Chapter 2

Putting the end-customer first

The marketing perspective

Segmentation

Quality of service

Setting logistics priorities

Content

• Key issue

The marketing perspective

1111What are the marketing implications for logistics strategy?

• Marketing is a philosophy that integrates the disparate activities and functions that take place within the network. Satisfied [end] customers are seen as the only source of profit, growth and security. (Doyle,1994)

The marketing perspective

The Challenge…

The challenge

Customer

Increased productivityShort lead times

Increased sales and market sharesStrong brand

The marketing perspective

The marketing perspective

The battleground is the customer’s wallet.

The victors will be those that can order their entire organization around the challenges of getting cheaper more profitable and more loyal customers.

It’s an age of expert buyers. Customers are becoming ever more critical and demanding.

Customers know that they can play the market and are placing higher and higher demands on suppliers to give them what they want – and immediately.

• Two pairs of concepts

The marketing perspective

B2B B2B

B2B

B2C

business customer

end-customer

Vs.

consumer

customer

Vs.

• Rising customers expectation

The marketing perspective

better levels of general education

better ability to discern between

alternative products

Exposure to more lifestyle issue in the

media

1 2 3

• The information revolution

The marketing perspective

internetinternet

Industry structureIndustry structure

Buyer-supplier relationshipBuyer-supplier relationship

Purchasing, SCM and NPDPurchasing, SCM and NPD

The marketing perspective

Segmentation

Quality of service

Setting logistics priorities

Content

• Key issue

Segmentation

1111What is segmentation, and what are its implications to logistics strategy?

• Market can be segmented in many ways– Demographic: such as age, gender and

education– Geographic: such as urban vs. country, types of

house and region– Technical: the use that customers are going to

make of a product– Behavioral: such as spending pattern and

frequency of purchase

Segmentation

A powerful way to bridge marketing and logistics

Miller caseMiller case

Segmentation

Beer market consumer

Light drinker Heavy drinker

Consumption 1:8

•Blue-collar•Over 30 years of age•Spend long time on watching TV per day•Sporting.

•female•High level income

• Fragmentation of Markets and Product Variety

– Are the requirements of all market segments

served identical?

– Are the characteristics of all products identical?

– Can a single supply chain structure be used for

all products / customers? No! A single supply

chain will fail different customers on efficiency

or responsiveness or both.

Segmentation

• Activity 1– Try to compare the segmentation

strategies between Dell and Lenovo in computer market.

– What logistics strategy should Dell make to fit its market segmentation? So what about Lenovo?

Segmentation

Segmentation

functional innovative

efficient

responsive Dell

Lenovo

The marketing perspective

Segmentation

Quality of service

Setting logistics priorities

Content

• Key issues

Quality of service

1111How do customer expectations affect logistics service?

2222How does satisfaction stack up with customer loyalty?

Quality of service

CaseCase: Service of a seafood restaurant

Fourth floor

Third floor

Second floor

First floor

￥ 10

￥ 6

￥ 3

￥ 2

Quality of service

Service is the combination of outcomes and experiences delivered to and received by the end-customer (Johnston and Clark, 2001).

Service specification

Expected service

Service delivery

Perceived service

supplier customer

Gap 1

Gap 4

Gap 3Gap 2

• Customer loyalty ＝ Customer satisfaction

• Value disciplines– Operational excellence– Product leadership– Customer intimacy

• Customer relationship management– Bow tie– Diamond

Quality of service

supplier customer supplier customer

？

The marketing perspective

Segmentation

Quality of service

Setting logistics priorities

Content

• Key issues

Setting logistics priorities

1111How can we set logistics priorities?

2222How do such priorities relate to customer segments?

Setting logistics priorities

Identify the order winners and qualifiers according to customer needs by market segment

Priority order winners for each segment

Identify gaps in existing logistics capabilities: reinforce strengths and plug weaknesses

Using market segments to set logistics priorities

Zara case

Flag brand of a Spanish apparel manufacturer and retailer group---Inditex

Produce and sell the most fashioned apparel, target core is female of 18-35 years.

The first shop of Zara was built in 1975.

Own loyal customers, regular buyers visit 17 times per year.

Rivals of Zara: Gap(USA), Mango(Eupope), Benetton(Italy)

ZARAChina clothing

firm

Lead time 10 ～ 14天 90天Percentage of

preseason production

10 ～ 15% 100%

Number of new fashions per year 12000 4000

Stock turnover 11/year 3/year

– Product style• Agile design, not pilot design

• Employ many cool hunters

– Production system• 50% production at headquarters, 20% imported from low-cost

countries (Asia), 30% in other region of Spain or Europe

• Spare production capacity: production is always lower than forecasted sales

• Global sourcing cloth materials. Half of materials are naturally colored, and then dyed and painted in a subsidiary of Inditex. This cycle only spends about one week.

• Zara’s production system only covers the elements with scale economy, such as dyeing, cutting, labeling, and packing. The processes of labor-intensive are usually operated by hundreds of sub-contractors.

– Logistics• Receiving orders with a high frequency and small

volume, shop managers keep direct contact with headquarters.

• Each delivery runs within 48 hours. Goods are transported by land-carriage (less than 24 hrs) or by air (more than 24 hrs).

• Two distribution centers are located in Spain. All items are labeled and priced at distribution center, and then delivered by third-party logistics firms.