Management Notes

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University of Toronto Scarborough
Economics for Management Studies
Victor Yu

Management Notes Chapter 6 – Product The Value Package Features – the qualities, both tangible and intangible, that a company builds into its products • To attract buyers, features must also provide benefits: The mower must produce an attractive lawn, the owner’s pleasure in knowing that the mower is nearby when needed is an intangible reward Value package – product marketed as a bundle of value-adding attributes, including reasonable cost • Increasingly, buyers expect to receive products with greater value – with more benefits at reasonable cost Customers also look for image and reputation – no just visible features & benefits Ex. Just making purchase transaction more convenient, adds value by sparing customers long waits and cumbersome paperwork Classifying Goods & Services Classifying Customer Products 3 categories that reflect buyers’ behavior: convenience, shopping & specialty products • Convenience goods (milk/newspaper) & convenience services (such as offered by fast- food restaurants) are consumed rapidly & regularly. Relatively inexpensive & are purchased frequently & with little expenditure of time & effort • Shopping goods (tires) & shopping services (insurance) are more expensive & are purchased less frequently than convenience goods & services Consumers often compare brands, sometimes in different stores May also evaluate alternatives in terms of style, performance, colour, price, & other criteria • Specialty goods (wedding gowns) & specialty services (catering for wedding receptions) are extremely important & expensive purchases Consumers usually decide on precisely what they want and will accept no substitutes They will often go from store to store, sometimes spending a great deal of money & time to get a specific product Classifying Industrial Products They are divided into two categories • Expense Items – are any materials & services that are consumed within a year by firms producing other goods or supplying services The most obvious expense items are industrial goods used directly In the production process, for ex. bulk loads of tea processed into tea bags • Capital Items – are permanent, that is, expensive & long lasting, goods& services All these items have expected lives of more than a year, typically up to several years May include purchases for employee food services, building & equipment maintenance, or legal services Because capital items are expensive & purchased infrequently, they often involve decisions by high-level managers The Product Mix Definition: The group of products a company has available for sale Product Lines Definition: A group of similar products intended for a similar of buyers who will use them in a similar fashion Companies may extent their horizon & identify opportunities outside existing product lines Result – multiple product lines (allows a company to grow rapidly & can help to offset the consequences of slow sales in any one-product line Developing New Products Faced with competition & shifting customer preferences, no firm can count on a single successful product to carry it forever Product Mortality Rates It takes about 50 new product ideas to generate one product that finally reaches the market (only a few of these survivors become successful products) Because of lack of space & customer demand, 9 of 10 new products will fail; those with best chances are innovative & deliver unique benefits Speed to Market Definition: Strategy of introducing new products to respond quickly to customer &/or market changes Product that is only 3 months late to the market will lose 12% of its life-time profit potential The Seven-Step Development Process • Product Ideas – production development begins with a search for ideas for new products; can come from consumers, the sales force, and research & development people. Key is to actively seek out ideas & to reward those whose ideas become successful • Screening – attempt to eliminate all product ideas that do not mesh with the firm’s abilities, expertise, or objectives. Representatives from marketing, engineering, & production must have input at this stage • Concept Testing – Once ideas have been culled, companies use market research to solicit consumers’ input. In this way, firms can identify benefits that the product must provide as well as an appropriate price level for the product • Business analysis – involves developing an early comparison of costs vs. benefits for the proposed product. Preliminary sales projections are compared with cost projections from finance & production. The aim is not to determine precisely how much money the product will make but to see whether the product can meet minimum profitability goals. • Prototype – product ideas begin to take shape. Using input from the concept- testing phase, engineering and research & development produce a preliminary version of the product. Prototypes can be extremely expensive, often requiring extensive hand crafting, tooling, & development of components, but this phase can help identify potential production problems • Product testing & test marketing – using what it learned from the prototype, the company begins limited production of the item. The product is then tested internally to see if it meets performance requirements. If it does, it is made available for sale in limited areas. This stage is very costly, since promotional campaigns & distribution channels must be established for test markets. But test marketing gives a company its first information on how consumers will respond to a product under real market conditions • Commercialization – if test-marketing results are positive, the company will begin full-scale production & marketing of the product. Gradual commercialization, with the firm providing the product to more & more areas over time, prevents undue strain on the firm’s initial production capabilities. But extensive delays in commercialization may give competitors a chance to bring out their own version. Variations in the Process for Services Development of services all the same but 1 & 5 • Service Ideas – service package: Identification of the tangible & intangible features that define the service and stating service specifications. 