Marketing and Supply Chain Notes Unit 3

Marketing and Supply Chain Notes

Unit 3

Pricing concepts for establishing value 

Chapter 14

Marketing mix

• Product

• Price 

• Place

• Promotion

Defining Price 

• The overall sacrifice a consumer will be willing to make to acquire a specific product or service.

How do we establish the price?

The five Cs of Pricing

• Competition

• Costs

• Company objectives

• Customers

• Channel members 

Company objectives

If the company is profit-oriented, they need to consider the value to the customer and make choices from these three objectives. 

• Maximizing profits

• Target profit pricing 

• Target Return Pricing 

Target profit pricing

• Firms usually implement when they have a particular profit goal as their overriding concern

• Use price to stimulate a certain level of sales at a certain profit per unit

Firms that want to attain market leadership set prices at less profitable levels to gain market share!

Sales orientation 

• Focus on increasing sales

• More concerned with overall market share

• Does not always imply setting low prices (premium pricing)

Sales orientation 

• Many adopt to establish a position in the market by getting the most price-sensitive consumers to change brands

Premium pricing 

• The firm prices a product about the prices set for completing products to capture those customers who always shop for the best or for whom price does not matter

How to sell the higher-priced wine

• Introduce a third, higher-priced wine.

Competitor orientation 

• Companies feel they should measure themselves primarily against their competition.

• Competitive parity: setting prices similar to those of major competitors 

• Status quo pricing: changes prices to meet those of the competition

• Value is not part of this pricing strategy 

Customer orientation 

• Customer orientation: pricing is set based on how it can add value to its products or services

• Focus on customer expectations by matching prices to customer expectations

Consumers have an expectation of a rental car costing a lot of money. They don’t realize they can rent a car for under $10 an hour.  Because Zipcar is a new product, they need to set customers' expectations. To help consumers relate to the price, they compare it to a purchase very familiar to the consumer. 

If you are going to talk about price, you need to consider the demand for your product. 

Demand Curve

Why the demand curve important?

Knowing the relationship

• Knowing the demand curve enables you to see relationship between price and demand 

Prestige products

• Prestige products are those that consumers purchase for status rather than functionality 

Prestige products - demand curve

• Not all are downward sloping 

• Prestigious products or services have upward loping curves 

How does the price elasticity of demand play into the formula?

Price elasticity of demand: measures how changes in a price affect the quantity of product demand. 

• Elastic (price sensitive)

• Inelastic (price insensitive)

• Consumers are less sensitive to price increases for necessities 

Elasticy of demand 

• Price elasticity of demand: % changes in quantity demanded % change in price 

Factors that influence elasticity of demand 

• Income: change due to change in consumer’s income

• Substitution: the ability to substitute other products for the focal brand

• Cross-price: is the percentage change in the quantity of  Product A demanded compared with the percentage change in pice in Product B

Income effect 

Substitution Effect

• Pete, college student on a budget 

  • Old spice deodorant user

  • At the store he notices that old spice is more expensive 

  • Decides to give another brand a chance and save money 

Cross-Price Elasticity Effect

• Kendra, self-supporting college student 

  • Buys a new printer on sale for a great price

  • She learns it requires special ink cartridges that cost more than the printer.

Three cost concepts 

• Variable costs

  • Vary with production volume 

• Fixed costs

  • Unaffected by production volume 

• Total cost

  • Sum of variable and fixed costs 

How do we break even?

Break even point:

• The point at which the number of units sold generates just enough revenue to equal the total costs; at this point, profits are zero.

Break even analysis 

The fourth C is competition 

Forms of competition 

• Monopoly 

  • One firm controls the market

• Oligopoly 

  • A handful of firms control the market 

• Monopolistic comp.

