Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/e- Distribution Customer
Service and Logistics
Text © The McGraw−Hill
Companies, 2002336 Chapter 12
National Semiconductor cut its standard delivery time in half, reduced distribution
costs 2.5 percent, and increased sales by 34 percent. In the process it shut down six
warehouses around the globe and started to airfreight microchips to its worldwide
customers from a new 125,000-square-foot distribution center in Singapore. In
advance of these changes, no one would have said that this was an obvious thing
to do. But it proved to be the smart thing.It’s important for firms to compare the costs and benefits of all practical PD alter-
natives, including how functions can be shared in the channel. Sometimes, however,
there are so many possible combinations that it is difficult to study each one com-
pletely. For example, there may be hundreds of possible locations for a warehouse.
And each location might require different combinations of transporting, storing, and
handling costs. Some companies use computer simulation to compare the many pos-
sible alternatives. But typically, the straightforward total cost analysis discussed
above is practical and will show whether there is need for a more sophisticated ana-
lytical approach.^6Identifying all the
alternatives is
sometimes difficult
Coordinating Logistics Activities among Firms
As a marketing manager develops the Place part of a strategy, it is important to
decide how physical distribution functions can and should be divided within the
channel. Who will store, handle, and transport the goods—and who will pay for
these services? Who will coordinate all of the PD activities?
There is no right sharing arrangement. Physical distribution can be varied end-
lessly in a marketing mix and in a channel system. And competitors may share these
functions in different ways—with different costs and results.How the PD functions are shared affects the other three Ps—especially Price.
The sharing arrangement can also make (or break) a strategy. Consider Channel
Master, a firm that wanted to take advantage of the growing market for the dish-
like antennas used to receive TV signals from satellites. The product looked like it
could be a big success, but the small company didn’t have the money to invest in
a large inventory. So Channel Master decided to work only with wholesalers who
were willing to buy (and pay for) several units—to be used for demonstrations and
to ensure that buyers got immediate delivery.
In the first few months Channel Master earned $2 million in revenues—just by
providing inventory for the channel. And the wholesalers paid the interest cost of
carrying inventory—over $300,000 the first year. Here the wholesalers helped share
the risk of the new venture—but it was a good decision for them too. They won
many sales from a competing channel whose customers had to wait several months
for delivery. And by getting off to a strong start, Channel Master became a market
leader.PD decisions interact with other Place decisions, the rest of the marketing mix,
and the whole marketing strategy. As a result, if firms in the channel do not plan
and coordinate how they will share PD activities, PD is likely to be a source of con-
flict rather than a basis for competitive advantage. Holly Farms’ problems in
introducing a new product illustrate this point.
Marketers at Holly Farms were encouraged when preroasted chicken performed
well in a market test. But channel conflict surfaced when they moved to broader
distribution. As with other perishable food products, the Holly Farm label indicated
a date by which the chicken should be sold. Many grocers refused to buy the roastFunctions can be
shifted and shared in
the channel
How PD is shared
affects the rest of a
strategy
A coordinated effort
reduces conflict