Question

Discuss the suitability of traditional inventory models for the discount segment of the grocery market

Answer 1

• EOQ - Economic Order Quantity
• Continuous Ordering
• Periodic Ordering

1. EOQ: Economic Order Quantity method determines the optimal order quantity that will minimize the total inventory cost. EOQ is a basic model and further models developed based on this model include production Quantity Model and Quantity Discount Model.
2. Continuous Order Model: works on fixed order quantity basis where a trigger for fixed quantity replenishment is released whenever the inventory level reaches predetermined safety level and triggers re ordering.
3. Periodic System Model: This model works on the basis of placing order after a fixed period of time.

EOQ Model

Example: Biotech.Co produces chemicals to sell to wholesalers. One of the raw material it buys is sodium nitrate which is purchased at the rate of $22.50 per ton. Biotech’s forecasts show a estimated requirement of 5,75,000 tons of sodium nitrate for the coming year. The annual total carrying cost for this material is 40% of acquisition cost and the ordering cost is $595. What is the Most Economical Order Quantity ?

D = Annual Demand
C = Carrying Cost
S = Ordering Cost

D = 5,75,000 tons
C =0.40(22.50) = $9.00/Ton/Year
S = $595/Order

= 27,573.135 tons per Order.

This model pre supposes certain assumptions as under:

• No safety Stocks available in inventory.
• No Shortages allowed in order delivery.
• Demand is at uniform rate and does not fluctuate
• Lead Time for order delivery is constant
• One order = One delivery no shortages allowed.
• This model does not take into account other costs of inventory such as stock out cost, acquisition cost etc to calculate EOQ.

Research objectives:

As stated, this thesis concentrates on the motives based on which Finnish consumers choose grocery stores. The thesis thus provides the reader as well as grocery store chains, media and marketing agencies with useful insights on how Finnish consumers in the end select the grocery store, either the preferred one or other than the usually visited. In addition, the preferred and considered grocery stores, the shopping companion, the size of the shopping basket, the time for visiting the store, and the usage of shopping lists

2 The 4P model of marketing and BOE media:

As the 4P model presented in Figure 2 has been evaluated and its suitability to various product categories has been discussed, even a 7P’s model has been presented. The three additional P’s are People, Process and Physical evidence. Muzondo and Mutandwa assessed in their article the significance of the 7P’s of marketing and their impact on the consumer choice of a main grocery store in a hyperinflatory economy. They stated that various academic and commercial studies show that the 7 P’s of marketing are crucial in determining the choice of a store although consumer behaviour models do not reflect that in terms of marketing stimuli element. While grocery market contains tangible product marketing,

Defining product, price, place and promotion:

Product is anything that is offered to a market for attention, acquisition, use or consumption that might satisfy a want or a need. It is more than just tangible goods. When described broadly, the term product includes physical objects, service persons, places, organizations, ideas or combinations of these entities. Product is the key in the overall marketing offering. Marketing mix planning starts with formulating an offering that brings value to the target group.

Defining bought, owned and earned media:

Loyalty programs:

When brand advertising is considered, many issues need to be taken into consideration. These contain for example the values and attitudes of the target group, and the media that they use. In addition, the advertising of competitor brands should be analysed as well, especially when the advertising of own and competitor brands takes place at the same time. A possible factor influencing Finnish consumer behaviour on grocery store choice is that of loyalty programs. While SOK and Kesko have a huge share of the Finnish grocery market, also the promotions and discounts provided by the loyalty programs of these chains, that is, S-Etukortti and Plussa-kortti, may have an impact on Finnish consumers’ purchase behaviour as they are giving their members discounts in the grocery stores. This chapter highlights some of the promotional activities that can be done through the loyalty programs.

Store features and in-store advertising:

1. cleanliness

2. all prices labelled

3. good produce department

4. accurate, pleasant clerks

5. low prices

6. freshness date marked on products

7. good meat department

8. shelves usually kept well-stocked

9. unit pricing signs on shelves

10. convenient store location