Harvard Business Review on Supply Chain Management (Harvard Business Review Paperback Series)Supply chain management is becoming a vital part of an organization’s strategic plan. Many factors are responsible for supply chain management’s increased importance. These include the desire to quickly adapt to changes in customers’ demands, globalization of the market place creating longer supply chains, shorter product life cycles, and new technologies. Additionally, organizations are looking to create long-term partnerships with fewer suppliers to improve supply chain performance.

1. Supply chain management is a relatively new concept in business. The evolution from materials management or purchasing reflects its new strategic role.
2. Companies have changed from isolating their technical core with raw materials and finished goods inventory to working more closely with suppliers and customers. This has allowed organizations to react more quickly to changing customers’ demands.
3. Several factors have impacted the supply chain including reduced number of suppliers, increased competition, shorter product life cycles, technology, quick response programs, and shared or reduced risk.
4. A successful supply chain requires trust, long-term relationships, information sharing, individual strengths of organizations, and choosing the right type of supply chain.
5. Supplier managed inventories, and consignment inventories are becoming more common.
6. ERP systems are a new generation of software that is providing a single, uniform software platform and database to facilitate transactions among the functional areas within a firm, and between firms and their customers and vendors.
7. ERP systems are an outgrowth of MRP. 
8. ERP systems reduce the number of errors through the use of a common database, speed customer response times, speed order fulfillment times, and improve overall communication within the organization.
9. Reasons for ERP failure include lack of top management commitment, lack of adequate resources, lack of proper training, and lack of communication.

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Three Paths to Market Leadership

Market leaders succeed because:
The Discipline of Market Leaders: Choose Your Customers, Narrow Your Focus, Dominate Your Marketa)      they redefine value for their customers
b)      the build business systems that can deliver more of that value to their customers
c)      By doing so, they raise customers’ expectations beyond competitors reach
While consumers expectations of value has expanded from price and quality to include convenience of purchase, after sale service, etc., the focus of market-leading companies has narrowed to three value disciplines:
1.      Operational Excellence
2.      Customer Intimacy
3.      Product Leadership
The New Market Leaders: Who's Winning and How in the Battle for CustomersMoreover, market leading companies do not excel at all three disciplines.  They excel in one of the three, and meet industry standards in the other two (some, like USAA, Staples, and Toyota, have mastered two of the three).
I.                   Operational Excellence.
Operational Excellence describes a specific approach to the production and delivery of products and services, focused on price and convenience.
These companies:
·          minimize costs
·          optimize business processes
Examples are Dell Computers, Wal-Mart, American Airlines, FedEx.
Also, GE’s White Goods (home appliances) division is a good example of a company that reinvented itself as a market leader in operational excellence.
Historically the home appliance industry’s model is “a loaded dealer is a loyal dealer”, and incentivized dealer purchases through volume discounts so that dealers carried large inventories.
GE, recognizing that discount electronics chains (Circuit City) were squeezing independent dealers, adopted a new model, called Direct Connect, in which retailers no longer maintain their own inventories, but rely on GE’s “virtual inventory.”  Dealers place orders with GE as they make sales to their customers, and GE makes deliveries within 24 hours. Dealers promise to make GE products 50% of their sales, and agree to a shorter payment period.
Result have been excellent for both dealers and GE.  Most important, GE gained access to high quality information about consumers buying habits, since its orders from dealers represent actual customer orders, not inventory stock.
II.                Customer Intimacy
Customer Intimacy specialists continually tailor products to fit an increasingly fine definition of the customer.  Their operating models allow them to address each customer or small subsegment of their market individually.  They look at the customer’s lifetime value, rather than as a single transaction.
Examples are Nordstrom, IBM, Home Depot, Ceiba-Geigy, Kraft.
Market Leader Intermediate
·          Home Depot’s strategy is to provide not just building materials, but information.
·          A leading financial brokerage firm installed a telephone system that recognizes callers by their phone numbers, calls up their customer histories, and routes them to the appropriate person, sending large accounts to senior account reps, small account to trainees and junior reps, and specialized accounts to specialists.
·          Kraft tailors its ads, merchandise, and operations within a single store or subset of stores to the particular customer of that store (micro-merchandising). It has a large database of customer activity and preferences, and allows its salesforce to tailor its presentations to merchants based on highly individualized data.
III.             Product Leadership
Companies that pursue product leadership strive to produce state of the art products and services.  They are creative, they commercialize their ideas quickly, and they “relentlessly pursue solutions to the problems that their latest product or service has just solved”, so as to render obsolete their own technology.  They avoid bureaucracy, always seek new ways to shorten their cycle times, spend little time on detailed analysis.  Their strength lies in reacting to situations as they occur.
·          J & J’s Acuvue (first disposable contact lens)
Market Leader Advanced Coursebook (Market Leader)·          Nike
IV.             Sustaining the Lead
The greater challenge, after developing a market discipline, is to sustain the lead by driving the strategy through the internal culture,  and develop internal  consistency.  The danger is to lose focus by pursuing projects that have individual merit, but which are inconsistent with the companies value discipline.
·          Sears: introduced “everyday low prices” and cut costs, trying to be operationally excellent, inaugurated “Brand Central”, in line with the customer intimacy discipline, and had models and actresses endorse the fashion line, trying to follow the product leadership tack.  As a result of trying to do all three, rather than focusing on a single discipline, the company failed at all three.

