Tag Archives: environmental scanning

The Bullwhip Effect Impact on Inventory

The bullwhip effect is in fine form these days. What is the bullwhip effect? In short, the bullwhip effect is when small changes in demand at the retail level can cause large changes in demand at the wholesale, distributor, and manufacturer levels. Think of how a bullwhip whistles through the air… The small motion of the whip base causes a big crack at the end of the whip, putting everything in disarray.

The result can either too much inventory (excess product) or too little inventory (unfulfilled need). Ideally, retailers want to have enough inventory to fill demand, but not too much waste storing extra inventory. It’s a fine balance. And of course, the balance was upset by the COVID pandemic when the supply chain was significantly disrupted globally. (Remember all those empty shelves for toilet paper?)

Retail spending for some categories trended upwards during the pandemic when (1) customers demanded more inventory, so (2) retailers ordered more product, followed by (3) wholesalers ordering more from (4) manufacturers, who in turn ordered more from (5) suppliers to meet demand. The cycle was exacerbated into a larger swing in orders. Excess inventory tends to be discounted so that the shelves clear. And then the cycle start again….

Bullwhips are tough to manage. It takes coordination throughout the supply chain to maintain balance. Technology can help, but it takes a continual evaluation of on-hand inventory, order timing, and pricing.

Go ahead, crack the whip and see what happens.

Group Activities and Discussion Questions:

  1. Poll students: What categories of items have been in short supply? What categories have more inventory than needed?
  2. Show video from WSJ: https://www.wsj.com/video/series/wsj-explains/why-everything-is-on-sale-the-bullwhip-effect/86086359-41FE-440C-9E66-A106E6D045A6
  3. How can the bullwhip effect be minimized?
  4. What should be done at each step of the supply chain?
  5. Is there a long-term effect?

Sources:  Wall Street Journal (5 October 2022). Why everything is on sale: The bullwhip effect. Video.

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New Products for Snacks and More

It seems as if there is a proliferation of new food products hitting the market this spring. In just one week recently we found a number of new food products from Pillsbury, Kind, and Target. What’s going on? Are consumers hungrier than usual, or are they just hungry for change?

Well, it’s a little of both. Yes, consumers are hungry, but we are now at the one-year point in the Covid-19 pandemic and consumers have also made changes to their eating, cooking, and shopping habits. We eat out less and snack more.

In Target’s case, it is launching a new grocery brand named “Favorite Day” with more than 700 snacks and treats that are focused on consumers who want to indulge. The new line includes cookies, trail mix, ice cream, snacks, beverage mixers, frozen desserts, and more. Target’s research indicates that customers want to treat themselves as they juggle hectic schedules and stress. (The new Favorite Day private-label store brand replaces Archer Farms and Simply Balanced which generated more than $2 billion in sales last year.)

Pillsbury is launching its first-ever ready-to-eat cookies, after years of successfully selling frozen cookie dough. Why the switch to pre-made? Pillsbury’s research shows that consumers are tired of constantly cooking and cleaning and are looking for convenience and shortcuts in the kitchen. Pre-pandemic, the pre-made cookie category was only a single-digit growth market. But now the category has grown in sales by roughly 12% in the past year.

In Kind’s situation, the company has a new frozen smoothie bowl for breakfasts. Smoothie bowels have spiked in popularity, including new kitchen appliances focused on smoothies. And, when a year ago consumers might have eaten a breakfast at a restaurant, there has been a sharp decline in eating breakfast out and instead consumers have turned to granola, cereal, eggs, bagels, fruit, and pancakes. According to research company IRI, frozen breakfast foods increased by 7% last year to $3.7 billion.

Try them out. Will they make it into your regular shopping rotation?

Group Activities and Discussion Questions:

  1. This is a great example of introducing new products.
  2. Show Target’s new products: https://www.target.com/b/favorite-day/-/N-q643lewlzpu?lnk=snav_rd_favorite_day
  3. Show Pillsbury’s new cookies: https://www.pillsbury.com/products/already-baked-snacks/soft-baked-cookies/soft-baked-butterscotch-chocolate-chip-cookies
  4. View Kind snacks: https://www.kindsnacks.com/
  5. Discuss the steps of the product innovation process.
  6. Discuss the importance of environmental scanning. What are some of the factors that have led these companies to introduce new products?
  7. Finally, use these examples to discuss the various stages of the product life cycle. What are the marketing objectives in each stage?

Source: AdWeek; CNN News; Minneapolis Star Tribune; other news sources.

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Why are Prices Going Up?

Pricing is a very strategic part of marketing and planning. And, yes, price is also one of the four P’s and is usually referred to as a tactic. However, when an organization is setting strategic objectives, the price level is a critical factor that may be adjusted to help a company meet its objectives. However, raising prices can be difficult as consumers tend to balk at paying more for a product or service that they have had for years. Among companies raising prices are two affecting many college students: Netflix and Whole Foods.

In January, Netflix raised prices for its subscription plans by 18% to $13/month. The increase is intended to help Netflix cover increasing costs for original content and streaming services. Some of its highly-rated content includes “Bird Box,” “Stranger Things,” and “The Crown.” According to Netflix, it has 10% of all U.S. TV screen time, or a billion hours each day.

In February, Whole Foods raised prices on hundreds of its products in order to cover increasing costs of inflation, including transportation, ingredients, and more. The price increases range from a few cents to several dollars, depending on the product and manufacturer.

Is it worth the price?

Group Activities and Discussion Questions:

  1. Question students: Why are Netflix and Whole Foods raising prices? How does the price increase fit into the company’s strategy? What environmental factors should be considered?
  2. Show a video about Netflix price increase: https://mashable.com/video/netflix-raises-prices/?jwsource=cl#tzDtP.YOImq1
  3. Discuss the six steps for pricing (determining objectives, estimating demand, determining cost/profit relationships, select price level, set list price, and make adjustments).
  4. Discuss the various pricing models in class: demand-oriented, cost-oriented, profit-oriented, and competition-oriented.
  5. Divide students into groups and have each group work on any/all of the six steps.
  6. When setting the price level, assign each team a different model to use (demand-oriented, cost- oriented, etc.).

Source: Ad Week, Wall Street Journal, other news sources

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