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

348 Chapter 12

Which channel members store the product, and for how long, affects the behavior

of all channel members. For example, the producer of Snapper lawn mowers tries to

get wholesalers to inventory a wide selection of its machines. That way, retailers can

carry smaller inventories since they can be sure of dependable local supplies. And they

might decide to sell Snapper—rather than Toro or some other brand that they would

have to store at their own expense.

If final customers “store” the product, more of it may be used or consumed. You

saw this in the Coke case that introduces this chapter. Coke wants customers to

buy six packs and 2-liter bottles. Then consumers have an “inventory” in the refrig-

erator when thirst hits. Of course, consumers aren’t always willing or able to hold

the inventory. In China, for example, Coke had little success until it gave up push-

ing 2-liter bottles and switched to single-serving 75 ml bottles. Only 1 out of 10

Chinese families has a refrigerator—so they didn’t have a good way to store a bot-

tle once it was open.

Storing can increase the value of goods and make them more available when cus-

tomers want them. But a manager must remember that storing always involves costs

too. Different kinds of cost are involved. See Exhibit 12-6. Car dealers, for exam-

ple, must store cars on their lots—waiting for the right customer. The interest

expense of money tied up in the inventory is a major cost. In addition, if a new car

on the lot is dented or scratched, there is a repair cost. If a car isn’t sold before the

new models come out, its value drops. There is also a risk of fire or theft—so the

retailer must carry insurance. And, of course, dealers incur the cost of leasing or

owning the display lot where they store the cars.

In today’s competitive markets, most firms watch their inventories closely. Taken

in total, the direct and indirect costs of unnecessary inventory can make the dif-

ference between a profitable strategy and a loser. Annually these costs are typically

20 to 40 percent of the average value of the inventory. As a result, well-run firms

everywhere are trying to cut unnecessary stock and reduce the drain it puts on prof-

its. On the other hand, a marketing manager must be very careful in making the

distinction between unnecessary inventory and inventory needed to provide the dis-

tribution service customers expect.^24

Total Inventory Cost

Handling costs (to put

products in inventory

and take them out again)

Costs of inventory

becoming obsolete

Cost of storage

facilities and

maintaining them

Cost of risks such

as theft and fire

Interest expense of

money tied up in

inventory (“inventory

carrying cost”)

Costs of damage

to products while

in inventory

Exhibit 12-6 Many Expenses Contribute to Total Inventory Cost

Goods are stored
at a cost