Chapter 2 Putting the end-customer 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… The challenge Customer Increased productivity Short lead times Increased sales and market shares Strong brand

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 end-customer Vs. B2C B2B consumer customer Vs. B2B B2B

The marketing perspective Rising customers expectation better levels of general education better ability to discern between alternative products Exposure to more lifestyle issue in the media 1 2 3

The marketing perspective The information revolution internet Industry structure 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?

A powerful way to bridge marketing and logistics 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 Miller case Beer market consumer Consumption 1:8 Light drinker Heavy drinker female High level income Blue-collar Over 30 years of age Spend long time on watching TV per day Sporting.

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 innovative efficient Lenovo responsive 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? 2 How does satisfaction stack up with customer loyalty?

Case: Service of a seafood restaurant Quality of service Case: Service of a seafood restaurant Fourth floor Third floor Second floor First floor ￥10 ￥6 ￥3 ￥2

Service specification Quality of service Service is the combination of outcomes and experiences delivered to and received by the end-customer (Johnston and Clark, 2001). Service specification Expected service Service delivery Perceived service supplier customer Gap 1 Gap 4 Gap 3 Gap 2

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 10～14天 90天 10～15% 100% 12000 4000 11/year 3/year 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 Production system 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 sub-contractors.

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.