Basic Marketing: A Global Managerial Approach

Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/e

12. Distribution Customer
    Service and Logistics

Text © The McGraw−Hill

Companies, 2002

Distribution Customer Service and Logistics 333

need for a costly inventory of computers. There is also a trade-off between the ser-

vice level and sales. If the service level is too low—if products are not available on

a timely and dependable basis—customers will buy elsewhere, and sales will be lost.

Alternatively, the supplier may hope that a higher service level will attract more

customers or motivate them to pay a higher price. But if the service level is higher

than customers want or are willing to pay for, sales will be lost to competitors who

have figured out what kind of service customers value.

The important point is that many trade-offs must be made in the PD area. The

trade-offs can be complicated. The lowest-cost approach may not be best—if cus-

tomers aren’t satisfied. A higher service level may make a better strategy. Further,

if different channel members or target markets want different customer service lev-

els, several different strategies may be needed.^3

Many firms are trying to address these complications with e-commerce. Informa-

tion technology can improve service levels and cut costs at the same time. As you’ll

see, better information flows make it easier to coordinate the different activities and

cut inefficiency that doesn’t add value for the customer.

The physical distribution (PD) conceptsays that all transporting, storing, and

product-handling activities of a business and a whole channel system should be coor-

dinated as one system that seeks to minimize the cost of distribution for a given

customer service level. Both lower costs and better service help to increase customer

value. It may be hard to see this as a startling development. But until just a few

years ago, even the most progressive companies treated physical distribution func-

tions as separate and unrelated activities.

Within a firm, responsibility for different distribution activities was spread among

various departments—production, shipping, sales, warehousing, and others. No one

person was responsible for coordinating storing and shipping decisions or seeing how

they related to customer service levels. Some firms even failed to calculate the costs

for these activities, so they never knew the total cost of physical distribution. If it

was unusual for distribution to be coordinated within a firm, it was even rarer for

different firms in the channel to collaborate. Each just did its own thing.^4

Unfortunately, in too many firms old-fashioned ways persist—with a focus on

individual functional activities rather than the whole physical distribution system.

Trying to reduce the cost of individual functional activities may actually increase

total distribution costs—not only for the firm, but also for the whole channel. It

may also lead to the wrong customer service level. Well-run firms now avoid these

problems by paying attention to the physical distribution concept.

With the physical distribution concept, firms work together to decide what

aspects of service are most important to customers at the end of the channel and

what specific service level to provide. Then they focus on finding the least expen-

sive way to achieve the target level of service.

Exhibit 12-2 shows a variety of factors that may influence the customer service

level (at each level in the channel). The most important aspects of customer ser-

vice depend on target market needs. Xerox might focus on how long it takes to

deliver copy machine repair parts once it receives an order. When a copier breaks

down, customers want the repair “yesterday.” The service level might be stated as

Physical Distribution Concept Focuses on the Whole Distribution System

The physical

distribution concept

Decide what service

level to offer