5) Service Process Design – Service Process Design: Selecting the process, identifying worker requirements, & determining facilities requirements so that the service can be effectively provided The Product Life Cycle Definition: The concept that the profit-producing life of any product goes through a cycle of introduction, growth, maturity (leveling off), and decline Stages in the Product Life Cycle • Introduction – begins when the product reaches the marketplace. Marketers focus on making potential customers aware of the product & its benefits; with extensive promotional & development costs, profits are nonexistent • Growth – If new product attracts & satisfies enough consumers, sales begin to climb rapidly. Product begins to show a profit. Other firms try to create their own version • Maturity – Sales growth begin to slow. Although the product earns its highest profit level early in this stage, increased competition eventually leads to price cutting & lower profits. Toward end of stage, sales start to fall • Decline – Sales & profits continue to fall. New products in the introduction stage take away sales. Companies remove/reduce promotional support but may let the product linger to provide some profits Extending Profit Life: An Alternative to New Products Companies try to keep products in the maturity stage as long as they can • Production Extension – Existing, unmodified product that is market globally instead of domestically • Product Adaption – product is modified to have greater appeal in foreign markets • Reintroduction – Process of reviving for new markets products that are obsolete in older ones Identifying Products Branding Products Branding – process of using symbols to communicate the qualities of a product made by a particular producer Designed to signal uniform quality: Customers who try and like a product can return to it by remembering its name Adding Value Through Brand Equity Brand Equity – Degree of consumers’ loyalty to & awareness of a brand and its resultant market share Brand Loyalty Definition: Customers’ recognition of, preference for, and insistence on buying a product with a certain brand name Exists at 3 levels - Brand awareness: customers recognize the brand, Brand preference: customers have a favourable attitude toward the product, Brand insistence: customers demand the product & are willing to go out of their way to get it Trademarks, Patents, & Copyrights Trademark – the exclusive legal right to use a brand name; they are granted for 15 years and may be renewed for further periods of 15 years, but only if the company continues to protect its brand name Patents – protects an invention or idea for a period of 20 years; costs is $1000-$1500; it takes from 9 months to 3 years to secure a patent from Canadian Patent Office Copyrights – Exclusive ownership rights granted to creators for the tangible expression of an idea (books, articles, designs, illustrations, photos, films & music) Packaging Products Packaging – The physical container in which a product is sold, including the label Marketer’s last chance to say “buy it” to the consumer Labeling Products Label – that part of a product’s packaging that identifies the product’s name & contents & sometimes its benefits Labels Promote products by getting consumers attention (colour & graphics) Chapter 7 – Price Pricing Objectives & Tools Pricing – Deciding what the company will receive in exchange for its products Pricing Objectives – Goals that producers hope to attain in pricing products for sale Profit-Maximizing Objectives • If price is too low, company will sell too many products, miss chance to for additional profit, may lose money on each exchange • If price is too high, company will sell little products, large profit, resulting in excess inventory & need to reduce production operations Pricing for Ebusiness Objectives • Ebusinesses are lowering costs/prices because of the internet’s unique marketing capabilities • More direct link between producer & consumer, buyers avoid cost entailed by wholesalers & retailers Market Share Objectives Market Share – a company’s percentage of the total market sales for a specific product • Dominating a market means that consumers are more likely to buy it because they are familiar with a well-known, highly visible product Price-Setting Tools • Whatever a company’s objectives, managers must measure the potential impact before deciding on final prices; two basic tools – cost oriented pricing & break even analysis Cost Oriented Pricing • Considers firm’s desire to make a profit & takes into account the need to cover production costs • Markup is usually stated as a percentage of selling price • Ex. Mark up is $7 over costs would result in a $15 selling price MARKUP PERCENTAGE = MARKUP/SALES PRICE •In our case, the markup percentage is 46.7: MARKUP