Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/e- Distribution Customer
Service and Logistics
Text © The McGraw−Hill
Companies, 2002332 Chapter 12
not pink. It means you want your Lay’s Baked Potato Chips to be whole when you
buy a bag at the snack bar—not crushed into crumbs from rough handling in a
warehouse.PD is, and should be, a part of marketing that is “invisible” to most consumers.
It only gets their attention when something goes wrong. At that point, it may be
too late to do anything that will keep them happy.
In countries where physical distribution systems are inefficient, consumers face
shortages and inconvenient waits for the products they need. By contrast, most con-
sumers in the United States and Canada don’t think much about physical
distribution. This probably means that these market-directed macro-marketing sys-
tems work pretty well—that a lot of individual marketing managers have made good
decisions in this area. But it doesn’t mean that the decisions are always clear-cut or
simple. In fact, many trade-offs may be required.Most customers would prefer very good service at a very low price. But that com-
bination is hard to provide because it usually costs more to provide higher levels of
service. So most physical distribution decisions involve trade-offs between costs, the
customer service level, and sales.
If you want a new Compaq computer and the Best Buy store where you would
like to buy it doesn’t have it on hand, you’re likely to buy it elsewhere; or if that
model Compaq is hard to get you might just switch to some other brand. Perhaps
the Best Buy store could keep your business by guaranteeing two-day delivery of
your computer—by using airfreight from Compaq’s factory. In this case, the man-
ager is trading the cost of storing inventory for the extra cost of speedy
delivery—assuming that the computer is available in inventory somewherein the
channel. In this example, missing one sale may not seem that important, but it all
adds up. In fact, using Compaq Computer to illustrate this point is quite purpose-
ful. A few years ago Compaq lost over $500 million in sales because its computers
weren’t available when and where customers were ready to buy them. With that
kind of lesson in lost sales, you can see why Compaq worked hard to improve on
the trade-off it was making.
Exhibit 12-1 illustrates trade-off relationships like those highlighted in the Com-
paq example. For example, faster but more expensive transportation may reduce theCost ($)0
0 90%
Customer service level
(percent of customers served
within some time period — say, four days)Total cost of
physical distribution
Inventory cost
Lost sales*Transporting cost*Note: Sales may be lost because of poor customer service or because
of the high price charged to pay for too high a customer service level.Exhibit 12-1
Trade-Offs among Physical
Distribution Costs, Customer
Service Level, and Sales
Physical distribution is
invisible to most
consumers
Trade-offs of costs,
service, and sales