14
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1
Product and Supply Chain Management
CHAPTER 14 LECTURE NOTES
Explain small business growth.
PPT 14-1
Chapter 14
Product and Supply Chain
Management
PPT 14-2, 3
Looking Ahead
PPT 14-4
To Grow or Not to Grow
2
A.
To grow or not to grow
 Discuss with students the challenges associated with small business growth.

Growing Profits

Cash flow issues

Inventory

Accounts receivable

Financing growth

Personnel and management style of owner(s)
Identify the key characteristics of innovation.
PPT 14-5
Innovation: A Path to Growth
B.
Innovation: A path to growth
 Discuss the role innovation plays in small business growth.
PPT 14-6
Reducing the Risk of Failure
while Innovating
1.
PPT 14-7
Sustainability and Innovation
2.
PPT 14-8/TM 14-8
The Competitive Advantage Life
Cycle
[Acetate 14-8]
PPT 14-9/TM 14-9
Sustaining Competitive
Advantage
[Acetate 14-9]
PPT 14-10
The Product Life Cycle and New
Product Development
C.
PPT 14-11/TM 14-11
The Product Life Cycle
PPT 14-12, 13, 14, 15
New Product Development
Process
PPT 14-16
Building the Total Product
PPT 14-17/TM 14-17
Components of a Brand Identity
PPT 14-18, 19, 20, 21
137
D.
Competitive Advantage and Innovation

Discuss why small firms are responsible for many innovative products
and services.

Discuss what small business owners can do to reduce the risks
associated with innovation.
Sustainability and Innovation

Discuss how a small business can sustain its competitive advantage (ex.
patents, contracts, “fly below the radar screen” of competitors

Discuss the term “sustainable competitive advantage”.
The product life cycle and new product development
1. The product life cycle—sales and profits of a product over the span of its
life in the marketplace.

Discuss why the product life cycle is important to small business
managers:
-helps entrepreneur make promotion, pricing, and -distributor decisions
-highlights important of new products
-reinforces that innovation is critical to a firm’s success
2. The new product development process—depicted as a curve, the new
product development concept outlines the process from which new
products emerge.
a. Idea accumulation
b. Business analysis
c. Development of the product
d. Product testing
Building the total product offering
1. Branding

Review the five rules for naming a product or service from the chapter.

Involve students in a discussion of what makes a good name. (Be sure they
consider the five rules when they present their ideas.)
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Building the Total Product
3
2.
3.
4.
Packaging—have students bring examples to class.
Labeling—have students bring examples to class.
Making warranties—have students bring examples to class.
Explain product strategy and related concepts.
PPT 14-22
Product Strategy
E.
Product strategy

Explain the meaning of a product as a “bundle of satisfaction.”
 Be sure that each student understands the meaning of the following terms:
PPT 14-23
Product Lines and Product Mix
for 180s LLC
(1) product strategy, (2) product item, (3) product line, (4) product mix,
and (5) product mix consistency.
PPT 14-24
Product Strategy
1.
PPT 14-25/TM 14-25
Service Marketing versus Goods
Marketing
[Acetate 14-25]
2.
PPT 14-26/TM 14-26
Product Strategy Options
[Acetate 14-26]
4
Describe the legal environment affecting product decisions.
3.
PPT 14-27
The Legal Environment
PPT 14-28
Protecting Marketing Assets
[Acetate 14-28]
PPT 14-29, 30
The Legal Environment
PPT 14-31
Protecting a Product Offering
5
Product marketing versus service marketing

Discuss the debate involving products marketing vs. services
marketing.
The product development process—depicted as a curve, the new product
development concept outlines the process from which new products
emerge.
a. Idea accumulation
b. Business analysis
c. Development of the product
d. Product testing
The legal environment
a. Consumer protection
 Federal regulations regarding product labeling and safety have
important implications for product strategy.
b. Protection of marketing assets
1. Trademark protection—select carefully and follow the rules.
2. Patent protection—exclusive rights to make, use, or sell an
invention.
3. Copyrights—automatically protected from the moment of creation.
4. Trade dress—a distinctive operating image not otherwise protected
Explain the role of supply chain management.
PPT 14-32, 33, 34, 35, 36
/TM 14-36, 37
Supply Chain Management
[Acetate 14-36]
F.
Supply Chain Management
 Discuss how the Internet and new software have effected current supply chain
1.
management philosophy

Distribution—both the physical movement of products and the
establishment of intermediary relationships to guide and support such
product movement

Physical distribution—physical movement activities, or logistics

Channel of distribution—the intermediary system

Both tangible and intangible goods need distribution.
Functions of intermediaries

More efficient if customers are dispersed or special packaging/storage
are needed.