PERCENTAGE = $7/$15 = 46.7% (out of every dollar taken in, 46.7 cents will be gross profit for store) • Profit will be use to pay for: rent, utilities, insurance, and all other costs • Can be expressed as percentage of cost: $7 markup is 87.5 of the $8 cost of a CD ($7/8) Break-even Analysis: Cost-Volume-Profit Relationships Variable costs – those costs that chance with the number of goods or services produce/sold Fixed costs – those costs unaffected by the number of goods/services produced/sold Break-even analysis – an assessment of how many units must be sold at a give price before the company begins to make a profit Break-even point – the number of units that must be sold at a given price before the company covers all of its variable and fixed costs • BREAK-EVEN POINT (in units) = TOAL FIXED COSTS/PRICE-VARIABLE COST • Variable for each CD = $8, annual variable cost (keep store open for 1 year) = $100 000 BREAK-EVEN POINT = $100 000/$15-$8 = 14,286 CDs • Zero profitability at the breakeven point can also be seen by: PROFIT=TOTAL REVENUE–(TOTAL FIXED COSTS + TOTAL VARIABLE COST) = (14,286 CDs x $15) – ($100, 000 fixed costs + [14,286 CDs x $8 variable costs]) $0 = (214,290) – ($100,000+114,288) (rounded to the nearest whole CD) Pricing Strategies & Tactics Pricing strategy – pricing as a planning activity that affects the marketing mix Pricing tactics – ways in which managers implement a firm’s pricing strategies Pricing Existing Products • Companies pricing above the market play on the customers’ beliefs that higher price means higher quality • Pricing below prevailing market price can succeed if the firm can offer a product of acceptance quality while keeping costs below those of higher-priced options Price Leadership – the dominant firm in the industry establishes product prices & other companies follow suit (structural steel, gasoline, many processed foods) s Pricing new Products Price Skimming strategy – the decisions to price a new product as high as possible to earn the maximum profit on each unit sold • Only works if marketers can convince consumers that a product is truly different from those already on the market Penetration Pricing strategy – the decision to price a new product to very low to sell the most units possible & to build customer loyalty Pricing Tactics Price Lining – The practice of offering all items in certain categories at a limited number of predetermined price points (companies selling multiple items) • Ex. price points for men = $175,$250,$400; all suits priced at 1 of 3 levels Psychological Pricing – the practice of setting pries to take advantage of the nonlogical reactions of consumers to certain types of prices (customers are not completely rational when making buying decisions) Odd-Even Psychological pricing – a form of psychological pricing in which prices are not stated in even dollar amounts Discounting – Any price reduction offered by the seller to persuade customers to purchase a product Cash Discount – A form of discount in which customers paying cash, rather than buying on credit, pay lower prices Seasonal Discount – A form of discount in which lower prices are offered to customers making a purchase at a time when sales are traditionally slow Trade Discount – A discount given to firms involved in a product’s distribution Quantity Discount – A form of discount in which customers buying large amounts of a product pay lower prices Chapter 8 – Promotion Promoting Products & Services Promotion – is any technique designed to sell a product Promotional techniques, especially advertising, must communicate the uses, features, and benefits or products Information and Exchange values • In free-market system, a business uses promotional methods to communicate information about itself & its products to consumers & industrial buyers. • Influences consumers, promotions seek to accomplish 4 things • make them aware of products • make them knowledgeable about products • persuade them to like products • persuade them to purchase products Promotional Objectives • The ultimate objective of any promotion is to increase sales However they also use: Communicating Information • Consumers cannot buy a product unless they have been informed about it • Information (writing, verbally, visually) can advise customers about the availability of a product, educate them on the latest technological advances, or announce the candidacy of someone running for a government office • Average consumer may come into contact with 1,500 bits of promotional communication per day Positioning Products • Product Positioning – the establishment of an easily identifiable image of a product in the minds of consumers • With product positioning, the company is trying to appeal to a specific segment of the market rather than to the market as a whole Adding Value • Today’s value-conscious customers gain benefits when the promotional mix is shifted so that it communicates value-added benefits in its products Controlling Sales Volume • By increasing promotional activities in slow periods, firms can achieve more stable sales volume over the year • Promotions can even turn slow seasons into peak seasons Promotional Strategies Push Strategy – A promotional strategy in which a company aggressively pushes its product through wholesalers & retailers, which persuade customers to buy it Pull Strategy – A promotional strategy in which a company appeals directly to customers, who demand the product from retailers, which demand the product from wholesalers •Advertising “pulls” while personal selling “pushes” •Makers of industrial