  • Many firms selling differentiated products at different prices 

• Pure competition 

  • Many firms selling commodities where price is set by 

Channel members pricing 

• Manufacturers, wholesalers, and retailers can have different perpecives on pricing strategies 

• Manufacturing must protect against grey market transactions (selling goods around the system)

Everyday low pricing vs. high/low pricing

• Create value in different ways

• EDLP saves search costs of finding lowest overall prices

• High/low provides the thrill of the chage for the lowest price 

New product pricing strategies 

• Market penetration 

  • Set the initial price low to help enter the market 

• Price skimming 

  • Customers are willing to pay a higher price to be the first to have the product 

Legal aspects and ethics of pricing 

• Deceptive or illegal price advertising 

• Predatory pricing

• Price discrimination 

• Price fixing 

Deceptive or illegal price advertising 

• Deceptive reference price 

• Loss leader pricing 

• Bait and switch 

Predatory pricing 

• Price set low with the intent to drive competitors out of business

  • Illegal 

  • Difficult to prove

Price discrimination 

• Not always illegal 

• Different rules in the B2B and B2C markets 

• Federal law does not apply to sales ot end consumers 

Price Fixing

• Horizontal price fixing 

• Vertical price fixing 

Chapter 17

Retailing and Omnichannel Marketing

Can you ever see yourself becoming an online shopper only?

Amazon’s impact on retail

• Key benefits:

  • Incredibly convenient shopping experience for customers, with a wide variety of products available at the click of a button

  • Introduction of new tools and channels, such as Amazon Prime and Alexa, enhancing customer engagement and convenience 

  • Gaining steam as a brick-and-mortar retailer, with physical stores like Amazon Go and Whole Foods expanding its customer base.

• Challenges

  • Intense competition with other e-commerce giants, leading to price wars and reduced profit margins

  • Concerns over data privacy and security with the increased use of digital shopping tools and platforms

  • Impact on small local businesses due to the dominance of Amazon in both online and physical retail sectors. 

What is retailing?

Retailing adds value to products and services for personal or family 

• Retailing encompasses a wide array of business activities that enhance the value of products and services. These activities are crucial as they directly cater to the needs and desires of consumers by providing them with a variety of choices for personal or family consumption. Retailers play a pivotal role in the distribution chain, bridging the gap between manufacturers and consumers. 

Retailing is how we reach end-consumers

• It is the end of the supply chain, and they sell directly to consumers

Supply Chain Managment Basics (reminder)

• Manufactures

  • Distributors

    • Wholesalers

      • Retailers 

        • Consumers

Factors for establishing a relationship with retailers

1. Choosing retailing partners

2. Identifying types of retailers

3. Developing a retail strategy 

4. Managing an omnichannel strategy 

Consumers are asking for other benefits that challenge traditional retail channel structures 

Traditional fashion shows, six months later, have clothes on the shelves to buy.

Burberry is offering to see fashion shows online and buy now with two weeks' delivery. 

Is it difficult for a manufacturer to locate retailers for their products?

The level of difficulty a manufacturer experiences in getting retailers to purchase its product 

Determined by:

• The degree to which the channel is vertically integrated

• The degree to which the manufacturer has a strong brand 

• The relative power of the manufacturer and retailer

Strong brand 

• Cocacola

• Google 

• Macdonalds

• Amazon 

• Apple

• Fedex

• Starbucks

• Channel

• Nike

• Warner brothers 

In the past, manufacturers controlled supply chains. Now, large, strong retailers such as Amazon do. 

So, where are we going to sell our products, and where are our competitors going to sell theirs?

Manufacturers need to know where their target market customers expect to find their products and those of their competitors 

Customer expectations 

Large firms 

• Less likely to use supply chain intermediaries 

• Can gain more control, be more efficient, and save money 

Marketing Channels 

Product characteristics 

• Can drive supply chain structures and create levels of intensity of distributions 

Distribution intensity 

• Intensive

• Exclusive

• Selective 

Levels of distribution intensity 

• Insensitive: 

  • achieve mass market selling

  • Convenience goods

  • Number of intermediaries: Many

• Selective:

  • Work with selected intermediaries

  • Shopping and some specialty goods

  • Number of intermediaries: several 

• Exclusive:

  • Work with a single intermediary 

  • Speicalty goods and industrial equipment 

  • Number of intermediaries: one 

Type of retailers 

• Food

  • Supermarket

  • Supercenter

  • Convenience 

  • Warehouse club

• General merchandise 

  • Full-line discount

  • Specialty 

  • Category specialist 

  • Department 

  • Drug

  • Off-price

  • Extreme value

• Service

  • Auto rental 

  • Health spa

  • Vision center

  • Bank

Food retailers 

• Supermarket 

  • Limited nonfood

  • Differentiates different types of foods

• Supercneter

  • Includes discount store

  • Walmart, meijer, k-mart, target

• Warehouse club

  • Limited assortment 

  • Little service includes: costco, sams, BJ’s

• Convenience store

  • Limited variety 

  • Good location 

• Online grocery relatiers 

  • Convenience 

  • Amazon, walmart, e-commerce fullfilment companies (instacart/doordash)

General merchandise retailers

• Department stores

  • Broad cariety and deep assortment 

• Full-line discount

  • Broad variety at low prices

• Specialty 

  • Limite dmerhcnadies with service in small store

• Drug stores

  • Spaicaly for pharmecutidal health 

• Category specialist

  • Big-box or catergoy killers with narrow but deep assortment 

• Off-price

  • Inconsistent assortment of brand-name merchandise at low prices

Serive retailers 

• Firms that primarily sell services rather than merchandise are a large and growing part of the retail industry 

Several trends suggest considerable future growth in services retailing 

• Aging population - healthcare services

• Younger people are spending more time and money on health and fitness

• Busy homeowners - spend more money to have their homes cleaned, lawns mowed and even meals prepared

Using the marketing mix

• We add presentation and personnel when discussing retail 

• Product: 

• Providing the right mix of merchandise and service that satisfies the needs of the target market 

• Price:

• Price defines the value of both the merchandise and the service provided 

• Promotion:

• Retailers use a wide variety of promotions both within their retail environment and through mass media 

• Place:

• Convenience is a key ingredient to success

• Presentation:

• Retailers invest a lot of time and money in ensuring that merchandise is appropriately presented in their stores and online (atmospherics)

• Personnel:

• Well-trained sales personnel can influence the sale at the point of purchase by educating consumers about product attributes, pointing out the advantages of one time over the other, and encouraging multiple purchases, whether in the store, on the phone, or on the internet. 

Benefits of the internet and omnichannel retailing 

• Deeper and broader selection 

• Personalization

• Expanded market presence

Consumers desire a seamless experience when interacting with omnichannel retailers 

• Integrated CRM (Customer Relationship Management)

• Brand image

• Pricing

• Supply chain 

Chapter 10

Marketing Research and Analytics

How does Netflix conduct its market research?

Netflix Market Research

• Sidinct profiles

• When users watch particular content (day of the week, season, time of day, etc)

• Whether they started watching after a season on the sire, and how long the search lasted?

• Which devices (smart TV, phone, computer, etc) consumers preferred to use to watch which shows 

• When they paused, stopped or rewatched

• Where they were when watching (home, airport, work, etc)

• Etc

Marketing Research

• Consists of a set of techniques and principles for systematically collecting, recording, analyzing, and interpreting data that can aid decision makers involved in marketing goods, services or ideas

Why marketing research?

• Marketing research can provide valuable information that will help to make segmentation, targeting, positioning, product, place, price and promotion decisions

Questions to consider before starting research?

• Will the research be useful?

• Is top management committed to the project and willing to accept the results of the research?

• Should the project be large or small?

Five Steps for the Marketing Research Process

1. Defining the objectives and research needs

2. Designing the research

3. Collecting the data

4. Analyzing the data and developing insights

5. Developing and implementing an action plan

Market Research is the secret ingredient for business success

Step 1: Definging the objectives and research needs

• What information is needed to answer specific research questions?

• How should that information be obtained?

Step 2: Designing the research

• Let's take McDonalds

  • Do people always tell the whole truth in surveys?

  • Should we observe customers in the store interacting with employees and consuming the product?

