Chapter 2
Putting the endcustomer first
Content
The marketing perspective
Segmentation
Quality of service
Setting logistics priorities
The marketing perspective
• Key issue
1
What are the marketing
implications for logistics strategy?
The marketing perspective
• Marketing is a philosophy that integrates
the disparate activities and functions that
take place within the network. Satisfied
[end] customers are seen as the only source
of profit, growth and security. (Doyle,1994)
The marketing perspective
The Challenge…
Customer
The
challenge
Increased sales and
market shares
Strong brand
Increased productivity
Short lead times
The marketing perspective
The battleground is the customer’s wallet.
The victors will be those that can order their entire organization around
the challenges of getting cheaper more profitable and more loyal
customers.
It’s an age of expert buyers. Customers are becoming ever more
critical and demanding.
Customers know that they can play the market and are placing higher
and higher demands on suppliers to give them what they want – and
immediately.
The marketing perspective
• Two pairs of concepts
business customer
Vs.
B2C
end-customer
B2B
consumer
Vs.
customer
B2B
B2B
The marketing perspective
• Rising customers expectation
1
2
3
better levels
of general
education
better ability
to discern
between
alternative
products
Exposure to
more lifestyle
issue in the
media
The marketing perspective
• The information revolution
Industry structure
internet
Buyer-supplier relationship
Purchasing, SCM and NPD
Content
The marketing perspective
Segmentation
Quality of service
Setting logistics priorities
Segmentation
• Key issue
1
What is segmentation, and what
are its implications to logistics
strategy?
Segmentation
• Market can be segmented in many ways
– Demographic: such as age, gender and
education
– Geographic: such as urban vs. country, types of
house and region
– Technical: the use that customers are going to
make of a product
– Behavioral: such as spending pattern and
frequency of purchase
A powerful way to bridge
marketing and logistics
Segmentation
Beer market consumer
Consumption 1:8
Light drinker
•female
•High level income
Heavy drinker
•Blue-collar
•Over 30 years of age
•Spend long time on
watching TV per day
•Sporting.
Miller case
Segmentation
• Fragmentation of Markets and Product
Variety
– Are the requirements of all market segments
served identical?
– Are the characteristics of all products identical?
– Can a single supply chain structure be used
for all products / customers? No! A single
supply chain will fail different customers on
efficiency or responsiveness or both.
Segmentation
• Activity 1
– Try to compare the segmentation strategies
between Dell and Lenovo in computer
market.
– What logistics strategy should Dell make to
fit its market segmentation? So what about
Lenovo?
Segmentation
functional
efficient
responsive
innovative
Lenovo
Dell
Content
The marketing perspective
Segmentation
Quality of service
Setting logistics priorities
Quality of service
• Key issues
1
2
How do customer
expectations affect logistics
service?
How does satisfaction stack
up with customer loyalty?
Quality of service
Case: Service of a seafood restaurant
￥2
Fourth floor
￥3
Third floor
￥6
Second floor
￥10
First floor
Quality of service
Service is the combination of outcomes and experiences delivered
to and received by the end-customer (Johnston and Clark, 2001).
supplier
Service
specification
customer
Gap 1
Gap 2
Service
delivery
Expected
service
Gap 3
Gap 4
Perceived
service
Quality of service
？
• Customer loyalty＝Customer
satisfaction
• Value disciplines
– Operational excellence
– Product leadership
– Customer intimacy
• Customer relationship management
– Bow tie
– Diamond
supplier
customer
supplier
customer
Content
The marketing perspective
Segmentation
Quality of service
Setting logistics priorities
Setting logistics priorities
• Key issues
1
How can we set logistics
priorities?
2
How do such priorities relate
to customer segments?
Setting logistics priorities
Identify the order winners and
qualifiers according to customer
needs by market segment
Priority order winners for each
segment
Identify gaps in existing logistics
capabilities: reinforce strengths
and plug weaknesses
Using market segments to set
logistics priorities
Zara case
Flag brand of a Spanish apparel
manufacturer and retailer group---Inditex
The first shop of Zara was built in 1975.
Produce and sell the most fashioned apparel,
target core is female of 18-35 years.
Own loyal customers, regular buyers visit 17
times per year.
Rivals of Zara: Gap(USA), Mango(Eupope),
Benetton(Italy)
ZARA
China clothing
firm
Lead time
10～14天
90天
Percentage of
preseason
production
10～15%
100%
Number of new
fashions per year
12000
4000
Stock turnover
11/year
3/year
– Product style
• Agile design, not pilot design
• Employ many cool hunters
– Production system
• 50% production at headquarters, 20% imported from low-cost
countries (Asia), 30% in other region of Spain or Europe
• Spare production capacity: production is always lower than
forecasted sales
• Global sourcing cloth materials. Half of materials are naturally
colored, and then dyed and painted in a subsidiary of Inditex. This
cycle only spends about one week.
• Zara’s production system only covers the elements with scale
economy, such as dyeing, cutting, labeling, and packing. The
processes of labor-intensive are usually operated by hundreds of subcontractors.
– Logistics
• Receiving orders with a high frequency and small
volume, shop managers keep direct contact with
headquarters.
• Each delivery runs within 48 hours. Goods are
transported by land-carriage (less than 24 hrs) or by air
(more than 24 hrs).
• Two distribution centers are located in Spain. All items
are labeled and priced at distribution center, and then
delivered by third-party logistics firms.