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Product Development and Marketing

A.Innovation and Product Development

Product Innovation And Development Techniques - Learn How To Quickly Produce Highly Profitable New Products!A firm in monopolistic competition will continuously develop new products so that it can continue to earn an economic profit. If the firm does not innovate, new firms will enter the market and capture the existing firm’s economic profit.

  • Cost Versus Benefit of Product Innovation

To decide the degree to which it will innovate, a firm compares the marginal cost of innovation to the marginal benefit of innovation.

  • Efficiency and Product Innovation

On one hand, product innovation brings to market many improved products that have great benefits to consumers. On the other hand, many so-called improvements amount to little more than packaging changes.

B. Advertising

A firm uses advertising and packaging to convince consumers that its product differs from and is better than other products. These differences can be real or perceived.

  •  Advertising Expenditures

The cost of selling a good can represent a large portion of the price that consumers pay for a product.

  • Selling Costs and Total Costs

Selling costs, such as advertising expenditures are fixed costs and increase total costs. These expenditures shift the average total cost curve upward. If advertising expenditures increase sales enough, the average total cost of the amount produced might decrease.

  • Selling Costs and Demand

Advertising might increase demand for a firm’s product (by taking away other firms’ customers) or might decrease demand (as new firms enter the market trying to earn an economic profit).

C. Using Advertising to Signal Quality

A signal is an action taken by an informed person (or firm) to send a message to uninformed people. A firm uses advertising to signal consumers that its product differs from and is better than other products.
What's in a Name?: Advertising and the Concept of Brands 
D. Brand Names

Brand names provide information to consumers about the quality of a product and provide an incentive to producers to keep the quality high and consistent.

E. Efficiency of Advertising and Brand Names

Whether advertising and brand names lead to efficiency is ambiguous. We must compare the benefits of the information provided by these means with the opportunity cost of the additional information.

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Corporate orientation towards marketplace

Marketing is a social and managerial process by which individuals and groups obtain what they need and want through creating. offering and exchanging products of value with others.

Marketing has its origins in the fact that humans are creatures of needs and wants. Need and wants create a state of discomfort, which is resolved through acquiring products that satisfy these needs and wants. Since many products can satisfy a given need, and satisfaction. These products are obtainable in several ways: Self – production, coercion, begging and exchange. Most modern societies work on the principle of exchange, which means that people specialize in producing particular products and trade them for the other things they need. The engage in transaction and relationship building. A market is a group of people who share similar needs. Marketing encompasses those activities involved in working with markets, that is, in trying to actualize potential exchanges.

Marketing management is the conscious effort to achieve desired exchange outcome with target markets. The marketer’s basis skill lies in influencing the level, timing and composition of demand for a product service, organization, place, person or idea.

Marketing is so basic that it cannot be considered a separate function. It is the whole business seen from the point of view of its final result, that is, from the customer’s point of view. The marketing concept rests on four main pillars, namely a market focus, customer orientation, coordinated marketing and profitability.

Market Focus: No Company can operate in every market and satisfy every need. Nor can it even do a good job within one broad market. Companies do best when they define their target markets carefully. The do best when they prepare a tailored marketing programme for each target market.

Customer Orientation: a company can define its market carefully but still needs customer orientated thinking i.e. satisfy customer needs from the customer point of view, and not from its own point of view. Company’s sales come from two groups: new customer’s and repeat customers. It always costs more t attract new customers than to certain current customers. Therefore, customer retention is customer satisfaction. A satisfied customer:

  • Buys again

  • Talks favourably to other about the company

  • Pays less attention to competing brands

  • Buys other products from the same company

Thus a Company would be wise to regularly measure customer satisfaction. The delighted customers are more effective advertisers than the advertisement placed in media.

