In order to take advantage of the supply chain a company must be able to utilize the entire supply chain for optimal productivity.  They must review the entire supply chain to determine the lowest cost to perform the value added operations and the best overall process.  How chain costing affects me in my own personal little world might not be as big in scope as it is to a company or a large corporation.  However, it does have its effects.

For example, just the other day my wife asked me to stop at a particular store on my way home from work to purchase milk.  Now looking at this from my point of view, I was going to stop at the large big box grocery store that is on my direct path to my doorstep.  Why?  Because it was a matter of convenience.  It meant that I spent less time in traffic.  Thus, less of an overall headache and because it was also on my way home meant that I could stay on my normal route and be at home within five minutes of the purchase.  But, the biggest benefit of all (at least in my mind) was that I would be able to save about $.30 a gallon if I purchased it at the big box grocery store rather than the store that she likes to go to.  In this instance the big box price objective would be sales oriented with the greater number of units being sold and equating to a penetration model.

Have It Your Way

My wife had other ideas.  She wanted to make sure that I did not stop at the large big box grocery store that is on my way home from work.  She preferred that I went to the locally owned and operated market on the other side of town that she liked to shop at.  Why?  Because they were customer oriented in their pricing approach.  They knew her, they knew what she liked and what she did not like, and to her the value in shopping at that store was very high. (And because all she had to do was call them and they would have everything bagged and prepared when she got there…talk about spoiled).  In all reality, I guess you could say that the smaller store was more profit oriented because many items did seem higher in price.  But on overall level, anything that we purchased at that store was high quality. 

Now I'm not sure if this store uses a markup or a profit maximization approach (probably a combination of both) but this is what I do know:  in order for me to travel to that store to purchase one gallon of milk it would encompass an extra 45 minute drive round trip, 1 gallon of gas minimum (idle time included), an extra 15 minutes to park the car and a minimum of a block's walk to the market, as well as the meter fee.  So, undervaluing my time at minimum wage of $7.25/hour, gas at four dollars a gallon, plus the premium of $.30 per gallon of milk, I am looking at a premium of $11.55 for a simple gallon of milk. 

Drucker maintained that businesses should start with the price and work back to determine the allowable costs rather than adding up all the costs and then additionally adding a profit on top.  “Drucker felt strongly that to assign the correct price, one must first look at prospective customers and how they see the product or service in the context of the market.”(Cohen, 2012)  I do see where Drucker is coming from, but since my purchase was small and I do not have economies of scale on my side, I guess I was attempting to use one of Drucker's five deadly sins in order to justify my purchase of a gallon of milk. 

But, No! Wait! There is more! 

I made an executive decision to stop at the big-box grocery store and purchased a gallon of milk.  I got back into my car and no sooner did I start the engine then my phone rang.  It was my wife and she stated that my daughter needed her sleepy cookies.  My daughter’s sleepy cookies are actually animal crackers, a specific brand of animal crackers that can only be purchased at her favorite store.  If any of you have children then you just might understand my plight.  Without her single animal cracker right before she goes to bed, my daughter will not sleep through the night and with her not sleeping, Mom and Dad don't sleep.  But, the story of the animal cracker will be saved for another day.  Instead, my wife informed me that she had phoned an order to the store and it will be ready for pickup in 10 minutes.

After driving across town, paying the meter fee, walking two blocks in the rain without an umbrella, I am finally upon the threshold of the store, soaking wet.  I go to the counter to pick up the order, but on the way through the store and out of casual observation, I did not see very many discounts or allowances to price influence any of the shoppers.  Instead, I noticed higher prices at the store compared to the big-box grocery store for similar items.  It was clear to me that there were no price influences or adjustments to entice shoppers to purchase the products.  You can be sure when I state that there is no such thing as an everyday low price or even a high/low pricing philosophy at this store, there is no such thing.

When I get to the counter, I am surprised at the size (and number) of bags that are pulled out of cold storage.  Here I was thinking that since I had already bought the milk that I would get the animal crackers and be on my merry way.  Instead, I realize that I was now going to have to carry 2 large shopping bags and 2 gallons of milk two blocks to my car...in a heavy rain. Instant *facepalm*.

They'rrre GR-R-REAT!!

I was beginning to struggle with the balancing between the bags and the milk and in the meantime wondering how I'm going to make it two blocks without the paper bags ripping in the rain.  I stood at the entrance of the store for a moment preparing myself for what seemed like a really long walk when I was approached by an employee.  The employee said to me "Mr. Alissa, can I help you to your car?" I kindly thanked him and told him it was not necessary.  He insisted on helping me and stated that he was not made of sugar and would not melt in the rain.  He suggested that I leave the groceries with him, get my car and he will help me load them into the car once I arrive.  It was at this point in time that I truly understood why my wife shops at this store-- value created.

While there may be many who do not respond to service levels and favor low prices (including bringing their own bags, self-checkouts, and bagging groceries themselves), I now believe that I am one of those ‘irrational’s’ who buck that trend.  As Cohen point out, “There are many reasons why a potential customer may not buy in addition to price. As Drucker confirmed, price is only one measurement of value… price can be successfully set only by first determining its relative importance to the customer.” (Cohen, 2012)  However, I do believe that the definition of an ‘irrational’ is dependent upon that person’s personal experience as well as other inputs, such as economic factors and other outside influences.

So how does this apply to Pharmasim?  Well, in essence if the customer is not happy, they will not purchase your product, no matter how much money you spend in reports, marketing efforts, or shelf space.  You must keep your customer happy, as this small grocery store did for me.  I will gladly drive to the other side of town and pay higher prices because they proved that they care about me.  

I could never see this small grocery store use marketing tactics like Nordstrom’s, although I have noticed many CCTV cameras placed in strategic locations around the store.  As well, I think that the store has their own personal ‘Guido’ to take care of things should they go south.  He is quite an intimidating person.  You never know, he could end up working for Hy-Vee Food Stores and play the role of the Incredible Hulk in the annual Spring Time Party (without the costume).

As I am perusing the Internet, I run across a recent article which explains the

success behind the “Got Milk” campaign.  The creator of the slogan states, “‘That your life turned upside down without milk with certain things,” said Jeff Manning…The idea was to give people a feeling of what Manning calls “milk depravation…This was a huge turning point for the milk industry,” he said.’ (Torres, 2013) That slogan became the theme for many advertising campaigns and co-brands, including toys, fast food restaurants, and even rock bands.  Milk has certainly made my life a bit easier.  Well, animal crackers, too.   

Cohen, William (2012-09-26). Drucker on Marketing: Lessons from the World's Most Influential Business Thinker (p. 201). McGraw-Hill. Kindle Edition.

Cohen, William (2012-09-26). Drucker on Marketing: Lessons from the World's Most Influential Business Thinker (p. 206). McGraw-Hill. Kindle Edition.

Torres, Chris. “Branding guru: Milk’s message can boost fruit, veggies.” Lancaster Online. 4 Feb. 2013. Web. 11 May 2013. http://lancasteronline.com/article/local/810988_Branding-guru--Milk-s-message-can-boost-fruit--veggies.html.