Distribution Customer Service and Logistics

Content Summary Overview

• Understand why logistics (physical distribution) is such an important part of Place and marketing strategy planning.
• Understand why the physical distribution customer service level is a key marketing strategy variable.
• Understand the physical distribution concept and why the coordination of storing, transporting, and related activities is so important.
• See how firms can cooperate and share logistics activities that will provide added value to their customers.
• Know about the advantages and disadvantages of various transportation methods.
• Know how inventory and storage decisions affect marketing strategy.
• Understand the distribution center concept.

Logistics is the transporting, storing, and handling of goods in ways that match target customers’ needs with a firm’s marketing mix. Physical distribution (PD) is another name for logistics. Whenever the product includes a physical good, Place requires decisions about logistics.
Key Issues

• Physical distribution activities typically make up half or more of total marketing costs.
• By making physical distribution more efficient, an organization can increase its profits, cut prices, improve service, or achieve some combination of all three.
• An example of how marketers made physical distribution more efficient in the grocery industry is through a system called Efficient Customer Response (ECR).
• This complex system involves collaboration among many supermarket chains and producers, and the use of technology to streamline transactions.
• ECR has resulted in savings to U. S. consumers of about $30 billion per year.
• Discussion Question: What consumer trends have contributed to an increased emphasis on physical distribution as an element of Place?

In physical distribution, there are always trade-offs among costs, the customer service level, and sales. Because physical distribution costs can be substantial for various levels of service, marketers must determine what level of service is possible and appropriate for each target market.

Key Issues
For example, a retailer might reason that providing faster transportation than consumers demand will maximize customer service and reduce lost sales. However, this diagram illustrates the important trade-off between customer service and costs. Providing additional levels of customer service, such as:

• more inventory to prevent stockouts, or
• faster transportation,
• eventually increases the total cost of physical distribution.
• Notice that the curve of lost sales goes down as customer service increases, but only to a certain point. At certain points, providing too much customer service can actually detract from the overall marketing effort, because it can increase costs, and possibly price the product out of the reach of consumers in the target market.Discussion Question: Have you ever ordered software from an Internet site where the product can be immediately downloaded for use? Is this a new paradigm for physical distribution that changes the trade-off ratio?

File Category: Advertising
File Added: Tuesday, April 27th, 2010
File Source: dmacc.edu
File Size: 3.5 MB
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