Step 3: collecting the data

• Secondary data: 

  • Collected prior to the start of the research project

  • External as well as internal data sources

• Primary data:

  • Collected to address specific research needs

  • Focus groups, in-depth interviews, surveys

• What to avoid when designing a questionnaire 

• Focus groups

• Big data

  • Increase in amount of data

  • Ease of collecting and storing data

  • Computing ability to manipulate data

  • Access to software to convert data into decision-making insights

  • Data mining uses a variety of statistical analysis tools to uncover previously unknown patterns in the data or relationships among variables

• The five V’s of Data

  • Volume: amount of data

  • Variety: diversity of data

  • Velocity: speed of data regeneration

  • Veracity: accuracy of data

  • Value: worth of data

• Social media 

  • Valuable source of data

  • Virtual communities

  • Sentiment mining 

• Advantages and disadvantages of secondary and primary data 

  • Secondary research 

    • Examples: census data, sales invoices, internet information, books, journal articles, syndicated data

    • Advantages 

      • Saves time 

      • Free or inexpensive

    • Disadavatnages 

      • May not be relevant

      • May not be timely 

      • Sources may not be original and therefore usefulness is an issue

      • Methodologies for collecting data may not be appropriate 

      • Data sources may be biased 

  • Primary research 

    • Examples: observed consumer behavior, focus groups, surveys, experiments

    • Advantages:

      • Specific 

      • Offers behavioral insights

    • Disadvantages 

      • Costly 

      • Time consuming 

      • Requires more sophisticated training and experience to design studies and collect data

Step 4: Analyzing the data and developing insights 

• Converting data into information to explain, predict, and/or evaluate a particular situation

Step 5: Developing and implementing an Action Plan

1. Executive summary

2. Body - findings and methodology

3. Conclusions

4. Limitations

5. Supplements including tables, figures, and appendices 

The ethics of using customer information

• Sting ethical orientation

• Adhere to ethical practices 

Supply chain management 

Chapter 4: Sales forecasting and inventory management 

What is sales forecasting?

• Sales forecasting is the process of gathering and analyzing information to estimate future sales

• A sales forecast is an effort to estimate future sales to customers 

• It is a key input to supply chain management because it is the first step in planning supply chain operations

• Supply chain managers are key participants and users of sales forecasts 

• This is because supply chain managers are tasked with developing plans to ensure that enough assets are allocated to match sales

• Some of these assets include:

  • Labor

  • Trucks

  • Warehouse space

  • Production capacity 

Reasons to forecast sales

• Forecasts determine the level of production needed to support sales

  • Too much production leads to excess inventory

  • Too little production leads to stockouts and lost sales

  • Both outcomes lead to higher costs

•  Sharing a sales forecast data is beneficial, as one firm in the supply chain is dependent on the sales forecast provided by another firm in the supply chain 

Two basic forecasting methods

• Qualitative

  • Are based on a judgment of one or more knowledgeable forecasters

  • They are generally used when historical sales data are scarce or judged useless

• Quantitative

  • Based on projections of historical sales data

  • They are best used whenever past sales are expected to be a good indicator of future sales

Qualitative forecasting methods: consensus panel

• Formed by a group of experts who jointly decide on a sales forecast

• Experts communicate with each other in the search for a consensus 

• One potential problem with this method is that the consensus may drift towards the experts with the strongest personalities, who are not necessarily the ones with the best estimate.

• Alternatively, the experts may arrive at the estimate by averaging individual estimates

Qualitative forecasting methods: Delphi Method

• A variation of the consensus panel where experts work independently and anonymously to arrive at a consensus 

• This avoids the consensus being is biased towards the experts with stronger personalities

• A facilitator prepares a questionnaire and sends it to the experts

  • Each expert then answers the questions without consulting the other experts

  • After receiving all questionnaires, the facilitator prepares a summary report and sends it to the experts

  • After reading the summary report, experts have an opportunity to revise their answers

  • The revied answers typically begin to converge because all experts read the same summary report

  • This process is repeated until anserts no longer converge, usually after a consensus is reached

• This method works in a wide range of topics

Qualitative forecasting methods: sales force estimate

• Sales force estimates draw forecasts from the expert judgement of salespersons

Quantitative forecasting methods: moving average

• A moving average (MA) is a simple and use to use forecasting method

• It ises the average sales of a pre-specified number of past periods as a forecast of the next period in the future

• For example, if a firm wants to predict october sales using a MA of the past three months, then it needs actual sales data for July, August and September

• A key decision to make when forecasting with the MA method is to select hte number of periods to use in the moving average 

• The larger number if periods, the less the moving average reflects recent changes in sales

• The optimum number of periods to select is the one that produces the smallest forecast error