products most often use a push strategy, & makers of consumer products most often use a pull strategy (many large firms use combination of two) The Promotional Mix Definition: That portion of marketing concerned with choosing the best combination of advertising, personal selling, sales promotion, & publicity & public relations to sell a product The Target Audience: Promotion & the Buyer Decision Process 5 stages: • Buyers must first recognize the need to make a purchase. At this stage marketers must make sure that buyers are aware of their products. Advertising & Publicity, which can reach many people quickly are important (Problem [need] recognition = Advertising, publicity) • Buyers also want to learn more about available products. Advertising & Personal selling are important because both can be used to educate consumers (Information seeking = Advertising, personal selling) • Buyers compare competing products. Personal Selling can be vital. Sales representatives can demonstrate product quality & performance in comparison with competitors’ products (Evaluation of alternatives = Personal selling) • Buyers choose products & purchase them. Sales promotion is effective because it can give consumers incentive to buy. Personal selling can help by bringing products to convenient purchase locations (Purchase Decision = Sales Promotion, personal selling) • Buyers evaluate products after purchases. Advertising, or even personal selling is sometimes use to remind consumers that they made wise purchases (Post- Purchase Evaluation = Advertising, personal selling) Advertising Promotions Advertising – Promotional tool consisting of paid, non-personal communication used by an identified sponsor to inform an audience about a product • Consumers remember bran names more easily if the company has a catchy advertising slogan Advertising Strategies Informative Advertising – An advertising strategy, appropriate to the introduction stage of the product life cycle, in which a goal is to make potential customers aware that a product exists (introduction stage) Persuasive Advertising – An advertising strategy, appropriate to the growth stage of the product life cycle, in which the goal is to influence the customer to buy the firm’s product rather than the similar product of a competitor (growth stage) Comparative Advertising – An advertising strategy, appropriate to the maturity stage of the product life cycle, in which the goal is to influence customers to switch from a competitor’s similar product to the firm’s product by directly comparing two products (maturity stage) Reminder Advertising – An advertising strategy, appropriate to the latter part of the maturity stage of the product life cycle, in which the goal is to keep the product’s name in the minds of customers (latter part of maturity stage/decline stage) Advertising Media Advertising Medium – The specific communication device – television, radio, newspaper, direct mail, magazines, billboards – use to carry a firm’s advertising message to potential customers • Marketers must find out who their customers are, which media they pay attention to, what messages appeal to them, & how to get their attention Newspaper • Ads placed in newspaper has declined as advertisers have shifted their emphasis to the internet • This medium offers flexible, rapid coverage, since ads can change form day to day • However, thrown out after one day; usually do not allow advertisers to target their audience well Television • Allows advertisers to combine sight, sound & motion, thus appealing to almost all of the viewers senses • Information on viewer demographics for a particular program allows advertisers to promote to their target audience • Disadvantage: too many commercials cause viewer to confuse products • Most expensive medium; poor in educating about complex products Direct Mail Definition: Printed advertisements, such as flyers, mailed directly to consumers’ homes or place of business • Allows companies to select its audience & personalize its messages • Involves the largest advanced cost of any advertising technique, but it appears to have the highest cost effectiveness Radio • Ads are inexpensive, tremendous people listen everyday • Programmed locally, high degree of customer selectivity • People listen to radio, while doing other things = pay little attention to advertisements Magazines • High level of consumer selectivity • Magazines advertising allows for excellent reproduction of photographs & artwork that no only grab buyers’ attention, but they also may convince them of product’s value • Plenty of space for detailed product information Outdoor Advertising • Billboards, signs, ads of buses, taxis, subways = relatively inexpensive, faces little competition for customers attention & subject to high repeat exposure • Billboards now feature animation & changing images, & now cheaper because they can be digitally printed in colour in large quantities • Downside: limited information & sellers have little control over who sees ads Word of Mouth Definition: Opinions about the value of products passed among consumers in informal discussion • When consumers start talking about a new product/idea, the information can build momentum & spread life wildfire The Internet Ecommerce – Buying & selling processes that make use of electronic technology Internet Marketing – The promotional efforts of companies to sell their products & services to consumers over the Internet • Buyers Advantage: Convenience, privacy, selection, useful information, control • Sellers Advantage: Reach, Direct