Coordinated Marketing: Marketing requires the company to carry out internal marketing as well as external marketing. Internal marketing is the task of successfully hiring trained and motivating able employees to serve the customers well. Internal marketing must precede the external marketing. It makes no sense to promise excellent service before the company’s staff is ready to provide excellent service.

Coordinated marketing means two things, first the various marketing functions – sales force, advertising product management, marketing research, and so on must be coordinated among themselves. Second, marketing must be well coordinated with the other company department. Marketing does not work when it is merely a department. It only works when all employees appreciate the effect they have on customer satisfaction.

Profitability: The purpose of the marketing concept is to help organizations achieve their goals. In case of private firms, the major goal is profit, in the case of non-profit and public organizations; it is surviving and attracting enough funds to perform their work. The key is not to aim for profits as such but to achieve them as a buy product of doing the job well. A company makes money by satisfying customer’s needs better than a profitable way to satisfy some target group’s wants for personal satisfaction.

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What is Marketing? Different Philosophies

Marketing is a societal process by which individuals and groups obtain what they need and want through creating, offering and freely exchanging products and services of value with others.

According to the American Marketing Association, “Marketing is the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchanges that satisfy individual and organizational goods”

There are six competing philosophies under which organizations conduct marketing activities “the production concept, product concept, selling concept, marketing concept, customer concept; and societal concept.

1) The Production Concept: The production concept is one of the oldest concepts in business. The production concept holds that consumers will prefer products that are widely available and inexpensive. Managers of production-oriented businesses concentrate on achieving high production efficiency, low costs and mass distribution.

They assume that consumers are primarily interested in products availability and low prices. This philosophy makes sense in developing countries, where consumers are more interested in obtaining the product than its features. It is also used when a company wants to expand the market.

2. The product Concept – Product concept holds that consumer will favour these products that offer the most quality, performance and innovative features. Managers in these organizations focus on making superior products and improving them over time. They assume that buyers admire well-made products and can evaluate quality and performance product oriented companies often trust that their engineers can design exceptional products. They get little or no customer input, and very often they will not even examine competitor’s products.

3. The Selling Concept: The selling concept holds that consumers and businesses, if left alone, will ordinarily not buy enough of the organization’s products. The organization most, therefore, undertakes an aggressive selling and promotion effort. This concept assumes that consumers typically show buying inertia or resistance and must be coaxed into buying. It also assumes that the company has a whole battery of effective selling and promotion tools to stimulate more buying. The selling concept is epitomized by the thinking that “The purpose of marketing is to sell more stuff to more people for more money in order to make more profit

Most firms practice the selling concept when they have over capacity. Their aim is to sell what they make rather then make what market wants.

4. The Marketing Concept: The marketing concepts hold that the key to achieving its organizational goals consists of the company being more effective then competitors in creating, delivering and communicating superior customer value to its chosen target markets.

The marketing concept rests on four pillars: target market, customer needs, integrated marketing and profitability. There is a contrast between selling and marketing concepts:

Selling focuses on the needs of the seller; marketing on the needs of the buyer”.

Selling is preoccupied with the seller’s need to convert his product into cash; marketing with the ideas of satisfying the needs of the customers by means of the product and the whole cluster of things associated with creating, delivering and finally consuming it.

5. The customer Concept: Under customer concept, companies shape separate offers, services and messages to individual customers. These companies collect information on each customer’s past transactions, demographics, psychographics and media and distribution preferences. They hope to achieve profitable growth through capturing a larger share of each customer’s expenditures by building high customer loyalty and focusing on customer lifetime value.

The ability of a company to deal with customers are at a time become practical as a result of advances in factory customization, computers, the internet and database marketing software.

6. The Societal Marketing Concept: The societal marketing concept holds that the organization’s goal is to determine the needs, wants and interests of target markets and to deliver the desired satisfactions more effectively and efficiently than competitors in a way that preserves or enhances the consumer’s and the society’s well being.

The societal marketing concept calls upon marketers to build social and ethical considerations into their marketing practices. They must balance and juggle the often-conflicting criteria of company profits, consumer want satisfaction and public interest.

