighestLowestHighestMost Limited

PRICING : A HIGH STAKES GAMEPricing plays a key role in the demand for productsPrice is a tough variableLegal constraintsIntermediary pricingStable pricing is not the normPrices must constantly be evaluated

PRICING OBJECTIVES AND STRATEGIESBuilding ProfitabilityMatching the CompetitionCreating PrestigeSkimming PricingBoosting VolumePenetration PricingEvery-day-low PricingHigh/Low PricingLoss Leader Pricing

AMAZON STIRS UP A PRICE WAR Revamped Kindle Tablets Undercut Apple's iPadAmazon's new tablets are the latest move to expand into the hardware market by competing on price. While Apple has typically priced its products at a premium, Amazon plunged into the tablet market last year with a Kindle Fire for $199, which at the time was one of the lowest prices in the market. Amazon's prices are a differentiator in an increasingly crowded tablet market. "Amazon did what it has to do to compete with Apple, Google and other tablet makers," said Colin Sebastian, a Robert W. Baird & Co. analyst. "This will put some pressure on them, particularly on price."Mr. Bezos suggested Amazon may break even or even lose money on the sale of its devices. The company expects to recoup the money later through the sale of apps and services such as its annual $79 Prime fast-shipping membership. "We want to make money when people use our devices, not when they buy our devices," Mr. Bezos said at Thursday's event. Source: Wall Street Journal September 7, 2012

SLIPPERY FINGER ONLINE PRICING GOOFSFree flights from Los Angeles to Fiji. Round-trip tickets from San Jose, California, to Paris for $27.98.$1,049 televisions wrongly listed for $99.99 on Amazon.$588 Hitachi monitors mistakenly priced at $164.$379 Axim X3i PDAs wrongly priced at $79 on Dells site.

PRICING IN PRACTICEBreakeven Point (BP) = Total fixed cost (FC)Price/Unit (P) Variable cost/unit (VC)Breakeven analysis the process of determining the number of units that must be sold to cover costs.Businesses make decisions to adjust the price and/or costs.Raise pricesDecrease variable costsDecrease fixed costs

FIXED MARGIN PRICINGCost-Based Pricing

Demand-Based Pricing Profit Margin the gap between cost and the priceper product.

CONSUMER PRICING PERCEPTIONS: THE STRATEGIC WILD CARDConsumer price perceptions can defy logic!The link between price and perceived quality can be powerfulConsumers will use price as a quality indicatorDoes odd pricing like $196 or $199 always mean a bargain?

PSYCHOLOGICAL PRICINGA 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 18: OPERATIONS MANAGEMENTPutting It All Together

OPERATIONS MANAGEMENT: IT ISNT 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 processesProduce the right goods and servicesProduce the right quantitiesDistribute products to the right customers at the right time

EFFECTIVENESS VS. EFFICIENCYThere is nothing so useless as doing efficiently that which should not be done at all - Peter Drucker

GOODS VS. SERVICES

WHAT DO OPERATIONS MANAGERS DO?

FACILITY LOCATION

GOING OVERSEASLow-wage labor is a key reason firms focus overseas but, low wages do not always translate into low costThere are a variety of opportunities in rapidly growing foreign marketsKey to balance advantages with drawbacks:Different laws and customsInadequate infrastructureInexperienced workersPolitical instability

PROCESS SELECTION AND FACILITY LAYOUTFlow ShopsProduce Large BatchesStandardized ProductsSpecialized MachineryStandardized TasksAssembly Line is a Flow Shop ProcessJob ShopsProduce Small BatchesVariety of ProductsGeneral-purpose MachineryFlexible Processes

TECHNOLOGY OF OPERATIONSAutomation 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.AUTOMATION: LET THE MACHINES DO IT

ROBOTSRobots are well suited for dangerous, tedious, dirty and physically demanding tasks.Robots dont get tiredRobots are flexible

INVENTORY CONTROL: DONT JUST SIT THEREWhy hold inventoriesSmooth out production schedulesMeet demand increasesReduce switching costsCompensate for forecast errorsWhy notUnsold inventory ties up fundsInventory must be warehoused and managedRisk of losses due to spoilage, obsolescence and pilferage

REDUCING INVESTMENT IN INVENTORY: JUST-IN-TIME TO THE RESCUEProduce goods and services to meet actual demand. Minimize inventoriesat all stages of the supply chain through coordination.

MANAGING PROJECTSProduction of some products are projectsProjects are usually complex and expensiveNew House/BuildingFilming a MovieManagers use Gantt charts and critical path method to manage projects

PROJECT SCHEDULINGOperations Managers must manage and schedule projectsScheduling starts with identifying the required activities, the time required and the order in which they must happen

ActivityImmediatePredecessorTime(Weeks)A. Survey of NeedsNone2B. Determine site for ArenaA5C. Preliminary Design DevelopedA5D. Obtain Major Donation for FundingC6E. Obtain Board ApprovalB,D4F. Select ArchitectE3G. Establish BudgetE2H. Obtain Remaining FinancingF,G10I. Finalize DesignG6J. Hire ContractorH,J2

GANTT CHART

CRITICAL PATH METHODThe essential technique for using CPM is to construct a model of the project that includes the following: A list of all activities required to complete the project The time (duration) that each activity will take to completion The dependencies between the activities.