distribution, reduced expenses, relationship building, flexibility, & feedback by counting how many people see each ad & track the number of clicking through to their own website • Weaknesses: Profitability Problems (many internet marketers are unprofitable & failure rate is high), information overload, limited markets • People concerned that their credit card number might end up in wrong hands, & their privacy would be invaded if they purchased on the Internet • “Spyware” monitors websites they visit & observes shopping habits Personal Selling Definition: Promotional tool in which a salesperson communicates one-on-one with potential customers • Requires a level of trust between the buyer & seller • Expensive: Personal selling expenses include salespeople’s compensation & their overhead, usually travel, food, and lodging • Costs have prompted companies to turn to telemarketing: using telephone solicitations to conduct personal selling process (cut costs of personal sales visits to industrial customers, each of whom requires about 4 visits to complete a sale) Sales Force Management Definition: Setting goals at top levels of an organization setting practical objectives for salespeople; organizing a sales force to meet those objectives; implementing & evaluating the success of a sales plan Personal Selling Situation •Managers of both telemarketers & traditional salespeople must consider the ways in which personal sales activities are affected by the differences between consumer & industrial products: Retail Selling – is selling a consumer product for the buyer’s personal or household use Industrial Selling – selling products to other businesses, either for the purpose of manufacturing other products or for resale • In retail selling, the buyer usually comes to the seller, but in industrial selling, the salespeople comes to the buyers Personal Selling Tasks Sales jobs require sales people to perform 3 tasks to some degree: Order Processing – In personal sales, the receiving & follow-through on handling & delivering of an order by a salesperson Create Selling – In personal sales, the use of techniques designed to persuade a customer to buy a product when the benefits of the product are not readily apparent or the item is expensive Missionary Selling – In personal sales, the indirect promotion of a product by offering technical assistance and/ or promotion a company’s image (promote the company’s long- term image rather than to make a quick sale) The Personal Selling Process Steps in personal selling: 1. Prospecting & Qualifying Prospecting – In personal sales, the process of identifying potential customers Qualifying – In personal sales, the process of determining whether potential customers have the authority to buy & the ability to pay for a product 2. Approaching • Refers to the first few minutes that a salesperson has contact with a qualified prospect • Affects their credibility; Sales people need to present a neat, professional appearance & to greet prospects in a strong confident manner 3. Presenting & Demonstrating • Must present the promotional message to the prospect • A presentation is a full explanation of its product, its features, & its uses • Wise to demonstrate products whenever possible, since most people have trouble visualizing what they have been told 4. Handling Objections • No matter what product, prospects will have some objections • Objections show the salesperson that the buyer is interested in the presentation & which parts of the presentation the buyer is unsure of or has a problem with 5. Closing Definition: In personal sales, the process of asking the customer to buy the product • Indirect closes place the burden of rejecting the sale on the prospect, who will often find it hard to say no 6. Follow-up • Sales follow up activities include fast processing of the customer’s order & on-time delivery Sales Promotion Definition: Short-term promotional activities designed to stimulate consumer buying or co-operation fro distributors & other members of the trade • To be successful, sales promotions must be convenient & accessible when the decision to purchase occurs Types of Sales Promotion Coupons – A method of sales promotion featuring a certificate that entitles the bearer to stated savings off a product’s regular price (appear in newspapers, magazines & are often sent through direct mail) Point-of-Purchase (POP) display – A method of sales promotion in which a product display is located in a retail store as to encourage customers to buy the product (costs of shelf & display space, is becoming more & more expensive Premium (purchasing incentives) – A method of sales promotion in which some item is offered free or at a bargain price to customers in return for buying a specified product Trade Shows – A method of sales promotion in which members of a particular industry gather for displays & product demonstrates designed to sell products to customers Publicity & Public Relations Publicity – Information about a company that is made available to consumers by the news media; not controlled by the company, but it does not costs the company any money Public Relations – Public-service announcements by the company designed to enhance the company’s image Chapter 9 – Place The Distribution Mix Definition – The combination of distribution channels a firm selects to get a product to end-users Intermediaries & Distribution Channels Intermediary – Any individual or firm other than the producer who participates in a products contribution (wholesales or retailers) Wholesalers – Intermediaries who sell