Merchant middlemen take title to the goods they distribute (assume
Chapter 14 Product and Supply Chain Management
2.
PPT 14-38, 39, 40
The Scope of Physical
Distribution
—
3.
139
risk).

Agents and brokers do not take title to the goods (assume less risk).
Channels of distribution

Direct versus indirect distribution

Dual distribution

Ask students to explain dual distribution.

Discuss the three main considerations when building a channel of distribution
(ex. costs, coverage, and control)
a. Costs—all channels have their own cost of moving products.
b. Coverage—How much of the market will be covered by each
channel choice?
c. Control—Direct channels provide more control then indirect
channels.
The scope of physical distribution

Discuss the role “logistics” companies play in product distribution.
a. Transportation
Common carriers—available for hire to the general public
Contract carriers—contracted to a specific shipper
Private carriers—owned by the shipper
b. Storage
c. Materials handling
d. Delivery terms (F.O.B. – Free on Board)
SOURCES OF AUDIO, VIDEO, AND OTHER INSTRUCTIONAL
MATERIALS
The Something Ventured video program for this chapter’s material is titled The Right Mix: Product/Service
Strategies. The idea of the life cycle of a product or service is examined. Contact your South-Western/ITP
sales rep or ITP Faculty Support (fax (415) 592-9081 or E-mail review@swpco.com).
Within a video series entitled Growing a Business, Ambrose Video Publishing, 28 W. 44th St., Suite 2100,
New York, NY 10036, offers a half-hour tape that addresses the issue of poor service in many U.S.
businesses. Another half-hour tape discusses how U.S. customers are quality conscious in their buying
decisions. Ambrose’s toll-free number is (800) 526-4663.
Inc. Business Resources distributes a 70-minute videotape entitled Creating a Winner: Real Secrets of
Successful Marketing, which incorporates case studies of five successful entrepreneurs. The toll-free number
for ordering is (800) 468-0800. The VHS video sells for $59.95.
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ANSWERS TO END-OF-CHAPTER
DISCUSSION QUESTIONS
1.
p. 307-308
Discuss some of the limitations on growth in a small firm.
As discussed in the chapter, some small firms want growth, while others do not. For those with growth
goals financing is a major limiting factor. Internally generated cash flow may not support growth and
external funds may be hard to locate. Also, too much growth, too quickly, based on internal funding
can be a stress on current operations.
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A firm’s personnel and management style of its owners is also a possible limitation on growth.
There may simple not be enough people and/or the right people to coupe with the growth
2.
Describe the recommendations for reducing risk associated with innovation in a small business.
Basically, the answer to this question is found in the discussion on page 309 of the chapter. The six
“rules of thumb” listed and discussed there are:
a. Base innovative efforts on your experience
b. Focus on products or services that have been largely overlooked.
c. Be sure there is a market for the product or service you are hoping to create.
d. Pursue innovation that customers will perceive as adding value to their lives.
e. Focus on new ideas that will lead to more than one product or service.
f. Raise sufficient capital to launch the new product or service.
3.
How does an understanding of the product life cycle concept help with product strategy?
First, it helps the entrepreneur to understand that promotion, pricing, and distribution policies should
all be adjusted to reflect a product’s position on the curve. Secondly, it highlights the importance of
rejuvenating product lines, whenever possible, before they die. Thirdly, it is a continuing reminder that
the natural life cycle of a product follows the classic sigmoid curve—a tiled S-shaped curve describing
the time line of life itself—and therefore, that innovation is necessary for a firm’s survival.
4.
Discuss briefly each stage of the product development process.
Idea Accumulation—The first stage that starts with the accumulation of ideas from many sources.
Business Analysis—The next stage where costs and revenues are estimated and analyzed. Any ideas
judged not to be profitable are usually discarded here.
Development of the Product—Here the idea is sketched to detail the plan for branding, packaging, and
other supporting efforts. Any actual prototype may be built.
Product Testing—The last stage is testing of the physical product, maybe in a market test environment
p. 309
p. 312
p. 313 - 314
5.
p. 319
What are some of the product strategy options available to a small firm? Which ones are most likely to be used?
Product strategy describes the manner in which the product component of the marketing mix is used to
achieve the objectives of the firm. The major product strategy alternatives can be described by the
following six categories:
a.
b.
c.
d.
e.
f.
6.
Identify and briefly describe the three ways to increase sales of an existing product once a product strategy has
been implemented.
A small firm can try to increase sales of an existing product by doing any of all of the following:

