Chapter 13: DISTRIBUTION AND PRICING

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

2. 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

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

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

5. THE ROLE OF DISTRIBUTORS: ADDING VALUE (Utility) Jamba Juice Vending Machines ATM’s, Gas Stations Pay Pal Home Depot Service Makeover stations

6. DISTRIBUTORS: STREAMLINING CONSUMER TRANSACTIONS

7. 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

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

9. 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

10. 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

11. MULTICHANNEL RETAILING • Retailers are encouraging consumers to buy through multiple channels Store Online

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

13. ELEMENTS OF THE SUPPLY CHAIN

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

15. TRANSPORTATION DECISIONS 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. 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

18. 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.

19. 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?

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

21. 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?

22. 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.

23. Chapter 17: OPERATIONS MANAGEMENT Putting It All Together

24. 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

25. 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

26. GOODS VS. SERVICES

27. WHAT DO OPERATIONS MANAGERS DO? • Facility Location • Process Selection and Facility Layout • Inventory Control • Scheduling • Quality

28. FACILITY LOCATION

29. 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

30. 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

31. 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.

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

33. 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

34. 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.

35. 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

36. 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.

37. 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

38. FOCUS ON QUALITY • Quality improves effectiveness and efficiency • Quality helps achieve competitive advantage • Lower costs, increases value • Poor quality costs

39. 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

40. 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

41. 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

42. 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)