CHAPTER 3

OPERATIONS MANAGEMENT AND MARKETING

3.1 Decisions on goods/service Characteristics

♦ The nature of the offering is an important market decision

from the operations manager’s point of view. Factors that
influence this decision vary and these include:

(a)Market Penetration
- Expansion of sales of existing offerings in existing markets
by selling more to existing customers, and /or gaining new
customers in existing markets

(b)Market Development
- Creation of new markets by discovering new applications for
existing offering

(c)Product Development
- Launching of new offerings into existing markets

(d)Diversification
- Development of new offerings for new markets

♦Many enterprises offer a range of goods and services;

therefore the market decision requires consideration of a
particular offering or a number and mix of a range of
offerings

♦It may be concerned with the addition, change of one offering

or one group of offerings from the whole range on market

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3.2 Product Life Cycles

The life cycle of offerings can be identified in four stages

namely: Incubation, Growth, Maturing and Decline

Incubation

Decline

Growth Maturity

The span of the lifecycle may be determined by such factors

as:
● The degree of technological progress
● Changes in customer habits
● Ease of entry to the market

♦ Different actions or market decisions may be required at

each stage of the lifecycle and price decisions are made
before or at the launch time

Incubation Period - Emphasis will be on promotion

Growth period - Emphasis will be on distribution

Maturity Period - Introduction of price changes or

changes in specifications to
prevent decline or introduction
of new offerings
3.3 Decision on Cost

♦ The price of product/service is an important cost factor.

Price is important as a regulator of demand and a component
of customer service. Price is therefore important in the
following aspects:
- Regulates sales volume

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 - Determines revenue
- Influences the rate of return on investment through
its influence on sales profitability
- Has an impact on unit costs

♦ A price policy therefore has to establish the following

key objectives:

- Sales Target
- Profit target
- Meeting competition
- Maintaining price stability in the distribution chain
- Discouraging potential competitors
- Eliminating existing competitors

♦ Reactions to pricing decisions can be expected from

resellers(ie. intermediaries in the distribution chain) and
final customers)

♦ The principle decisions in pricing therefore derive from

four major problems:

1. How should the relative importance and the relevance

emphasis of price and non-price variables within the
marketing decisions be determined?
2.To which pricing policy is a particular price
geared?
- In a broad service, the pricing policy must fulfil
the objectives and determine how these objectives
will be attained
3.How should prices or price levels be determined ?
4. How should pricing policy eg. The timing and extent
of price changes and deviations such as discounts be
implemented?

3.4 Distribution and Promotion

Distribution

♦ Two aspects of decision-making for distribution can be

identified: distribution channel decisions and physical
distribution management decisions

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♦ The nature and channels employed will depend largely on the
nature of the organization and on the number and location of final
customers

♦ The more diverse the points of contact with customers, the larger
and more complex the distribution channel

♦ The management of physical distribution or customers channels is

normally termed as physical distribution management (PDM).Three
principle PDM decision areas include:

(a) Channel Design

(b) Service Level Designs
(c) Inventory Decisions

♦ High customers service in terms of short delivery delays, or a

lower probability of stock outs incurs higher cost through the
need for a larger number of stock holdings, higher stock levels,
more and frequent stock replenishments, etc.

♦ Distribution service level conflict with distribution costs, and

hence enterprises must determine economic service or delivery
levels for distribution systems

♦ Service level decisions are intimately related to inventory

decisions. There are two basic approaches to inventory control:

a) The Reorder level system

- Stock is replenished (usually with fixed quantity) or
a replenishment order is made when stock fails to a
fixed reorder level

b) The Reorder interval system

- Stock is replenished or a replenishment order is made
such that the stock level returns to a fixed maximum
level at fixed intervals

♦ Whichever approach is adopted, the variable rate of stock

depletion which normally exists plus the uncertain delays between
placing a replenishment order and receiving items into stock
necessitates the use of buffer stock designed to ensure a required
customer service level.

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♦ Decisions on reorder levels, reorder quantities, etc at various
stages in the distribution channel affect both customer service
and the nature of demand; and therefore of some importance to
operations management.

