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CHAPTER 13: DISTRIBUTION AND PRICING Right Product, Right Person, Right Place, Right Price.

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Presentation on theme: "CHAPTER 13: DISTRIBUTION AND PRICING Right Product, Right Person, Right Place, Right Price."— Presentation transcript:

1 CHAPTER 13: DISTRIBUTION AND PRICING Right Product, Right Person, Right Place, Right Price

2 DISTRIBUTION: GETTING YOUR PRODUCT TO YOUR CUSTOMER ProducerWholesalerConsumer Channel of Distribution – the network of organizations and processes that links producers to consumers 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?

3 DISTRIBUTING DIRECTLY TO THE CONSUMER ProducerConsumer Direct Channel – Distribution process that links the producer and the customer with no intermediaries. For example, Dell

4 CHANNEL INTERMEDIARIES Channel Intermediaries – informally called middlemen. They facilitate the movement of products from the producer to the consumer. Producer Wholesaler Consumer

5 THE ROLE OF DISTRIBUTORS: ADDING VALUE (Utility) Form Utility:Turning inputs into finished goods Time Utility:Providing products at the right time Place Utility:Offering products at the right place Ownership Utility:Providing credit, cashing checking, delivering products Information Utility:Offering helpful information Service Utility:Providing fast, friendly, personalized service Jamba Juice Vending Machines ATM’s, Gas Stations Pay Pal Home Depot Service Makeover stations


7 THE MEMBERS OF THE CHANNEL Retailers – the distributors that sell products directly to the ultimate users Wholesalers – distributors that buy products from producers and sell them to other businesses or non-final users.

8 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 Amazon Sam’s Club Coke Distributor

9 RETAILERS: THE CONSUMER CONNECTION  Store Retailers  Non-Store Retailers  Online  Direct Response  Direct Selling  Vending eBay, Amazon Catalogs, telemarketing Door-to-door Best Buy at airports

10 DISTRIBUTION STRATEGY INTENSIVE DISTRIBUTION SELECTIVE DISTRIBUTION EXCLUSIVE DISTRIBUTION Placing your product in as many stores as possible Placing your products with “preferred retailers” Placing your products with only one retail outlet in a given area Price / Product Tiffany, Bentley automobiles Paintball equipment Starbucks, People magazine

11 MULTICHANNEL RETAILING Retailers are encouraging consumers to buy through multiple channels StoreOnline

12 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


14 SUPPLY CHAIN MANAGEMENT DECISIONS  Warehousing  Materials Handling  Inventory Control  Order Processing  Customer Service  Transportation  Security

15 TRANSPORTATION DECISIONS Mode Percentage of U.S. Volume CostSpeed On-Time Dependability Flexibility in Handling Frequency of Shipments Availability Rail40.2%MediumSlowMedium LowExtensive Truck40.0%HighFastHighMediumHighMost Extensive Ship9.0%LowestSlowestLowestHighestLowestLimited Plane0.2%HighestFastestMediumLowMedium Pipeline**LowSlowHighestLowestHighestMost Limited MODES OF TRANSPORTATION:

16 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

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

18 “SLIPPERY FINGER” ONLINE PRICING GOOFS  Free 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 Dell’s site.

19 PRICING IN PRACTICE: A REAL WORLD APPROACH Breakeven 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.

20 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?

21 FIXED MARGIN PRICING  Cost-Based Pricing  Demand-Based Pricing  Profit Margin – the gap between cost and the price per product.

22 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?

23 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.


25 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  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

26 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. “There is nothing so useless as doing efficiently that which should not be done at all” Peter Drucker, Management Expert Doing things rightDoing the right thing

27 GOODS VS. SERVICES GOODSSERVICES Tangible, physical form, can be touched, seen, handled Intangible, they can be “experienced”, no physical form Can be stored and inventoriedMust be consumed when they are produced Can be shippedMust be consumed, where they are provided Are produced independently of the consumer Often require customer involvement Can measure some aspects of quality Quality is based on customer perceptions

28 WHAT DO OPERATIONS MANAGERS DO?  Facility Location  Process Selection and Facility Layout  Inventory Control  Scheduling  Quality

29 FACILITY LOCATION General Location FactorsExamples of Specific Considerations Adequacy of utilities Is the supply of electricity reliable? Is clean water available? Land Is adequate land available for a facility? How much does the land cost? Labor market conditions Are workers with the right skills available? How expensive is labor? Transportation factors Is the location near customers and suppliers? Is appropriate transportation nearby? Quality of life What is the climate like? Are adequate health care facilities available? Legal and political environment Does the local government support new business? What are the local taxes, fees, and regulations?

30 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

31 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

32 TECHNOLOGY OF OPERATIONS 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. AUTOMATION: LET THE MACHINES DO IT

33 ROBOTS Robots are well suited for dangerous, tedious, dirty and physically demanding tasks. Robots don’t get tired Robots are flexible

34 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

35 INVENTORY CONTROL Complete inventory and stock management Quickly create invoices Maintain a client database Create Picking Lists and Receipts Stock balance and reorder management Import existing inventory Barcode reader support Warranty returns Group inventory items Pre-defined and custom reports available

36 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.

37 MANAGING PROJECTS  Production of some products are projects  Projects are usually complex and expensive  New House/Building  Filming a Movie  Managers use Gantt charts and critical path method to manage projects

38 PROJECT SCHEDULING  Operations Managers must manage and schedule projects  Scheduling starts with identifying the required activities, the time required and the order in which they must happen ActivityImmediate Predecessor Time (Weeks) A. Survey of NeedsNone2 B. Determine site for ArenaA5 C. Preliminary Design Developed A5 D. Obtain Major Donation for Funding C6 E. Obtain Board ApprovalB,D4 F. Select ArchitectE3 G. Establish BudgetE2 H. Obtain Remaining Financing F,G10 I. Finalize DesignG6 J. Hire ContractorH,J2


40 CRITICAL PATH METHOD The 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.

41 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 

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

43 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

44 FOCUS ON QUALITY  Quality improves effectiveness and efficiency  Quality helps achieve competitive advantage  Lower costs, increases value  Poor quality costs

45 DEMING CHAIN REACTION Costs decrease because of less rework, fewer mistakes, fewer delays and snags, and better use of time and materials Improve Quality Productivity Improves Capture the market with better quality and lower price Stay in business Provide jobs and more jobs W. Edwards Deming, viewed as the father of the quality movement, first proposed the relationship between quality and business in the early 1950s.

46 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

47 SIX SIGMA  Focus on quality improvement and commitment  Standard is no more that one error (defect) per 3.4 million opportunities  Requires a high level of expertise  Focus on employee training

48 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

49 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 HouseConcordia Publishing House, St. Louis, Mo. (nonprofit) Henry Ford Health SystemHenry Ford Health System, Detroit, Mich. (health care) Schneck Medical CenterSchneck Medical Center, Seymour, Ind. (health care) Southcentral FoundationSouthcentral Foundation, Anchorage, Alaska (health care)

50 Back to the Beginning

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