Chapter 13: DISTRIBUTION AND PRICING

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Chapter 13 DISTRIBUTION AND PRICING

• Right Product, Right Person, Right Place, Right
  Price

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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
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DISTRIBUTING DIRECTLY TO THE CONSUMER
Producer
Consumer
Direct Channel Distribution process that links
the producer and the customer with no
intermediaries.
For example, Dell
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CHANNEL INTERMEDIARIES
Producer
Wholesaler
Consumer
Channel Intermediaries informally called
middlemen. They facilitate the movement of
products from the producer to the consumer.
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THE ROLE OF DISTRIBUTORS ADDING VALUE (Utility)
Jamba Juice
Vending Machines
ATMs, Gas Stations
Pay Pal
Home Depot Service
Makeover stations
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DISTRIBUTORS STREAMLINING CONSUMER TRANSACTIONS
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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
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WHOLESALERS SORTING OUT THE OPTIONS

• Merchant Wholesalers
• Take legal possession/title
• Full-service
• Limited Service
• Drop Shippers
• Cash and Carry
• Truck Jobbers
• Agents/Brokers
• Dont take title of the goods

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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
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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
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MULTICHANNEL RETAILING
Retailers are encouraging consumers to buy
through multiple channels
Store
Online
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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
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ELEMENTS OF THE SUPPLY CHAIN
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SUPPLY CHAIN MANAGEMENT DECISIONS

• Warehousing
• Materials Handling
• Inventory Control
• Order Processing
• Customer Service
• Transportation
• Security

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TRANSPORTATION DECISIONS
MODES OF TRANSPORTATION
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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

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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

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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
  Dells site.

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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.
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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?
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FIXED MARGIN PRICING

• Profit Margin the gap
• between cost and the price
• per product.

• Cost-Based Pricing
• Demand-Based Pricing

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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?

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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.
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Chapter 18 OPERATIONS MANAGEMENT

• Putting It All Together

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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 processes
• Produce the right goods and services
• Produce the right quantities
• Distribute products to the right customers at the
  right time

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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
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GOODS VS. SERVICES
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WHAT DO OPERATIONS MANAGERS DO?

• Facility Location
• Process Selection and Facility Layout
• Inventory Control
• Scheduling
• Quality

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FACILITY LOCATION
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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

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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

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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.
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ROBOTS

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

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INVENTORY CONTROL DONT 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

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INVENTORY CONTROL
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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.
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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

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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

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GANTT CHART
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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.

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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

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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.
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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

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FOCUS ON QUALITY

• Quality improves effectiveness and efficiency
• Quality helps achieve competitive advantage
• Lower costs, increases value
• Poor quality costs

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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
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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

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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

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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
  90002005
• Environmental management focused standards ISO
  14000

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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 2009 Baldrige Award recipients include
• Honeywell Federal Manufacturing Technologies,
  KC, MO, Manufacturing Winner
• MidwayUSA, Columbia, MO, Small Business Winner
• AtlantiCare, Egg Harbor Township, NJ, Healthcare
  Winner
• Heartland Health, St. Joseph, MO, Healthcare
  Winner