Convincing nonusers in the targeted market to become customers

Persuading current customers to use more of the product

Alerting current customers to new uses for the product
7.
Select two product names, and then evaluate each with respect to the five rules for naming a product.
Obviously, answers will differ. Do not expect each name selected to exemplify all of the rules.
8.
Explain how registration of a small firm’s trademarks would be helpful in protecting its brand?
Because small firms do not have the same level of market exposure as large firms, it is important that
they establish and maintain an identity with their current and potential customers. One way of doing
this is by establishing an identifying trademark that will help to carry the message of the firm to the
market. Once the trademark is registered, the small firm gains valuable protection from larger firms
p. 319
p. 314-315
p. 321
One product/one market
One product/multiple markets
Modified product/one market
Modified product/multiple markets
Multiple products/one market
Multiple products/multiple markets
Chapter 14 Product and Supply Chain Management
141
that may be interested in entering the same market and taking away any advantage the small firm may
have.
9.
Why do small firms need to consider indirect channels of distribution for their products? Why involve
intermediaries in distribution at all?
Small firms use indirect channels for reasons similar to those of large firms. Primarily, intermediaries
exist to carry out unavoidable marketing functions that they can perform better than the producer or
the user of a product. It is an accepted premise in marketing that functions of marketing cannot be
eliminated, but they can be shared and/or shifted. Small firms cannot always perform these necessary
functions, and since someone must perform these, intermediaries are involved.
10.
Discuss the major considerations in structuring a channel of distribution.
Looking at the competition is an important first step in building a channel of distribution, because the
competition’s experiences can guide the newcomer. Other, more specific elements to consider in
structuring a channel are costs, coverage, and control. These are the “three Cs” of channel choice.
Costs associated with an indirect channel of distribution must be evaluated against the expenses
that the small business would otherwise incur in performing the function itself. For example, how do
the costs of using a wholesaler compare with the costs of selling directly to retailers? Distribution costs
should be viewed as an investment.
Coverage refers to contacts with potential customers. An indirect channel of distribution can
greatly increase market coverage—that is, the number of customers or potential customers that can be
reached.
A direct distribution channel provides more control than an indirect one. For example, a
manufacturer can exert more control over retail sales promotion efforts by selling directly to retailers
than by going through a wholesaler. All of these facts must be evaluated jointly.
p. 323
p. 324-325
—
COMMENTS ON CHAPTER “YOU MAKE THE CALL” SITUATIONS
Situation 1
1.
What problems, if any, do you see with the use of the university’s brand?
The university will most likely have copyright and trademark protection on any name, design, or
slogan uniquely associated with them. Therefore, any use of a name or unique design will create
problems unless McMahan gets permission from the university, which will likely come in the form of
licensing.
2.
What strategy should they pursue to obtain cooperation from the university?
She may want to sell the university on the value her products by showing how they will add to the
image of the university or most likely she will need to show them how they can profit from a licensing
fee or other financial arrangement.
3.
What distribution options are likely to be used?
She can probably use the local store(s) or even create an internet site for ordering. Many stadiums
and arenas have shops where products of this kind can be sold.
Situation 2
1.
Do you think there may be other channels of distribution that Kowalski might use? If so, what are they?
There are definitely other channel alternatives for this product. Kowalski could establish a
relationship with distributors throughout the country who could handle his product as well as other
truck accessory items. These distributors could be shops that would handle installation work, which
could be very appealing to many non-technical customers (even though the Web site advertises “easy
installation”). Check out the Instructions page on the Web site! At some point in time he may want to
consider distribution with the major auto parts chains, since many of their customers have trucks.
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2.
What other related products might be added to the product mix?
