Read and translate the following text. Use a dictionary if necessary. Read the text very carefully so that to grasp both the main idea and the details added.
Customer Service level
level – including
fast and reliable
delivery – is
critical to many
Choosing the right channel of distribution is crucial in getting products to the target market’s place. But that alone is usually not enough to ensure that products are available at the right time and in the right quantities.
Let’s look at logistics through a customer’s eyes.
Customers don’t care how a product was moved or stored – or what some channel member had to do to provide it. Rather, customers think in terms of the physical distribution customer service level – how rapidly and dependably a firm can deliver what they – the customers – want. Marketing managers need to understand the customer’s point of view.
What does this really mean? It means that Toyota wants to have enough windshields delivered to make cars that day – not late, so production stops or early, so there are a lot of extras to move around or store. It means that business executives who rent cars from Hertz want them to be ready when they get off their planes. It means you want your Lay’s potato chips to be whole when you buy a bag at the snack bar – not crushed into crumbs from rough handling in a warehouse.
Logistics 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.
Most customers would prefer very good service at a very low price. But that combination 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 computer 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 first store could keep your business by guaranteeing a two-day delivery of your computer – by using special airfreight delivery from the factory. In this case, the manager is trading the cost of storing a large inventory for the extra cost of speedy delivery – assuming that the computer is available in inventory somewhere in the channel. In this example, missing one sale may not seem that important, but it all adds up. In fact, Compaq Computer, which recently became the number one producer of PCs, estimates that it lost between $500 million and $1 billion in sales 1994 because its computers weren’t available when and where customers were ready to buy them. With lost sales like that, you can see why Compaq is working hard to reevaluate the trade-offs it’s been making.
Exhibit 1 illustrates trade-off relationships like those highlighted in the Compaq example. For example, faster – but more expensive – transportation may reduce the need for a costly inventory of computers. There is also a trade-off between the service 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.
The important points 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 customers aren’t satisfied. A higher service level may make a better strategy.
|Exhibit 1||Trade-Offs among Physical Distribution Costs, Customer Service Level, and Sales|