CHAPTER
12
Small Business
Marketing:
Product
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scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
Learning Objectives
• Discuss the different forms a product can take, and
•
•
•
identify the five levels of product satisfaction
Explain the importance of purchasing and describe its
procedures
Calculate how much inventory you need and when
Describe seven methods of inventory control
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LO - 12.1
Discuss the different forms a product can take,
and identify the five levels of product
satisfaction
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Marketing Mix
Marketing mix
• Factors that a business can change or
control in selling products or services to
customers in its target market
Four Ps
(Factors of
marketing mix)
• Product - Goods and services
• Place - Distribution channels, location,
and layout
• Price - Enables to make profit
• Promotion - Marketing communications
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Marketing Mix
Product
Price
Target
Market
Place
Promotion
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Product: The Heart of the Marketing Mix
Product
Levels of
product
satisfaction
• Tangible goods, intangible services, or a
combination of these
• Bundle of satisfaction that consumers receive in
exchange for their money
• Core benefit - Fundamental reason why the
product is purchased
• Generic product - Basic product attributes
• Expected product - Assumed product
characteristics
• Augmented product - Differentiating characteristics
• Potential product - Anticipated future
characteristics
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Figure 12.1 - Spectrum of Goods and Services
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Figure 12.2 - Levels of Products
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Categories of New Products
• New-to-the-world products
• New product lines
• Additions to existing product
•
•
•
lines
Improvements in, revisions of,
or new uses of existing
products
Repositioning of existing
products
Lower-cost versions of existing
products
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Inventor’s Paradox
Options for
marketing a
new product
• Startup - Create and operate a business
based on new product
• Licensing agreement: Owner of
intellectual property grants another
person permission to produce that
product
• Private label manufacturing: Producing
products under another company’s
name
• Original-equipment manufacturer
(OEM)
• Company that makes component
parts or accessories for larger items
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Importance of Product Competitive
Advantage
Obsolescence
factors for existing
products
• New technologies
• Increasing numbers of substitute
products
• Quickly changing consumer tastes
and preferences
• Shifting consumption patterns
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Importance of Product Competitive
Advantage
• Core competencies create sustainable competitive
•
advantage
Criteria to be satisfied to be classified as a core
competency
• Should be applicable across a range of products
• Should be difficult for competitors to duplicate
• Should provide a fundamental and valuable
benefit to customers
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Best Practices of Successful Companies
Leverage existing capabilities
Enter growth markets
Target niche markets
Diversify
Add new capabilities
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Best Practices of Successful Companies
Establish strong top management leadership
Have a good workforce
Maintain high employee productivity
Have low overhead
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Packaging
Marketing
functions of
packaging
• Catch customers’ attention
• Add value to the product
• Make handling or storage more
convenient
• Reduce spoilage or damage
• Make the product more
identifiable and easier for
customers to find
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LO - 12.2
Explain the importance of purchasing and
describe its procedures
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Purchasing for Small Business
Purchasing
guidelines
• Are you using the proper sources of
supply?
• Are you taking advantage of all purchase
discounts?
• How do you determine minimum
inventories and reorder points?
• Have you run out of raw materials or
finished goods?
• What is the record of your current
suppliers for quality, service, and price?
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Purchasing for Small Business
Purchasing
guidelines
• Are you using minimum quantities or
economic ordering quantities?
• What are your inventory holding costs?
• Do you know your optimum average
inventory? Does it guide your
purchasing policy?
• Could you improve your purchasing to
increase profits?
• What is your inventory turnover ratio?
How does it compare with the industry
average?
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Purchasing Basics
Recognize, describe, and
transmit the need
Investigate and select
suppliers and prepare a
purchase order
Steps in the purchasing
process
Follow up on the order
Receive and inspect the
order
Complete the order (pay
the invoice)
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Selecting Suppliers
• Supplier selection should be based on systematic
•
analysis
Vendors are a significant component of business
operation
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Make-or-Buy Decision
• Choice of whether to purchase parts and
•
•
•
components or to produce them
Based on the availability and quality of suppliers
Specialized needs are required to manufacture own
parts
Standardized parts and components can be
purchased
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Investigating Potential Suppliers
Develop a checklist to evaluate vendors
• Product quality, location, services provided, and credit terms
Single source advantages
• Mutual dependence benefits both companies
• Less paperwork in dealing with one business
Multiple-source advantage
• Decreased prices and improves services due to competition
between vendors
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LO - 12.3
Calculate how much inventory you need and
when
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Managing Inventory
Inventory
• Goods a business owns for the completion of future sales
• Act of counting the goods held in stock
Contextual definitions of inventory
•
•
•
•
Monetary value of goods owned by a business at a given time
Number of units on hand at a given time
Process of measuring or counting goods
Detailed list of goods
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Managing Inventory
Time required to get
fresh inventory
Retail business
Cost of reordering
How much
inventory do you
need?