Promotion

♦ Promotion is concerned with persuasion largely at securing and

increasing the share of the market. Four promotional activities
can be identified:

a) Advertising
- Any paid form of non-personal representation and
promotion of products or services by an identified
sponsor
b) Personal selling
- Oral presentation to one or more prospective purchases
for the purpose of making sales
c) Publicity
- Non personal stimulation of demand for a product or
service; by planting commercially significant news
about it in a published medium or obtaining favorable
presentation of what is not paid by the sponsor
d) Sales promotion
- Those marketing activities, other than personal
selling, advertising and publicity, that stimulate
consumer purchasing and dealer effectiveness; such as
displays, show/exhibitions, demonstrations etc

♦ An enterprise must determine how much promotional effort to make

and relative mix or importance of each of the promotional actives
within that total effort.

♦ The importance of promotion will depend on the merits of

alternative, non-promotional expenditure, the nature of product-
service offered by the enterprise and its competitors, and the
stage in the product or service lifecycle

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♦ Promotion is one way to secure and stimulate demand. Given
limited resources, promotion competes for funds within the other
market decision variables

♦ The more impersonal the method of distribution and the greater

the similarity to the products or services offered by competitors,
the greater is the need for promotional effort

♦ Products and services which are at an early stage in their life

cycle where exposure and customer awareness are important, may
also need relatively high promotion.

3.5 Technology and Organization

♦ Early research suggested a relationship between technology
and the nature of the organization. In considering different
types of production systems, it was found that relationships
exist between the type of technology employed and the
organizational factors such as the length of the chain of
command, the span of management control and the ratio of direct
to indirect labor. General conclusions from early research are
summarized below:

- Task Uncertainty

The greater the routines or repetitiveness of tasks and the

less the task variability, complexity and uncertainty, then the
less the degree of participation in organization decision making
and the greater the formalization of roles, procedure and
practices.

- Task Interdependency

The greater the interdependence of tasks, roles and activities

and the less the rigidity of work flows, then the greater the
participation in decision making and the less formalized the
authority, structure, procedures etc.

- Workflow uncertainty

The less the variability, complexity or work flow, and the greater
the standardization of inputs and outputs, then the more formalized

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and centralized the management. The grater the vertical
integration and departmentalization, the more sophisticated the
control procedures.

- External uncertainty

The less the rate of change in products/service specifications and

ranges, the less the rate of demand change, the less the market
uncertainty and the greater its homogeneity.

3.6 Design of Products/Service

♦ This refers to the entire process of providing a potential future
product or service; including its form, fit and function.

What does product and service design do?

- Translate the customer wants and needs into product

and service requirements
- Refine existing products and services(marketing)
- Develop new products and services
- Formulate Quality goals and cost targets
- Construct and test prototype

Reasons for Product/Service Design

♦ Product and service design has typically had strategic
implications for the success and prosperity of an organization

♦ Organizations become involved in product and service design for

a variety of reasons; and the main forces that initiate design are
marketing opportunities and threats can be one or many.

Note

1. The steps in the design process start from the initial design
concept through to provision by the operation system
2. This traditionally involve several functions or departments
in the organization
3. This can be a long process; several years in many industries;
so it is often difficult to get new products or services
quickly to market

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3.7 The Role of Operations
♦ Operations have a major contribution to make in stages of design;
therefore operations must enter the design process as follows:

a) Idea Generation
- Develop market or technology oriented ideas, new
concepts or incremental developments internally or
externally

b) Screening and Selection

- Perform market analysis, tests, technological
feasibility, competitive advantage or risk assessments

♠ Can the product/service be provided by the operating

system?
♠ Do we have the processes, technology or skills?
♠ Do we have the capacity?

c) Initial Design
♠ What is the most appropriate design for customers at
the required quality and probable cost required?
♠ What are the specifications of major aspects/features
of the initial model?

d) Prototype Testing
♠ Check provision of operating system through
performance/function testing, consumer tests, etc

e) Redesigning/Modification
♠ Introduce modifications to improve customer provision
through corrections and testing if necessary as well as
approval for final design

f) Final Inspection
♠ Ensure appropriate quality specifications of content,
structure, function and performance

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REFERENCES

Etiene – Hamilton EC (1994) Operations Strategies for Competitive

Advantage, Texas: Dryden Press (2000) Strategic Operations
Management, Oxford; Butterworth-Heinemann

Slack, N.D. and Lewis (2000) Operations Strategy London: Financial

Times/Prentice Hall New Jersey: Prentice-Hall

Stonebraker P.W. and Leong G.R. (1994) Operations Strategy,

Needham Heights, U.S.A. Alley & Bacon

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