Ch2 Flashcards
why do organizations create new products?
New products pump life into a company’s sales, enabling the firm not only to survive but also to grow.
Companies that lead their
industries in profitability and sales growth get a large percentage of their revenues from products
developed within the last five years.
How is a new product classified?
When a firm introduces a product that has a brand new name and is in a product category new to the organization.
Line extension
A new flavour, size, or model using an existing brand name in an existing category.
Why do customers expect immediate improvement to services?
Services companies can often introduce and adapt their products faster than companies that
manufacture goods because service delivery can be more flexible and changes can often be made
immediately.
How new products are developed
Set new product goals: establish success parameters
Develop new ideas: brainstorm internally or externally, use focus groups to gain feedback and interest.
Screen ideas and concepts: accept or reject ideas by comparing to organizational goals, strategies and feasibility. Most ideas will be rejected.
Develop the concept: prototype, test and build marketing strategies
Test market: enter select markets to gauge customer acceptance.
Introduce the product: launch product
Role of the product manager
- when a new product enters the market the product manager controls it
- develops and implements complete strategy and marketing program for a specific product or brand of product
Product lifestyle and stages
Pattern of sales and profits over time for a product.
Introduction, growth, maturity, decline
Introduction
Product will face many obstacles. Competition is light. Unusually operating at break even or loss.
Growth
Sales begin to grow, profits are healthy, many competitors enter the market.
Maturity
Sales continue at a decreasing rate. Sales growth slowing, profits have peaked or show signs of decline
Decline
Rate of change in consumer taste and the rate at which new products enter the market. Sales and profit declining
Marketing
Process of getting the right goods or services or ideas to the right people at the right place, time, and price, using the right promotion techniques and utilizing the appropriate people to provide the customer service with those goods, services or ideas
Marketing concept
- focusing on the needs and wants of the customer so the organization can distinguish its products from competitors offerings. Products can be goods, services, or ideas.
- integrating all of the organizations activities, including production and promotion, to satisfy these wants and needs.
- achieving long term goals for the organization by satisfying customer wants and needs legally and responsibility.
Difference between marketing and sales
Marketing is the process of communicating the value of a product while sales is selling the company’s product.
Customer value
The ratio of benefits for the customer to the sacrifice necessary to obtain those benefits. Core business strategy. Price is not the only thing that matters
Customer satisfaction
Customer satisfaction is the customer’s
feeling that a product has met or exceeded expectations. Expectations are often the result of
communication, especially promotion.
Building relationships
Companies build relationships with customers by offering value and providing customer satisfaction and quality products which makes them willing to purchase again (loyal customers).
What is the nature and function of distribution?
Distribution is efficiently managing the acquisition of raw materials by the factory and the movement of
products from the producer or manufacturer to business-to-business (B2B) users and consumers.
Marketing intermediaries
Marketing intermediaries are in the
middle of the distribution process, between the producer and the end user. Agents and brokers, industrial distributors, wholesalers, retailers
Agents and brokers
Bring buyers and sellers together
• Usually hired on commission by buyer or seller
• Go-between to make deals
• Does not take possession of product
Industrial distributors
Independent wholesalers that sell to industrial users
• Usually have a sales force
• Will make delivers, extend credit and provide
information to user
Wholesalers
Buys from manufacturer or other wholesaler, for resale
• Resells finished goods to retailers, manufacturers and
institutions (schools, hospitals)
• Takes possession of product
Retailers
Buys from manufacturer or wholesaler, for resale
• Sells goods to end consumers and industrial users
• Takes possession of product
How do channels ease the flow of goods
- Packs products into more manageable order sizes for customers.
- Allows customers to purchase products in one place.
- Removes need for the producer to source individual customers.
- Provides a storage location for goods until customers are ready to purchase.
Distribution channels
Multiple intermediaries: producers -> wholesalers/distributors -> retailer -> end consumer
Wholesaler+retailer: producer -> wholesalers/distributors -> retailer -> end consumer
Retailer only: producer -> retailer -> end consumer
Direct to consumer: producers -> end consumer.
Goal of supply chain management
create a satisfied customer by coordinating all of the activities of the supply-chain members into a seamless process
Role of supply chain
responsible for making channel strategy decisions, coordinating the sourcing and procurement of raw materials, scheduling production, processing orders, managing inventory, transporting and storing supplies and finished goods, and coordinating customer-service activities. Supply-chain managers are also responsible for the management of information that flows through the supply chain. Coordinating the relationships between the company and its external partners, such as vendors, carriers, and third-party companies, is also a critical function of supply-chain
management
Production
Turns raw materials, Human Resources, capital and natural resources into products and services.
Operations managers
people charged with managing and supervising the conversion process, play a vital role in today’s firm. They control about three-fourths of a firm’s assets, including inventories, wages, and benefits. They also work closely with other major divisions of the firm, such as marketing, finance, accounting, and human resources, to ensure that the firm produces its goods profitably and satisfies its
customers
Three main types of decisions production and operational managers are involved in
- Production planning. The first decisions facing operations managers come at the planning
stage. At this stage, managers decide where, when, and how production will occur. They determine site locations and obtain the necessary resources. - Production control. At this stage, the decision-making process focuses on controlling quality and costs, scheduling, and the actual day-to-day operations of running a factory or service facility.
- Improving production and operations. The final stage of operations management focuses on developing more efficient methods of producing the firm’s goods or services.
