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.
DISTRIBUTORS: STREAMLINING
CONSUMER TRANSACTIONS
Toothpaste
from P&G
Juan
Toothpaste
from P&G
Juan
Potato Chips
from Lays
Shannon
Potato Chips
from Lays
Shannon
Soda from
Pepsi
Spencer
Soda from
Pepsi
Tissues from
Scott
Ragish
Tissues from
Scott
Ragish
Soap from
SC Johnson
YunLi
Soap from
SC Johnson
YunLin
Grocery
Store
Spencer
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:
Service Utility:
• Offering helpful information
• Providing fast, friendly,
personalized service
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
Store
encouraging
consumers
Retailers are
buy through multiple
Storeencouraging to
consumers
to buy through multiplechannels
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:
Mode
Percentage
of U.S.
Volume
Speed
On-Time
Dependability
Flexibility
in
Handling
Frequency
of
Shipments
Cost
Availability
Rail
39.5%
Medium
Slow
Medium
Medium
Low
Extensive
Truck
28.6%
High
Fast
High
Medium
High
Most
Extensive
Ship
12.0%
Lowest
Slowest
Lowest
Highest
Lowest
Limited
Plane
0.3%
Highest
Fastest
Medium
Low
Medium
Medium
Pipeline
19.6
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
 Penetration
Pricing
 Every-day-low Pricing
 High/Low Pricing
 Loss Leader Pricing
AMAZON STIRS UP A PRICE WAR
Revamped Kindle Tablets Undercut Apple's iPad

Amazon'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 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
Breakeven analysis –
the process of determining the number of units that must be sold to cover costs.
Total fixed cost (FC)
Breakeven Point (BP) =
Price/Unit (P) – Variable cost/unit (VC)
Businesses make decisions to adjust the price and/or costs.
• Raise prices
• Decrease variable costs
• Decrease fixed costs
FIXED MARGIN PRICING
 Profit Margin – the gap
between cost and the price
per product.

Cost-Based Pricing

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
be touched, seen, handled
Intangible, they can be
“experienced”, no physical
form
Can be stored and
inventoried
Must be consumed, when they
are produced
Can be shipped
Must 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
WHAT DO OPERATIONS MANAGERS DO?
Facility
Location
Process
Selection and
Facility Layout
Inventory
Control
Scheduling
Quality
FACILITY LOCATION
Land
Adequacy of
utilities
Labor market
conditions
Quality of life
Legal and
political
environment
Facility
Location
Transportation
factors
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
form of programmed control.
Robot – a
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
production
schedules
• Unsold inventory
ties up funds
• Meet demand
increases
• Inventory must
be warehoused
and managed
• Reduce switching
costs
• Compensate for
forecast errors
• Risk of losses
due to spoilage,
obsolescence
and pilferage
REDUCING INVESTMENT IN INVENTORY: JUSTIN-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
Predecessor
Time
(Weeks)
None
2
B. Determine site for Arena
A
5
Operations Managers must
manage and schedule
projects
A. Survey of Needs
C. Preliminary Design
Developed
A
5
Scheduling starts with
identifying the required
activities, the time required
and the order in which they
must happen
D. Obtain Major Donation
for Funding
C
6
E. Obtain Board Approval
B,D
4
F. Select Architect
E
3
G. Establish Budget
E
2
H. Obtain Remaining
Financing
F,G
10
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
 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.
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,
viewed as the father
of the quality
movement, first
proposed the
relationship between
quality and business in
the early 1950s.
Costs decrease because of less rework,
fewer mistakes, fewer delays and snags,
and better use of time and materials
Productivity Improves
Capture the market with better
quality and lower price
Stay in business
Provide jobs and more jobs
HOW AMERICAN FIRMS RESPONDED TO
THE QUALITY CHALLENGE

Total Quality Management:
 Customer
Focus
 Build quality throughout the organization
 Empowerment of employees
 Focus on prevention of errors
 Long-run commitment to continuous improvement
QUALITY APPROACH: SIX SIGMA

Single unifying measure: to reduce defects of
operation to a level of no more than 3.4 million

Organization-wide focus on quality

Prevention rather than correction

Rigorous and challenging goal

Rely on employee training and expert guidance

Advanced techniques, high level of expertise
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 2012 Baldrige Award recipients —listed by Industry category—are:
•
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)