Designing and Managing the Supply Chain: Concepts, Strategies, and Case Studies,

Question

Designing and Managing the Supply Chain: Concepts, Strategies, and Case Studies, 3/e (Simchi-Levi, Kaminski, & Simchi-Levi) The Answers of the DQ must be different from another. In order to get credit for two posts they have to be significantly different.

1. Discuss the trade-off between product quality and price in traditional and online retailing.

2. Consider dynamic pricing strategies and their impact on profit. Explain why dynamic pricing provides significant profit benefit over (the best) fixed-price strategy as:

1. Available capacity decreases.

2. Demand uncertainty increases.

3. Seasonality in demand pattern increases.

3. Discuss how supply chain management decisions impact the ability to excel in certain dimensions. Specifically, consider:

1. Conformance to requirements.

2. Product selection.

3. Price and brand.

4. Value-added services.

5. Relationships and experiences.

4. What is the dominant customer value the following companies bring?

1. Starbucks

2. The Gap

3. Expedia.com

5. What additional experience opportunities does the Internet enable?

6. What measures would you use in a business like Amazon.com to evaluate the company’s performance? The supply chain?

Explanation / Answer

1. There is always a balance between the quality of product and the price of the product. When the product within a company is manufactured to target the affordable range of the market eg the general public, its price will be low and favourable but the quality of the product is compromised. Whereas if the product is costly its quality will be high. So there always exists a balance between price and product.

There are two approaches by which a company sells its product into the market. First is traditional retailing and another is online retailing. While the selection of these approaches do not affect the quality of the product but the price of the product may vary between them. Since for traditional retailing we need infrastructure and a strong support system which means that expenditure will be more whereas in online retailing we just need a physical store and does not require a good infrastructure and other support related activites so this makes the price of online items will be low than traditional retailing.

2. Dynamic pricing is that in which the strategy in which prices of the product continuosly adjust in response to supply and demand. This strategy is mostly used in ecommerce industry eg Amazon.com.

Impact of dynamic pricing on profits:

Since dynamic pricing is based on the real time supply and demand. It is based on factors like the fluctuations of the price in market, demand and supply of individual product, monitors the competitors activity. So it gives the manufacturer the suitable information to set the optimal price of the product and staying profitable in all the situations.

The companies can remain profitable without compromising their brand value. To retain their brand value these companies can set a price floor and remain flexible within the profitable limit by adopting dynamic pricing. They can use promotional offers and seasonal offers by adopting dynamic pricing still remaining profitable.

This will give you a better control on the pricing strategies. Since by observing the real price trends of thousands of products and also changes in the prices of the competitors and supply and demand of individual product, an optimum price can be set to maximize the profit.

Dynamic pricing is more profitable than fixed price strategy when

1. Available capacity decreases: When the demand increase whereas the available capacity decreases, the company can change its prices thorough dynamic pricing in response to the demand and increase their profits.

2. Demand uncertainity increases: When there is uncertainity of the demand in the market and the demand estimate for fixed prices does not match. In this case, the dynamic prices can adjust its price and increase their profits when the uncertainity is high.

3. Seasonality in demand pattern: when the pattern of demand changes daily, weekly or monthly basis. In this situation the dynamic prices are most useful that they adjust the price of the product over time and gain profit.

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