• The moving average method has an important shortcoming 

  • Without modification, it does not consider either trend of seasonality in the data

  • Trend means that the average actual sales may be increasing or decreasing over time 

  • Seasonality reflects predictable variation in demand due to an external factor 

Quantitative forecasting methods: Exponential Smoothing 

• Very popular 

  • Easy to use and requires little data

  • Through the use of a smoothing parameter, the ES method enables the forecaster to consider a longer sales history than the MA method, which is limited to the number of moving periods included in the compution of the moving average 

• On the other hand, the ES method is not recommended for long-term foresasts 

  • It is best used to forecast one to three periods in the future

  • In addition, forecast eros may be large if the variability in the sales history is significant 

Quantitative forecasting methods: Exponential Smoothing WITH TREND CORRECTION

• Also known as second-order exponential smoothing

• When sales trend up or down, the forecast needs to be correspondingly adjusted up or down

• This is done by adding or subtracting a quality known as trend value

• ONCE A TREND VALUE IS COMPUTED IT IS ADDED OR SUBTRACTED FROM THE NEXT PERIODS INITIAL FORECAST

Quantitative forecasting methods: Exponential Smoothing WITH SEASONALITY INDEX

• Sales data may also exhibit seasonaltiy 

• When adjusted with a seasonality index sales figures from different seasons become comparable

  • If sales in a high season are typically 20% higher than average the seasonality index is 1.2

  • Diviidng the high season sales figure by 1.2 provides a seasonally adjusted figure to compare to other months' sales

Integrating Qualitative and Quantitative Forecasts: S&OP

• Sales and operation planning is an integrative process that encourages firm to integrate multiple functions in the organization to share information in order to develop more accurate forecasts in toder to align resources to a single demand plan 

• S&OP focuses on three primary components

  • People 

  • Process

  • Technology 

• S&OP allows firms to share forecasts and plans in a collaborative environment, which are then shared with suppliers and customers

• Follows 5 critical steps that firms can follow that utilizes both qualitative and quantitative data in order to develop a consensus plan for the firm to follow

Integrating Qualitative and Quantitative Forecasts: CPFR

• Collaborative planning, forecasting and replenishment 

• Cohesive bundle or business processes whereby supply chain trading partners ahsare information, syncronized forecasts, risk, costs and benefits with the intent of improving supply chain performances through joint planning and decision makin g

• Was pilot project between walmart, warner lambert, SAP, man

Measuring forecasting error

• Every forecast contains a level of error

  • Still, firms are better off with a forecast than without it

  • With the forecast, firms can quantify an expectation of future sales and then use that information to plan supply chain operations

• There are three main purposes for measuring forecast error

  • To assess the level of confidence managers should have in a particular forcast

    • The smaller the error, the greater the confidence in the forecast

  • Second, measuring the forecast error is key to improve forecasts

  • Third, when forecasting sales for a large number of items, the forecast error works as a flag directing management to focus on the item with the largest forecast errors 

• Forecast errors are also impacted by two factors worth mentioning

  • Time horizon 

    • The farther the future is the period being forecasted, the larger the error that should be expected 

  • LEVEL OF AGGREGATION

    • The more detailed the harder it is to forecast accuracy 

    • Forecast error is relatively larger when forecasting at greater level of detail

    • Three different measures of forecast error

      • Mean Absolute Deviation (MAD)

      • Mean Absolute Percent Error (MAPE)

      • Mean Square Error (MSE)

Mean Absolute Deveation (MAD)

• SIMPLY a measure of the absolute average error for all time periods considered 

• Means are computed using the absolute values of the errors

• Signifies that the value of each error is considered without its sign, which may be positive or negative

• This is to avoid a problem whereby the errors of opposing signs cancel each other 

Mean Absolute Percent Error (MAPE)

• A percentage 

• Comparable across multiple products

• The accuracy of the forecast for one product may be compared to the accuracy of the forecast for other products

Mean Square Error (MSE)

• MAD and MAPE treat all errors equalluy 

• MSE has a measure that treats many small errors more favorably than a few large ones

• Larger errors are more difficult to deal with when planning supply chain operations

• The MSE attributes more weight to larger errors by squaring the error for each period