Week 7 Flashcards
(30 cards)
For almost all firms producing or
purchasing products to sell, they need
Inventory
When products are produced rather
than purchased, typical they are
received at a continuous rate. The
model that nds the optimal
production lot size is called
Economic production quantity
is the quantity of a product that
should be manufactured in a single
batch so as to minimize the total cost
that includes setup costs for the
machines and inventory holding costs
Economic production quantity
is the way in which the cost of a
product affects consumers’ purchasing decisions.
It is also known as price elasticity of demand.
Pricing sensitivity
price elasticity of demand.
is commonly measured using the
price elasticity of demand or the measure of the change in demand as a function of its price change.
Price sensitivity
Factors that affect pricing sensitivity
Price and quality
Unique value
Bottom line benefit
Fairness
Expense
Inventory
Buyers are less sensitive to price if the product
offered is of superior quality or defines their status
quo, such as exclusive or luxury products.
Price and quality
Product differentiation and unique features affect
consumers’ price sensitivity to it.
Unique value
If the product’s utility is high for the buyer and
efficiently meets the purchase objective, then he is
less concerned about the price.
Bottom line benefit
Price discrimination can lead to a perception of
unfair practices among consumers. In such a
situation, a slight increase may cause a negative
impact, increasing price sensitivity
Fairness
If the product requires a huge expenditure or involves a high cost, the buyer tends to be price sensitive while making a decision.
Expense
If buyers need to keep their products in stock, they
become more price-conscious
Inventory
Tips for assessing price sensitivity
Research relevant data
Communicate with current customers
Track customer activities
Read customer reviews and opinions
Focus on benefits rather than features
Build your brand
is an inventory management technique
that determines the value of inventory items based
on their importance to the business.
ABC analysis
says that most
results come from only 20% of efforts
or causes in any system.
Pareto analysis
are always looking for ways
to improve pricing and quality or to achieve
greater efficiencies.
Inventory managers
ABC technique sometimes called
Always better control method
ABC Analysis benefits
Increased inventory optimization
Improve inventory forecasting
Better pricing
Improved supplier negotiations
Strategic Resource Allocation
Better customer service
The
analysis identifies the products that
are in demand. A company can then
use its precious warehouse space to
adequately stock those goods and
maintain lower stock levels for Class B
or C items
Increase inventory optimization
Monitoring and collecting data about
products that have high customer
demand can increase the accuracy of
sales forecasting. Managers can use
this information to set inventory levels
and prices to increase overall revenue
for the company
Improve inventory Forecasting
A surge in sales for a specific
item implies demand is increasing and a
price increase may be reasonable, which
improves profitability.
Better pricing
Since companies earn 70% to 80% of their
revenue on Class A items, it makes sense to negotiate better terms with suppliers for those items. If the supplier will not agree to lower costs, try negotiating post-purchase services, down payment reductions, free shipping or other cost savings
Improved supplier negotiations
ABC analysis
is a way to continuously evaluate resource
allocation to ensure that Class A items
align with customer demand. When
demand lowers, reclassify the item to make better use of personnel, time and space for the new Class A products.
Strategic resource allocation
Service levels
depend on many factors, like quantity sold,
item cost and profit margins. Once you
determine the most profitable items, offer
higher service levels for those items
Better customer service
