Synergies Between Operations Management and Marketing
Synergies between operations management and marketing is essentially trying to find the needs of consumers and finding a way to provide them with products at the right value. Finding the right price someone will pay but also maximizing the companies profit can depend on a lot of circumstances. The price, buyers income, and product expectations will all affect the market. Looking at pricing strategies, demand, promotional pricing and value capturing companies have to determine what is the best way to be successful.
Pricing heavily depends on the demand of the product. Companies will have to be careful when setting their prices. Raising the price will cause the demand to decrease so it very important to find the equilibrium within the market. The demand can have a lot of influences. Some of them can be controlled within the company but government regulations is an example where the company will have little control over. If the product has a high tax rate it will cause the price to increase and the demand to decrease. Sugar tax will soon be implemented in the UK and many soft drink companies will be affected.
In a US analysis, the price elasticity of demand for soft drinks was considered high; an increase in price should reduce consumption, however assessments of differences in responsiveness to food prices according to age, education, culture, or ethnicity are not known
Tim Hortons is a well known Canadian coffee company that is looking to establish itself throughout the UK. Burger King, Tim Hortons sister company, has been very successful expanding in the other markets throughout the world. The coffee market throughout the UK is very saturated causing some concern.
The market for coffee spending will remain strong over our forecast period, which bodes well for these companies but carving out market share depends on renting the best store locations, having a brand connection, as well as taste, quality and price.
They will have to decide what their objective is going to be. Will Tim Hortons want to maximize its profit on their product like Starbucks or be a company that prices their product like Costa to get a return that is attained in a certain time period. How will TIm Hortons price their products? Demand in the market, cost of the product from manufacturer and the competitors price will all be a influence. With the coffee industry throughout the UK being very competitive and the restaurant side of Tim Hortons being undeveloped in the UK, they will be looking how they will be able to bundle their other products to establish a base of costumers. Breakfast sandwich, bagels, soups, and Doughnuts are some of the products they provide. Bundling these items with coffee or other hot drinks creates a pricing strategy that will increase their profits.
Promotions are used for new products but also they can be used for your everyday goods. Price discrimination is a key driver in promotion offerings. Cereal companies will have coupons for their products so people who are not price orientated will pay full price but other people who need to watch what they spend are able to find a coupon that allows them to purchase the same products. Dynamic pricing is a key factor to find out what a consumer is willing to pay. Not all people are will to look through magazines, papers or scroll the internet to find coupons and present it at the till but many others will.
Kelloggs recently did a "Grown Ups Go Free" promotion. All people had to do was cut out a voucher from one of the Kellogg product boxes and present it to a Merlin Entertainment attraction theme park. As long as an Adult purchase at least one ticket another person was free. This was designed to promote to support days out with the family.
In the article "Smart Pricing" the Iyer and Ye (2000) study had some interesting insights on promoting products. They discovered:
It may be more profitable not to promote if they are uncertain about the sales impacts
Stockpilers will purchase more with less frequent promotions.
Manufacturers could lose money if they are not notified though the retailers will make money
Many companies are trying separate themselves from their competitors. Different value-capture strategies are ways they can do this. Changing the price carrier is a experience a consumer can hang their hat on. Mcdonald's restaurant offer free wi-fi connection along with a play center for kids to play. They do know charge for either of these but the price is carried out by the food and beverage orders. Another strategy is to change the timing, allowing the costumer to purchase a product that will have unlimited recurring products. Printer companies set the prices for their printers relatively low but sell the ink cartridges at much higher price to maximize the overall revenues
"The strategy has been to nudge the consumer towards a high frequency of purchases," says David Connett, editor of The Recycler, a trade magazine covering the remanufacturing industry. "The big printer manufacturers have reduced the amount of ink in a cartridge, encrypted the chip technology, and used aggressive marketing tactics to discourage refills."
Three Capitals of Pricing within a organization are human capital, system capital, and social capital. Thanks to the internet, pricing has become very complicated so people are trained to understand the company in all its complexity. Software and hardware systems are used to collect, share and analyze data. Nowadays, companies are realizing investing in Social Capital is possibly the most important of all and the hardest top build. It's about bringing the team together to form a bond. This can be costly but is very beneficial. Bringing the whole to team to a off-site meeting can be pricey but to have them all on the same page can be priceless. Many talents of individuals will go to waste if managers fail to integrate them.
A company's products and services, to indulge in another metaphor, are just the fruit of the tree; its roots are the core capabilities and competencies that organizations develop. Although only the prices themselves are visible to onlookers, the capability underlying the prices is ultimately what makes them right for the market or either too high or too low. The key is understanding how different forms of capital blend in a way that competitors will find difficult to imitate, and then making the necessary investments to create a formidable new strategic capability.
Brexit has caused many pricing issues. After many years of low inflation and temporarily deflation the UK is starting see a big rise in headline rates, as much as 3%. Many companies are figuring out ways to cope with this. Many of them are restructuring their operations to offset the impacts. Next, a major UK clothing retailer, was able to delay the effect by purchasing currency trading rates from the markets before the pound slumped. These "hedging" benefits are no longer available. Next has started to find ways to bring costs down like developing new sources of supply in Burma and Cambodia. The brand looks to reshape its products and marketing mix to encourage customers to spend more on the higher-price items, thereby reducing the effect on profits. Brexit is also causing many companies to go to a cost-plus pricing strategy. This is very easy to execute since all you do is find the cost of the products and add a margin to arrive at the price. Professor Ritson suggests that this is poor marketing because it does not take into account of what the customer is willing to pay. He suggests value-based pricing which involves conducting a research to understand market orientations and customers segments before setting prices that match the level of value that customers attach to a product or service.
Many consumers have now began shopping at discounted retailers. Retailers, Aldi and Lidl, are thriving and have doubled their combines market share from 5% to 10%, forcing the 'big four' supermarket chains to respond by cutting prices and increasing promotions. Lidl's new slogan "Big on Quality, Lidl on Price", shows reaffirmation of its price messaging.
For companies to be successful I believe they have to create a solid foundation. Social capital is an important part within a company. If employees from different departments have the same vison along with a voice it can help the company grow. Finding the objective for the company can be crucial at the beginning. The 4 Ps (Product, Place, Price, and Promotion) are all important to be successful but the biggest one is "Price". If you price a product properly you can have immediate success but if you price it wrong you are risking major failure.
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