Companies see cause-related marketing as an opportunity to enhance their corporate reputation, raise brand awareness, increase customer loyalty, build sales and increase press coverage. They believe that consumers will increasingly look for signs of good corporate citizenship that go beyond supplying rational and emotional benefits.

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Scope of Market Research

Market research is the systematic design, collection, analysis and reporting of data and findings relevant to a specific marketing situation facing the company.

Market researchers have expanded their activities and techniques. The ten most common activities of market research are –

  1. Determination of marketing characteristics

  2. Measurement of market potentials

  3. Market share analysis

  4. Sales analysis

  5. Studies of business trends

  6. Short range forecasting

  7. Competitive product studies

  8. Long range forecasting

  9. Pricing studies, and

  10. Testing of existing products

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  1. Scientific Method: Effective marketing research was the principles of scientific method: careful observation, formulation of hypothesis, prediction and testing.

  1. Research Creativity: At its best, marketing research develops in various ways to solve a problem.

  1. Multiple Methods: Competent marketing researches shy away from over reliance on any one method, preferring to adopt the method to the problem rather than the other way around. They also recognize the desirability of gathering information from multiple to give greater confidence.

  1. Independence of models and Data: Competent marketing researches recognize that the facts derive their meaning from models of the problem. These models guide the type of information sought and therefore should be made as explicit as possible.

  1. Value and cost of information: Competent marketing researches show concern for measuring the value of information against its cost. Value / cost helps the marketing research department which research project to conduct, which research to use etc.

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Marketing Research Process

Marketing research is undertaken to understand a marketing problem better. Effective marketing research involves five steps –

  1. Defining the problem and research objectives

  2. Developing the research plan

  3. Collecting the information

  4. Analysing the information

  5. Presenting the findings.

I. Defining the problem and research objectives: The first step in research calls for the marketing manager is to define the problem carefully and agree on the research objectives. A problem will defined is half solved.

Three types of research projects can be distinguished. Some research is exploratory i.e. to gather preliminary data to shed light on the real nature of the problem and possibly suggest some hypothesis or new ideas. Some research is descriptive i.e. to describe certain magnitudes. Some research is casual – that is t, test a cause and effect relationship.

II. Developing the Research Plan: The second stage of marketing research calls for developing the most efficient plan for gathering the needed information. Research plan calls for decisions on the data sources, research approaches, research instruments, sampling plans and contact methods.

  1. Data Source: The research plan can call for gathering secondary data, primary data or both. Secondary data consists of information that already exists somewhere, having been collected for another purpose. Primary data consist of original information gathered for the specific purpose at hand.

  1. Research Approaches: Primary data can be collected in four broad ways: observation, focus group, Surveys and experiments.

Observation – Fresh data can be gathered by observing the relevant actors and settings.

Focus Group – A focus group is a gathering of six to ten persons who spend a few hours with a skilled interviewer to discuss a project, service, and organization of other marketing entity.

Survey Research – Companies undertake surveys to learn about people’s beliefs, preferences, satisfaction and so on and to measure these magnitudes in the population.

Experiments – Experimental research calls for selected matched groups of subjects, subjecting them to different treatments, controlling extraneous variables and checking whether response differences are statically significant.

Generally speaking observation and focus groups are best suited for exploratory research, surveys are best suited for descriptive research and experiments are best suited for casual research.

  1. Research Instruments – Marketing researchers have a choice of two main research instruments in collecting primary data: the questionnaire and mechanical devices.

Questionnaire consists of a set of questions presented to respondents for their answers. The questionnaire is very flexible in that there is any number of ways to ask questions.

Mechanical instruments are less frequently used in marketing. Galvanometers are used to measure the strength of a subject’s interest on emotions aroused by an exposure to a specific and or picture. The tachistoscope is a device that flashes on and to a subject with an exposure interval that may range from less then one-hundredth of a second to several seconds. After each exposure, the respondent describes everything he recalls. Eye cameras are used to study respondent’s eye moments to see at what points their eyes land first, how long they linger on a given item? The audiometer is an electronic device that is attached to television sets in participating homes to record when the set is on and to which channel it is tuned.

  1. Sampling Plan – The marketing researcher must design a sampling plan, which calls for three decisions

    1. Sampling Unit – This answers who is to be surveyed.

    2. Sample Size – This answers why many people should be surveyed.

    3. Sampling Procedure – This answers who should the respondents to chosen.

  1. Contact Methods – This answers how should the subject be contacted? Choices are meant, telephone or personal interviews.