Service industry
Supplies to perform
services and meet
needs of customers
Production rate
considering lead time
to get new stock
Manufacturing
business
Optimum economic
quantity of order
Just-in-time (JIT)
inventory control
Inventory techniques
Materials requirement
planning (MRP)
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Costs of Carrying Inventory
Inventory
carrying costs
Shrinkage
Obsolescence
Holding
costs
Ordering costs
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Costs of Carrying Inventory
Shrinkage
• Loss of goods held in inventory due
to theft or spoilage
Obsolescence
• Occurs when products become
outdated or fall out of fashion
Holding costs
• Expenses related to keeping
inventory on hand
Ordering costs
• Expenses related to procuring
inventory
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LO - 12.4
Describe seven methods of inventory control
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Controlling Inventory
Inventory control
• Process of establishing and maintaining the supply of goods to
keep on hand
Techniques
•
•
•
•
•
•
•
Reorder point and quantity
Visual control
Economic order quantity (EOQ)
ABC classification
Electronic data interchange (EDI)
Just-in-time (JIT)
Materials requirements planning (MRP)
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Controlling Inventory
Reorder
point and
quantity
Inventory
cycle
Lead time
• Determining when to restock inventory and how
much to reorder
• Period of time from the point when inventory is at
its highest until it is replenished
• Period of time from order placement until the goods
are received
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Figure 12.4 - Inventory Cycles
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Controlling Inventory
Visual control
• Looking at the goods on hand and reordering
when it appears to be running low on items
Economic order
quantity (EOQ)
• Minimizes total inventory costs by balancing
annual ordering costs with annual holding
costs for an item
EOQ
assumptions
• No volume discounts
• Accurate prediction of annual demand
• Average inventory level is equal to the
maximum level minus the minimum level
divided by two
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Figure 12.5 - Economic Order Quantity
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EOQ Formula
EOQ =
2DO
C
• Where
• D = Annual demand for the product (in units)
• O = Average ordering cost for the product (in dollars per
year)
• C = Average holding cost for one of the products (in
dollars per year)
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Controlling Inventory
ABC
classification
Calculating
ABC items
• Classifies items based on the total dollar volume of sales
each generates
• Calculate the total dollar volume for an item by
multiplying the cost of an item by the number of units
sold annually
• Pay more attention to the item which generates high
weighted dollar volume
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Table 12.1 - ABC Inventory Investment
Classification
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Controlling Inventory
Electronic data
interchange
(EDI)
• Computerized application-to-application exchange
to track inventory in a standard data format
• Utilizes UPC (Universal Product Code) bar codes to
track sales, determine orders, and transmit data to
suppliers
Perpetual
inventory
system
• Indicates how many units of an item are on hand at
any given time
RFID
• Radio-frequency identification tags can detect the
selected items and deduct the costs from the credit
card
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Controlling Inventory
Just-in-Time (JIT)
• Japanese approach to inventory management
• Reduces order sizes and time orders so that
goods arrive when they are needed as
possible
• Minimizes a business’s dependence on
inventory and cuts the costs of moving and
storing goods
• Used more by producers than retailers
• Requires that everyone involved must be able
to do what they say they can, when they say
they can do it
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Table 12.2 - JIT and Traditional Inventory
Comparison
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Controlling Inventory
Materials
requirements
planning (MRP)
Manufacturing
resource planning
II (MRPII)
Depends on computers
to coordinate product
orders, raw materials,
and the sequence of
production
Advanced control system
that coordinates
inventory management
with all other functions
of a business
Useful when demand for
some materials depends
on the demand for
others
Used mainly in large
businesses
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