MANAGING SUPPLY CHAINSSupply chains can be complexWide range of functionsInvolve many firmsHeavy use of technologyRFID ChipsInternet has provided great tools for supply chain management

TRADE-OFF BETWEEN VERTICAL INTEGRATION AND OUTSOURCINGVertical IntegrationGain control over supply chainBegin producing its own partsBuying suppliersOutsourcingUse outside firm for producing suppliesFocus on key production areasCost savingsThe trend has been to rely more on outsourcing which has become a controversial issue.

FOCUS ON QUALITYQuality improves effectiveness and efficiencyQuality helps achieve competitive advantageLower costs, increases valuePoor quality costs

DEMING CHAIN REACTIONCosts decrease because of less rework, fewer mistakes, fewer delays and snags, and better use of time and materialsImprove QualityProductivity ImprovesCapture the market with better quality and lower priceStay in businessProvide jobs and more jobsW. Edwards Deming, viewed as the father of the quality movement, first proposed the relationship between quality and business in the early 1950s.

HOW AMERICAN FIRMS RESPONDED TO THE QUALITY CHALLENGETotal Quality Management:Customer FocusBuild quality throughout the organizationEmpowerment of employeesFocus on prevention of errorsLong-run commitment to continuous improvement

QUALITY APPROACH: SIX SIGMASingle unifying measure: to reduce defects of operation to a level of no more than 3.4 millionOrganization-wide focus on qualityPrevention rather than correctionRigorous and challenging goalRely on employee training and expert guidanceAdvanced techniques, high level of expertise

INTERNATIONAL ORGANIZATION FOR STANDARDIZATIONFounded in 1947Network of national standards institutes in 150 nationsISO 9000 CertificationGeneric quality standardsUpdated and modified, latest version is ISO 9000:2005Environmental management focused standards: ISO 14000

THE BALDRIGE NATIONAL QUALITY PROGRAMCreated by Congress in 1987 to encourage global competitionParticipating firms are extensively evaluatedDetailed reports of company strengths and weaknessesThe 2012 Baldrige Award recipients listed by Industry categoryare:

Lockheed Martin Missiles and Fire Control, Grand Prairie, Texas (manufacturing) MESA Products Inc., Tulsa, Okla. (small business) North Mississippi Health Services, Tupelo, Miss. (health care) City of Irving, Irving, Texas (nonprofit)

*Distribution Strategy is about getting the right product to the right person at the right place, at the right time.**Note that some retailers like Sams Club and Costco serve as both retailers and wholesalers.*Click the link to visit Spartan Foods the 10th largest grocery supplier/retailer. Review the Business Partners section and the services offered to business partners. Highlight the value of distribution.*Explain each strategy. Ask students to suggest products in each category. Discuss how more expensive brands are usually more exclusive. Provide examples of brands that are only carried in their own stores or brands that are at selective fine retailers.*Note that many retailers like the GAP have strategies for both distribution channels. Brick and Mortar vs. Click and Mortar. Also note that retailers like Lands End and Victoria Secrets initial strategies included catalog and store now the online business has become a bigger component than the catalog itslef.*Many companies have turned to supply chain management to gain competitive advantage, some firms have even outsourced this function to experts.*The link will take you to CTSI, a global logistics company. Click through the variety of services offered by the company. Note their global services and the graphic on the home page identifying the different aspects of logistics.*When considering modes of transportation, businesses must consider each mode, cost, frequency, speed, dependability, flexibility and availability. Some companies use more than one mode of transportation.*If a price seems too good to be true, it probably is. But seeking an incredible bargain can still make sensedollar and cents. Due to slippery finger typos, frequent price changes, and programming glitches, online retailers are especially vulnerable to pricing mistakes. Without human cashier confirmation, its tough to catch the goofs. And to magnify the problem, quick communication on the Web almost ensures a flood of customers placing orders almost as soon as the wrong price goes live. Now many companies add disclaimers to their websites.*Discuss consumer pricing perceptions.*Click the link to visit the virtual production process at Coca-Cola. Click on each process to review with students.*Note that many purchases are mixed goods and services. When you buy a car you also purchase a warranty. Ask for more examples.*Click the link to view the production processes that produce a BMW. Note the technologies that they discuss. *Note the RoboRounds callout and discuss robots in the service industry.*Click the link to view development jobs at Microsoft and the process in which they make software at Microsoft. Note that many new products are projects and the process in which products are created by a software company is unique compared to manufacturing other goods.*The link on the left will provide insight into some of the outrage of outsourcing while the link on the right will detail ten myths about outsourcing. The links together should prompt engaging class discussion. Also discuss how vertical integration provides cost savings and should be balanced with outsourcing.