Kowalski has already added several other related products. Through his Web site, you can order
hitches and Load Hog Wearables. Any specialized product for trucks is a possibility. Later on, the firm
may want to enter other markets with their products, such as the fleet market.
3.
What do you think about the choice of the name for the device?
The name is pretty neat! It qualifies well on each of the five naming rules discussed in the chapter.
Rule #5 regarding use on several product lines of a similar nature may be the only questionable
characteristic. Only time will tell if it can be used on all new product items.
Situation 3
—
1.
What course of action would you recommend to Hodges?
It might be best for Hodges to get a lawyer to write a few letters to the lawyer representing the rock
band to see if they might examine their demands and back off. If this didn’t work, one might suggest
that Hodges strongly consider changing the name.
2.
What can Hodges say in defense of the name he chose for this furniture business?
One defense he may have is that he had the name first (if, in fact, he did). Or he may contend that
there has not been, and will not be, any confusion in the minds of the public between the products of
his company and the rock band. Also, there may be some defense based upon the market area he
serves—it is local and is thus not likely to infringe on the market of the rock band. (These are only ideas
and not legal advice. See a lawyer for all legal advice.)
ANSWERS TO EXPLORING THE WEB EXERCISES
For each chapter, the instructor’s manual will include a short summary of suggested results students will have after
completing the various Web exercises. Because the Web is a constantly changing medium, the answers may vary, and
the links may change as well. Thus, answers are only suggested, and the URL for resources, where required, is
provided.
Exercise 1
This quiz has 10 questions drawn at random from a database of 25 pertaining to branding.
Exercise 2
The Web site provides brand names that have been converted into generic ones. The Web site provides JellO, Kleenex, Frisbee, Hoover, and Jacuzzi. Students will need to provide examples of their own.
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SUGGESTED SOLUTION TO CASE 14:
LOTUS CHIP’S RECIPE FOR SUCCESS
1.
After evaluating the idea of these entrepreneurs against the seven “rules of thumb” outlined in Chapter 14 of the
textbook, what do you believe is the level of risk for their business?
This is most likely a very high risk venture. They are starting with what is normally a commodity
Chapter 14 Product and Supply Chain Management
143
product and must differentiate it. However, their commitment to use only their own funds for the
startup—approximately $5,000—does limit the risks to a relatively small financial amount. The
question of whether “taste better” is going to be a big enough advantage is debatable.
2.
How well have these entrepreneurs followed the steps in the new product development process? Support your
position.
They didn’t really follow the process well. They only had one idea and didn’t attempt to think of other
variations. They did cook some samples and had some friends taste the chips, which represent activity
within product testing, but beyond that, there is little parallel.
3.
What suggestions can you provide to Burns and Kinard about obtaining protection for the name “Lotus Chips”?
They need to do a name search with the patent office to see if the name is already owned. If not, they
can begin the process of registration. If it is owned by another party they can consider a different name
or possibly contact the owner to learn the current status of the use of the name—it might be purchased.
4.
What other components, if any, of the “total product” have they overlooked?
Distribution and promotion are probably the two “biggest” components they have overlooked. Wordof-mouth is great but may not be enough for this venture.
5.
What kind of distribution plan would you suggest for these entrepreneurs? Why?
An indirect distribution plan may be the best choice at this early stage. Most of their efforts, on the
current level of funds, are probably going to be directed to production and quality assurance. Leaving
the distribution to someone else will allow the entrepreneurs to focus on the product differentiation that
is going to be so important to future success.
Additional Notes: In the fall of 2001, a partnership was formed and Lotus Chips, LLC was launched in time for the
Christmas season. The company has done well and Lotus Chips is available in stores in many states and is
currently offered in three flavors. They do not currently have a website but market their products through
Gourmet Food Mall which facilitates the selling of their products over the web. They can be contacted at
info@lotuschips.com for additional information.