Production planning
Production planning allows the firm
to consider the competitive environment and its own strategic goals to find the best production methods.
Good production planning has to balance goals that may conflict, such as providing high-quality service
while keeping operating costs low, or keeping profits high while maintaining adequate inventories of
finished products.
Three phases: long term (3-5yrs), medium term (~2yrs), short term (within 1yr)
Four important decisions made in production planning
Type of production process that will be used, site selection, facility layout, and resource planning.
Three types of production
One of all: mass production
Just for you:customizing goods
Customization
One for all: mass production
Mass production, manufacturing many identical goods at once. keeping manufacturing costs low by
producing uniform products using repetitive and standardized processes.
Just for you: customizing goods
In mass customization, goods are produced using mass-production techniques, but only up to a point. At that point, the product or service is custom-tailored to the needs or desires of individual customers
Converting inputs to outputs
production involves converting inputs (natural resources, raw materials, human resources, capital) into outputs (products or services). In a manufacturing company, the inputs, the production process, and the final outputs are usually obvious.
Production timing
continuous process uses long production runs that may last days, weeks, or months without equipment shutdowns.
The business activity cycle
represents the three types of activities a business will undertake to move money in and out of the business. continuous loop where the business continues to grow by engaging in new financing activities, then taking the proceeds and investing in new assets or operating activities Financing, investing, operating.
Financing
(1st Stage): involves how an organization obtains money from investors (equity) or borrows money (debt). The investors and lenders are rewarded in the form of dividends and debt payments.
Investing
2nd Stage): is when the organization takes the money from stage 1 and acquires the different factors of production it needs to operate. This often includes land, buildings, equipment and inventory.
Operating
3rd Stage): is the day-to-day operation of the
business. This involves selling the product (generating revenue) and paying bills (expenses). Profit is what is left over after the expenses are paid.
How does finance affect the firms overall strategy?
To make money it must first spend money on inventory and supplies, equipment and facilities, and employee wages and salaries.
Financial management
the art and science of managing a firm’s money so that it can meet its goals—is not just the responsibility of the finance department. Track how money flows in and out of the firm
Financial managers responsibilities and activities
Financial planning and monitoring: Preparing and monitoring the financial plan, which projects revenues, expenditures, and financing needs over a given period.
Investment(spending money): Investing the firm’s funds in projects and securities that provide high
returns in relation to their risks.
Financing(raising money): Obtaining funding for the firm’s operations and investments and seeking the
best balance between debt (borrowed funds) and equity (funds raised through the sale of ownership in
the business).
Goal of financial manager
Maximize the value of the firm to its owners.
Cash management
Making sure that enough cash is on hand to pay bills as they come due and to meet unexpected expenses
- Accounts receivable
Vs - Accounts payable
- Collect money owed to the firm
2. Pay money owed to others
Debt/loans
Short term: expected to be repaid within a year
Long term: has a maturity of greater than one year
Secured loans
Require the borrower to pledge specific assets as collateral or security. The secured lender can legally take the collateral if the borrower doesn’t repay the loan.
Unsecured loans
Do not require the borrower to pledge any asset or collateral or security. Given to stable, well established organization.
Length of loan
Basic principle of finance is to match the term of the financing to the period over which benefits are expected to be received from the associated outlay
Bonds
Form of a secured or unsecured debt that can trade in an open exchange. Usually a form of long term debt.
- Line of credit
& - Revolving credit
- Allows borrowing to a set limit. Firm must usually
keep a minimum cash balance to access line of credit - Generally arranged for a period of 2-5 years, borrow as needed
Common shares
Represent an ownership stake in the firm. Common shareholders are the owners and can be paid out in the form of dividends
Dividends
Payments to shareholders from the firms profits and must be paid once declared
Initial public offering (IPO)
Company’s first sale of stock to public.
Preferred shares
Hybrid mix of debt and stock
Venture capital
Another source of equity capital. Often used by small and growing firms that aren’t big enough to sell securities to the public. Popular among high tech companies who need large sums of money
Long term assets
Generally comprised of land, buildings, machinery, equipment, and info systems
Capital expenditures
When long term assets are purchased
What does the facility’s location affect?
Operating and shipping costs, and the price of a product or service and the company’s ability to compete.
Availability of production inputs, marketing factors, manufacturing environment, local incentives, and international location considerations all affect the decision of what location to place the facility at.
Designing the facility steps
Process layout: arranges workflow around the production process. All workers performing similar tasks are grouped together. Products pass from one workstation to another (but not necessarily to every workstation). The process layout is best for firms that produce small numbers of a wide variety of products, typically using general-purpose machines that can be changed rapidly to new operations for different product designs.
Product layout: Products that require a continuous or repetitive production process use the product (or
assembly-line) layout. When large quantities of a product must be processed on an ongoing basis, the
workstations or departments are arranged in a line with products moving along the line. Automotive and
candy manufacturing often use this process.
Fixed position layout: Some products cannot be put on an assembly line or moved about in a plant. A
fixed-position layout lets the product stay in one place while workers and machinery move to it as needed. Products that are impossible to move—ships.
Cellular manufacturing: a start to finish focus: combines some aspects of both product and fixed-position layouts. Work cells are small, self-contained production units that include several machines and workers arranged in a compact, sequential order. Each work cell performs all or most of the tasks necessary to complete a manufacturing order. The goal is to create a team environment wherein team members are involved in production from beginning to end.
Operating expenses
Pay for services, employees, and other costs
