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Chapter 13 DISTRIBUTION AND PRICING

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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?




Producer                 Wholesaler                  Consumer


               Channel of Distribution –
     the network of organizations and processes
           that links producers to consumers
DISTRIBUTING DIRECTLY TO THE CONSUMER




  Producer                               Consumer


                  Direct Channel –
         Distribution process that links the
         producer and the customer with
                 no 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)

     Form Utility:     • Turning inputs into finished goods


     Time Utility:     • Providing products at the right time


     Place Utility:    • Offering products at the right place

     Ownership         • Providing credit, cashing checking,
      Utility:           delivering products

     Information       • Offering helpful information
        Utility:
                       • Providing fast, friendly, personalized
    Service Utility:     service
DISTRIBUTORS: STREAMLINING
CONSUMER TRANSACTIONS
  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

   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
    DISTRIBUTION STRATEGY
                    EXCLUSIVE
                   DISTRIBUTION
                  • Placing your products with only one retail outlet in a given area




                     SELECTIVE
                   DISTRIBUTION
                  • Placing your products with “preferred retailers”




                     INTENSIVE
                   DISTRIBUTION
                  • Placing your product in as many stores as possible
Price / Product
 MULTICHANNEL RETAILING



                        Retailers are
                 encouraging consumersStore
         Retailers are
    encouraging to buy through multiple
Store            consumers
    to buy through multiple channels
           channels
                                      Online
           PHYSICAL DISTRIBUTION: PLANES,
           TRAINS, AND MUCH, MUCH MORE
Determining the best distribution channels for your
  product is only half the distribution strategy.

          Supply Chain Management –
         planning and coordinating the
          movement of products along
                the supply chain

              Logistics – focuses on
              the tactics involved in
               moving the products

  How will the product flow through the channel
           from producer to consumer?
ELEMENTS OF THE SUPPLY CHAIN
SUPPLY CHAIN MANAGEMENT
DECISIONS

     Warehousing
     Materials Handling
     Inventory Control
     Order Processing
     Customer Service
     Transportation
     Security
                 TRANSPORTATION DECISIONS

     MODES OF TRANSPORTATION:
           Percentage                                       Flexibility   Frequency
                                              On-Time
 Mode        of U.S.     Cost     Speed                         in            of      Availability
                                            Dependability
            Volume                                          Handling      Shipments
  Rail       40.0%      Medium     Slow        Medium        Medium         Low        Extensive

 Truck       27.9%       High      Fast         High         Medium         High         Most
                                                                                       Extensive
 Ship        12.1%      Lowest    Slowest      Lowest        Highest       Lowest       Limited

 Plane       0.3%       Highest   Fastest      Medium          Low         Medium       Medium

Pipeline     20.0        Low       Slow        Highest        Lowest       Highest       Most
                                                                                        Limited
       PRICING : A HIGH STAKES GAME

   Pricing plays a key role in the demand for
    products
   Price is a tough variable
     Legal constraints
     Intermediary pricing

   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
      PenetrationPricing
      Every-day-low Pricing
      High/Low Pricing
      Loss Leader Pricing
“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.
 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


Businesses make decisions to adjust the product
price and/or costs.
   Raise   prices
   Decrease    variable costs
   Decrease    fixed costs
   FIXED MARGIN PRICING

 Profit Margin – the gap
between cost and the price      Cost-Based Pricing
per product.
                                Demand-Based Pricing
       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
     CHAPTER 18: OPERATIONS
         MANAGEMENT
Putting It All Together
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 –
                                           completing tasks
                                           and producing
                                           products that
                                           create the greatest
                                           value




                  Efficiency – producing
                  output or achieving a
                  goal at the lowest
                  cost


“There is nothing so useless as doing efficiently that which should not be
                               done at all”
                                       - Peter Drucker
         GOODS VS. SERVICES
Tangible, physical form, can      Intangible, they can be
                                “experienced”, no physical
 be touched, seen, handled                 form

    Can be stored and             Intangible, they can be
                                “experienced”, no physical
       inventoried                         form

                               Must be consumed, where they
     Can be shipped                    are provided

Are produced independently        Often require customer
      of the consumer                  involvement

Can measure some aspects       Quality is based on customer
       of quality                       perceptions
WHAT DO OPERATIONS MANAGERS DO?

                            Facility
                           Location




        Process
     Selection and                           Scheduling
    Facility Layout




               Inventory               Quality
                Control
FACILITY LOCATION
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

   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

AUTOMATION: LET THE MACHINES DO IT


   Automation – replacing
   human operations and
    control of machinery
  and equipment with some               Robot – a
form of programmed control.   programmable machine that
                               is capable of manipulating
                                    materials in order
                                     to perform tasks.
 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…        Why not…
   • Smooth out                • Unsold inventory
     production                  ties up funds
     schedules
                               • Inventory must
   • Meet demand                 be warehoused
     increases                   and managed
   • Reduce switching          • Risk of losses
     costs                       due to spoilage,
   • Compensate for              obsolescence
     forecast errors             and pilferage
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 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
      PROJECT SCHEDULING
                                               Activity            Immediate     Time
                                                                  Predecessor   (Weeks)

   Operations Managers must        A. Survey of Needs               None         2

    manage and schedule             B. Determine site for Arena       A           5
    projects                        C. Preliminary Design             A           5
                                    Developed
   Scheduling starts with          D. Obtain Major Donation          C           6
    identifying the required        for Funding
    activities, the time required   E. Obtain Board Approval          B,D         4
    and the order in which they     F. Select Architect                E          3
    must happen                     G. Establish Budget                E          2
                                    H. Obtain Remaining               F,G         10
                                    Financing
                                    I. Finalize Design                G           6
                                    J. Hire Contractor                H,J         2
GANTT CHART
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.
           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              Outsourcing
     Gain control over                 Use outside firm for
      supply chain                       producing supplies
     Begin producing its               Focus on key
      own parts                          production areas
     Buying suppliers                  Cost savings


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

    Quality improves effectiveness and
     efficiency
    Quality helps achieve competitive
     advantage
    Lower costs, increases value
    Poor quality costs
   DEMING CHAIN REACTION
                                      Improve Quality

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

                                Provide jobs and more jobs
    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
SIX SIGMA

   Focus on quality improvement and commitment
   A six sigma process is one in which 99.99966% of
    the products manufactured are statistically
    expected to be free of defects (3.4 defects per
    million).
   Requires a high level of expertise
   Focus on employee training
          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


   Created by Congress in 1987 to
    encourage global competition
   Participating firms are extensively
    evaluated
   Detailed reports of company
    strengths and weaknesses

          The 2010 Baldrige Award recipients (listed with their category) are:
          • MEDRAD, Warrendale, Pa. (manufacturing)
          • Nestlé Purina PetCare Co., St. Louis, Mo. (manufacturing)
          • Freese and Nichols Inc., Fort Worth, Texas (small business)
          • K&N Management, Austin, Texas (small business)
          • Studer Group, Gulf Breeze, Fla. (small business)
          • Advocate Good Samaritan Hospital, Downers Grove, Ill. (health care)
          • Montgomery County Public Schools, Rockville, Md. (education)

				
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