products to other businesses, which in turn resell them to the end-users (final consumers) Retailers – Intermediaries who sell products to end-users (directly to consumers) Distribution of Consumer Products Distribution Channel – The path a product follows from the producer to the end-user (all channels must begin with a producer & end with a consumer/an industrial user Direct Distribution of Consumer Products Direct Channel – A distribution channel in which the product travels from the producer to the consumer without passing through any intermediary (also prominent on the internet) Retail Distribution of Consumer Products • Producers distribute products through retailers (can offer internet sales) •Levis has own outlets but produces jeans for retailers such as gap Wholesale Distribution of Consumer Products • Wholesalers entered the distribution network to perform the storage function • Wholesalers store merchandise & restock it frequently Distribution Through Sales Agents & Brokers Sales agent (or broker) – An independent business person who represents a business & receives a commission in return, but never takes legal possession of the product • Agents generally deal in the related product line of a few producers & work on a long- term basis • The real estate industry relies on brokers to match buyers &sellers of property The Pros & Cons of Non-Direct Distribution • Each link in the distribution chain makes a profit by charging a markup or commission • Thus, non-direct distribution means higher prices • The more members in the channel, the more intermediaries, the higher the final price • Calculated as a percentage of cost, markups are applied each time a product is sold • E-intermediaries Wholesalers/agents who use internet channels, also charge markups • In general, markup levels depend on competitive conditions/practices in a particular industry Creating Added Value • Intermediaries provide added value by saving consumers both time & money • Intermediaries exist because they do necessary jobs in cost-efficient ways Distribution Strategies • A distribution net work can make the difference between the success & failure for a company because the choice of distribution strategy determines the amount of market exposure the product gets & the chose of that exposure • Goal is to make a product accessible in just enough locations to satisfy customers needs Three Strategies • Intensive Distribution – A distribution strategy in which a product is distributed in nearly every possible outlet, using many channels & channel members (normally used for low-cost consumer costs such as candy & magazines) • Exclusive Distribution – A distribution strategy in which a product’s distribution is limited to only one wholesaler or retailer in a give geographic area (agreements are most common on high-cost, prestige products) • Selective Distribution – A distribution strategy that falls between intensive & exclusive distribution, calling for the use of a limited number of outlets for a product (product lines that do not require intensive market exposure to increase sales) Wholesaling • In addition to storing products & providing an assortment of products for their customers, wholesalers offer delivery, credit, & information about products Merchant Wholesalers Definition: An independent wholesaler that buys and takes legal possession of goods before selling them to customers • Limited-function merchant wholesalers provide only a few services, sometimes merely storage – their customers are normally small operations that pay cash & pick up their own goods Agents & Brokers • Plus e-agents, serve as sales forces for various manufacturers • They serve as the sales & merchandising arms of manufacturers that do not have their own sales forces • Many supermarket products are handled through brokers Retailing • You nearly buy all goods & services you consume from retailers Types of Retailing Outlets • Can be classified in various ways: by pricing strategies, location, range of services, or ranges of product lines Product Line Retailers Department stores – Large retail store that offer a wide variety of high-quality items divided into specialized departments (generous return policy, credit plans) Supermarkets – Large retail stores that offer a variety of food & food-related items divided into specialized departments (low prices, self-service, wide selection) Specialty Stores – Small retail stores that carry one line of related products Bargain Retailers Bargain Retailers – Retail outlets that emphasize low prices as a means of attracting customers Discount houses – Bargain retail stores that offer major items such as televisions & large appliances at discount prices Catalogue Showroom – A bargain retail store in which customers place orders for items described in a catalogue & pick up those items from an on-premises warehouse Factory Outlets – Bargain retail stores that are owned by the manufacturers whose products they sell Warehouse Club (Wholesale club) – Huge, membership only, combined retail-wholesale operations that sell brand-name merchandise Convenience Stores – Retail stores that offer high accessibility, extended hours, & fast service on selected items Non-Store & Electronics Retailing • Some of nation’s largest retailers sell all or most of their products without bricks & mortar stores Non-store Retailing • Direct-Response Retailing – A type of retailing in which firms make direct contact with customers both to inform them about products & to receive sales orders • Direct Selling – Form of non-store retailing typified by