Tag Archives: pricing

by | Monday, November 21, 2022 · 7:33 am

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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by | Friday, November 18, 2022 · 8:20 am

Netflix Now Offers Ad-supported Subscriptions

It’s long been rumored that Netflix was considering adding advertising to its streaming service. That time is finally here.

Beginning in November in 12 countries (including the U.S., U.K., Australia, Brazil, Britain, Canada, Germany, and South Korea), Netflix will offer a $6.99 per month subscription option (Basic With Ads) that will show four to five minutes of advertising for each hour of content watched. The 15 to 30-second ads will show before and during TV shows and older movies; for new movies ads will only be shown before the movie begins.

Netflix’s subscriber base dropped significantly this year for the first time in a decade. Netflix is showing signs of maturing compared to other streaming services that are earlier in the cycle and must remain competitive. In 2021 ,it release 500 original programs (roughly $20 billion/year) but only a small percentage became hits.

Why the new pricing package? It’s one of Netflix’s key strategies to increase its subscriber base and improve average revenue per user. The company hopes that the new service option will encourage viewers who currently share passwords to get their own subscription, thereby increasing the customer and revenue base. (Netflix estimates that it has 100 million users who share passwords, making it a significant loss of potential revenue.)

For advertisers wanting to promote their brands, the new service is an opportunity to extend their reach to specific segments based on country and genres such as action, comedy, romance, and more.

Netflix isn’t alone in offering new subscription tiers. Disney+ will soon offer an advertising-based subscription in December at $7.99 per month. Hulu has long offered ad-supported subscriptions which accounts for more than half of its customers; HBO Max also offers ad-supported subscriptions.

Will you switch to the advertising version?

Group Activities and Discussion Questions:

  1. Poll students: What streaming services do they use? How much do they spend each  month? Is it worth it? Do they share passwords?
  2. Discuss the product life cycle. Where is Netflix in the PLC? What is the biggest challenge in that part of the PLC?
  3. Show a WSJ video that outlines Netflix’s strategy: https://www.wsj.com/video/series/news-explainers/netflix-hit-a-subscriber-peak-heres-how-it-plans-to-keep-growing/62158AB3-FBBB-4C38-8F72-30F8E27C9CD7
  4. Divide students into teams. Have each team build a price chart that includes the options from streaming services such as Disney, Prime, Paramount, Showtime, Hulu, etc.
  5. Discuss various pricing models. Which model is Netflix using?
  6. Have students develop pricing objectives for Netflix.

Sources:  Krouse, S. (13 October 2022). Netflix’s ad-supported plan will launch in November at $6.99 a month. Wall Street Journal; Sperling, N. (13 October 2022). Netflix to offer cheaper ad option beginning Nov. 3. New York Times; other news sources

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by | Monday, November 14, 2022 · 8:36 am

More Electric Vehicles Make it to Market

There is no doubt that electric vehicles (EV) are seeing an increase in inventory and sales. Globally, electric vehicle sales doubled in 2021 and sales are still strong in 2022. In the second quarter of 2022, EV sales were 5.6% of the total auto market, up 2.7% from the same time a year ago. Consumers are embracing the EV market for its clean energy and solid performing vehicles.

Pricing remains a sticking point with consumers though as many EVs are priced in the range of $50,000 – $100,000 and up. Sure, consumers want to help the environment, but they also face a very real limitation on spending for EVs.

To help position it as a more general option, General Motors plans to release an EV Chevy Equinox in fall 2023 at the lower price point of $30,000. Today, there are few models of any type of EV below $35,000. Complicating the pricing, the costs of battery materials (such as lithium and nickel) have risen significantly. On average, U.S. buyers paid $66,000 for an EV, an increase of 28% from a year ago according to J.D. Power research.

The Inflation Reduction Act is one option to help consumers lower the costs. It offers up to $7,500 in federal EV tax credits, but only for models that meet certain domestic-production requirements. While both new and used cars qualify, there are other restrictions that can limit how much tax credit a consumer receives including income limits and vehicle list prices.

Are you ready to make the leap to an EV vehicle?

Group Activities and Discussion Questions:

  1. Poll students: What is their perception of pricing for EVs in today’s market?
  2. Have students research prices for EV automobiles and SUVs. Build a spreadsheet with information about select vehicles such as Volkswagen, Tesla, Kia, and Toyota.
  3. Have students research the Inflation Reduction Act for federal EV tax credits. What are the caveats?
  4. Show video from WSJ about the EV discounts: https://www.wsj.com/video/series/george-downs/the-climate-bill-unlocks-new-ev-discounts-but-not-everyones-a-winner/26F2FC57-3150-4311-AE3E-705E554AB4D6
  5. Another classroom discussion can focus on how the Inflation Reduction Act fits into an environmental scan for the EV market.

Sources:  Colias, M. (8 September 2022). GM courts mainstream buyers with $30,000 electric Chevy Equinox. Wall Street Journal.; Forbes growth sector: Electric vehicle sales and the new electric economy have arrived (24 September 2022). Forbes.

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