III. Collecting the information – The researcher must now arrange for collecting the data. This phase is generally the most expensive and most liable to error. Four major problems arise. Some respondents will not be at home and must be re-contacted or replaced. Other respondents will refuse to cooperate. Still other will give biased or dishonest answers. Finally, some interviewers will occasionally be biased or dishonest.

IV. Analyzing the information – The next step is the marketing research process is to extract pertinent findings from the data. The researcher tabulates the data and develops one way and two-way frequency distributions. Averages and measures of dispersion are computed for the major variables.

V. Presenting the findings – the researcher should present major findings that are relevant to the major marketing decisions facing management. The study is useful when it reduces management’s uncertainty concerning the right move to take.

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Marketing managers can effectively monitor changes in the marketing environment using marketing intelligence system.

A marketing intelligence system is a set of procedures and sources used by managers to obtain their everyday information about pertinent developments in the marketing environment”.

Managers scan the environment in four ways:

  • Undirected viewing: General exposure to information where the manager has no specific purpose in mind.

  • Conditional viewing: Directed exposure, not involving active search, to a more or less cleanly identified area or type of information.

  • Informed Search: A relatively limited and unstructured effort to obtain specific information or information for a specific purpose.

  • Formal Search: A deliberate effort usually following a pre-established plan, procedure or methodology – to secure specific information or information relatively to a specific issue.

Marketing Managers carry on marketing intelligence mostly on their own by reading books, newspapers and trade publications, talking to customers, suppliers, distributors and other outsiders and talking with other managers within the company. Well-run companies take additional steps to improve the quality and quantity of marketing intelligence. First, they train and motivate the sales force to spot and report new developments. Sales representatives are the company’s ‘eye and ears’. They are in an excellent position to pick up information missed by other means. Secondly, the company motivates distributors, retailers and other middlemen to pass along important intelligence. Some companies appoint specialists to gather marketing intelligence. They send out “Ghost Shoppers” to monitor the presentations of retail personnel. Much can be learned about competitors through purchasing their products, attending open houses and trade shows, reading competitor’s published reports and attending stock holders meeting; talking to their former employees and present employees, dealers, distributors, suppliers and freight agents collecting competitors’ ads.

Thirdly, the company purchases information from outside suppliers such as NRS (National Readership Survey Report) etc. These research firms can gather store and consumer-panel data at much less cost than it each company carried out its own panel operations.

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Why the study of marketing environment is important for a marketer?

The marketing environment consists of the task environment and the broad environment.

The task environment includes the immediate actors involved in producing, distributing and promoting the offering. The main actors are the company, suppliers, distributors, dealers and target customers. Includes in the supplier group are – material suppliers and service suppliers such as marketing research agencies, advertising agencies, banking and insurance companies, transportation and telecommunication companies. Included with distributors and dealers are agents, brokers and others who facilitate finding and selling to customers.

The broad environment consists of six components: demographic environment, economic environment, natural environment, technological environment, political-legal environment and social-cultural environment. these environments contain forces that can have major impact on the actors in the task environment.

The major responsibility for identifying significant market place changes falls to the company’s marketers. More than any other group in the company, they must be the trend trackers and opportunity sectors.

Marketers are keenly interested in the size and growth rate of population in cities, regions and nations; age distribution etc. Exposure population growth has major implications for business. A growing population does not mean growing markets unless these markets have sufficient power nonetheless the companies that carefully analyse their markets and find major opportunities.

National populations vary in their age mix. At one extreme is Mexico a country with a very young population and rapid population growth. At the other extreme is Japan, a country with one of the world’s oldest populations. Milk diapers, school supplies and toys would be important products in Mexico. Japan’s population would consume many more adult products. A population can be sub divided into six age groups – pre-school, school-age children, teens, young, adults age 25 to 40, middle-aged adults aged 40 to 65 and older adults aged 65 and up. For marketers, the most populous age groups shape up the marketing environment.

Marketing require purchasing power as well as people. The available purchasing power in an economic depends on current income, prices, saving, debt and credit availability. Marketers must pay close attention to major trends in income and consumer-spending patterns because they can have a strong impact on business especially for companies whose products are geared to high income price-sensitive consumers.

The deterioration of the natural environment is a major global concern. Steel companies and public utilities have hard to invest billions of dollars in pollution-control equipment and more environmentally friendly fuels marketers need to be aware of the threats and opportunities associated with four trends in the natural environment, the storage of raw materials especially the water, the increased cost of energy, increased pollution levels and the changing rate of the governments.

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