door-to-door sales • Mail order (catalogue marketing) – A form of non-store retailing in which customers place orders for merchandise shown in catalogues & receive their orders via mail • Telemarketing – Use of telephone to sell directly to customers Electronic Retailing Electronic Retailing – Non-store retailing in which information about the seller’s products & services is provided over the internet, allowing consumers to receive the information & purchase the products in the home Internet-Based Stores • Use of Internet with customers: to inform, sell to, & distribute to them – is growing rapidly • Using the Internet to do comparison shopping is increasing rapidly Physical Distribution Definition: Those activities needed to move a product from the manufacturer to end consumer (Includes: Warehousing, Transportation operations, Distribution for cx) Warehousing Operations Warehousing – That part of distribution process concerned with storing goods Types of Warehouse: Public & Private Warehouses • Private Warehouses – A warehouse owned & used by just one company (mostly run by large firms that deal in mass quantities & need regular storage • Public Warehouse – An independently owned & operated warehouse that store the goods of many firms (popular with firms needing storage only during peak periods Storage Warehouses & Distribution Centres • Storage Warehouses – A warehouse used to provide storage of goods for extended periods of times (such as agricultural crops) • Distribution Centre – A warehouse used to provide storage of goods for only short periods before they are shipped to retail stores (common in grocery & food industry) Warehousing Costs • Typical Expense like: storage-space rental, mortgage payments, insurance & wages Inventory Control – The part of warehouse operations that keeps track of what is on hand & ensures adequate supplies of products in stock at all times (excessive supplies are avoided) Materials Handling – The transportation & arrangement of goods within a warehouse & orderly retrieval of goods from inventory Transportation Operations • Major transportation modes: rails, water, truck, air, & pipelines (can’t go far north) • Cost is a major factor when a company chooses a transportation method; Also, must consider the nature of its products, the distance the product must travel, timeliness, & customers’ needs & wants Transportation Modes Trucks • Flexibility, fast service, & dependability • Good choice for short-distance distribution & more expensive products • However, delayed by bad weather, & limited in volume they can carry in single load Planes • Air is the fastest available transportation mode, & may be only available transportation to Canada’s far north • Greatly reduced costs in packing, handling, unpacking, & final preparations necessary for sale to the consumer • Eliminating the need to store certain commodities can reduce inventory-carrying costs • Airfreight is the most expensive Railroads • Have been the backbone of our transportation system since late 1800s • Now used primarily to transport heavy, bulky items such as cars, steel, & coal Water Carriers • Transportation by water is least expensive; also slowest way to ship • Boats/Barges are mainly used for extremely heavy, bulky materials/products for which transport times are unimportant • Manufacturers are beginning to use water carriers more often because many ships are now specially constructed to load & store large standardized containers Pipelines • Slow in terms of overall delivery time • completely inflexible, but they do provide a constant flow of product & are unaffected by weather conditions • delivery system has transported liquids & gas, unimportant to most industries Changes in Transportation Operations New Developments in cost-efficiency & competitiveness, includes: • Intermodal Transportation – The combined use of different modes of transportation: has improved flexibility & reduced costs • Containerization – The use of standardized heavy-duty containers in which many items are sealed at the point of shipment & opened only at final destination (unloaded containers are then returned for future uses) • Order Fulfillment Through Ecommerce Channels – All activities involved in completing a sales transaction, beginning with making the sale & ending with on- time delivery to the customer • But the volume of a firm’s transactions can be huge & fulfillment performance, in terms of timing, content, & terms of payment has been disappointing for many ebusinesses Distribution as a Marketing Strategy • Distribution is an increasingly important way of competing for sales • This approach means assessing & improving the entire stream of activities – wholesaling, warehousing, & transportation – involved in getting products to cx The use of Hubs Hub – Central distribution outlet that controls all or most of a firm’s distribution activities • Two strategies emerged from this approach: Supply-Side & “Pre-Staging Hubs • Supply-side hubs are located at the same site where production activities take place; they make sense when large shipments flow regularly to a single industrial user, such as an automobile manufacturer • Pre-staging Hubs, which are located near factories • If the hub is successful, factory inventories are virtually eliminate, storage space requirements reduced, & long-haul trucks kept moving instead of queued up at the uploading dock Distribution-Side Hubs • May be located much further away, especially if customers re geographically dispersed Chapter 10
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