Tag Archives: supply chain

Amazon Raises Price for Prime Membership

Pricing is a very strategic part of marketing. And, yes, we know that price is one of the four P’s and is usually referred to as a tactic. However, when an organization is setting strategic objectives, price is a critical factor to meeting the objectives. However, it is relatively rare for companies to increase prices. Consumers tend to balk at paying more for a product or service that they have had for years. Except it appears, when the company is Amazon, then customers go along with the increase.

Beginning in May, new subscribers to Amazon Prime will pay $119 per year for shipping and entertainment membership programs; existing subscribers will pay the new fee when renewing after mid-June. This is an increase of $20 per year (20%), but it is only the second time that the company has raised the price for Prime. In 2014, Prime cost subscribers $99 per year, and in 2005 when it launched, the price was $79 per year. (What may be more surprising about the move though is that the company announced that is has more than 100 million Prime members worldwide. Amazon had never previously reported the level of members.)

Why the price increase? Prime is expensive for Amazon to fund. Since 2014, the number of products available for free two-day shipping has increased from 20 million to more than 100 million. The company has a significant investment in its logistics network and costs of shipping continue to rise. In addition, Amazon has spent lavishly to acquire, and create, an extensive library of movies and TV shows that are included in the benefits of Prime memberships. Prime delivers value to subscribers beyond the two-day free shipping option.

Is Prime still worth the price?

Group Activities and Discussion Questions:

  1. Pricing is a complex topic. Discuss the six steps for pricing (determining objectives, estimating demand, determining cost/profit relationships, select price level, set list price, and make adjustments).
  2. Discuss the various pricing models in class: demand-oriented, cost-oriented, profit-oriented, and competition-oriented.
  3. For Amazon Prime, divide students into groups and have each group work on any/all of the six steps.
  4. When setting the price level, assign each team a different model to use (demand-oriented, cost- oriented, etc.).
  5. Debrief the exercise. Compare the various pricing models and discuss advantages/disadvantages of each.

Source: CNN Money, Recode, Washington Post, other news sources

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The Ultimate Vending Machine Contains Cars

What was the last item you purchased from a vending machine? Most consumers purchase convenience items such as drinks and snacks at the ubiquitous machines. Maybe in an airport or mall there might be a vending machine for electronics such as headphones and chargers, movies, or prepared meals for people on the go. And, speaking of “on the go”……..

Alibaba’s Tmall recently unveiled what is possibly the world’s largest vending machine, for the world’s largest car market. The product sold in the machines? Cars!

The automobile vending machine, located in Guangzhou, China, is a partnership between Chinese e-commerce company Alibaba and American car manufacturer Ford Motor. The program offers a three-day test-drive to potential customers shopping for a new car. The giant vending machine contains more than 100 vehicles, including small cars, family cars, sports cars, and SUVs. Cars include those made in China as well as imported from the U.S. The goal for the new program is to improve the car buying process for consumers.

The process starts with a mobile app (of course) called the “Super Test-Drive” app. Consumers use the app to research, browse available models, and select a car and pick-up time. Snapping a selfie picture provides facial recognition that is used to confirm the booking and borrow the car from the vending machine. And, if the customer’s credit score is good enough, then the three-day test-drive is free.

This sounds a lot more fun than just getting a snack from the local vending machine!

Group Activities and Discussion Questions:

  1. Poll students: Where are vending machines? What do they buy form vending machines? Why buy from vending machines?
  2. View video of the process: https://youtu.be/zFDDcTOFkEA
  3. While the buying process may vary slightly for different products and target markets, the basic 5-step process remains the same: problem recognition, information search, evaluation of alternatives, purchase decision, and post-purchase behavior.
  4. Does this vending machine fit the model? Or does the model need to change?
  5. Consider assigning different student groups to work on different target markets. Then the process for the different target markets can be compared and contrasted.

Source: Brandchannel.com (26 March, 2018). Alibaba and Ford launch China’s first Tmall car vending machine.

 

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Where’s the Chicken?

In what might arguably be one of the most ironic situations faced by a restaurant, KFC ran out of chicken and had to close more than half of its 900 restaurants in the UK. Yes, you read that right – Kentucky Fried Chicken ran out of chicken (which I guess makes it KF instead of KFC).

The supply chain issue that closed the 562 outlets was blamed on switching KFC’s delivery contract from South African-owned distribution group Bidvest Logistics to DHL. DHL blamed “operational issues” for the snafu. Some of the outlets were able to remain open, but with a limited menu.

Indeed, one can understand that it is a complex task to get fresh chicken to 900 restaurants across the country. According to news reports, the GMB union warned KFC that switching suppliers was a mistake. It certainly appears that they were right.

(Update: As of Feb. 28, 97% of KFC stores were open, but according to Reuters the company is now reporting facing another shortage… this time it’s gravy!)

Group Activities and Discussion Questions:

  1. In order to be successful, companies must be able to physically get a product into the hands of the customers. Discuss how a distribution channel works.
  2. Show the video of the KFC issue: https://youtu.be/jM53cQJACCg
  3. For KFC, what distribution channels are used now?
  4. How can the channel be expanded? What approach could be used?
  5. Divide students into teams. Have each team draw a flow chart for the distribution of the product.

Source:   BBC (19 February, 2018). Chicken chaos as KFC closes outlets.

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