Chapter 4 Marketing

Objectives After reading the chapter and reviewing the materials presented the students will be able to: Describe how marketing segmentation impacts supply chain design Describe the tools of customer relationship management (CRM) Explain the voice of the customer (VOC) and quality function deployment (QFD) Explain channels of distribution and their role in supply chain management

What is marketing? Marketing is the function responsible for linking the organization to its customers and is concerned with the downstream part of the supply chain. The task for marketing is to identify what customers need and want, create demand for company’s current and new products, and continue to identify market opportunities. It is critical to understand exactly what satisfies customers and to precisely match products and service offerings to their needs or preferences. Target marketing recognizes the diversity of customers and does not try to please all of them with the same product offering. The challenge for marketing is to identify the most effective market segments and their needs.

Evolution of Marketing In the early part of the twentieth century, firms focused on low cost products to automatically create demand – transactional marketing. Transactional marketing focused on obtaining successful exchanges or transactions with customers, as opposed to building long term relationships with customers. In the 1970’s customers would only buy products that precisely met their needs – relational marketing. Relational marketing is based on the concept that it is more cost effective to retain current customers than to work to attract new ones.

Impact on the Organization For marketing to be successful, products customers want must be made available. Marketing needs to work with operations to ensure production of the product with the exact characteristics needed: sourcing, logistics, and finance. All this coordination needs to happen simultaneously, while marketing is promoting and advertising the new product.

Impact on the Supply Chain Marketing decisions fall in four categories (4Ps): product, price, place (distribution), and promotion. Product involves decisions that involve product characteristics that satisfy customer needs. Price refers to the pricing strategy developed for the product. Place deals with having the product where it is needed, and when it is needed. Promotion deals with advertising and sales techniques to increase product visibility and desirability.

Who is the Customer? Customers now expect to receive the products they want, when they want them at a low price. The competition for customers has resulted in a proliferation of product choices and alternatives, which has huge supply chain implications. There are two types of end users. The first type is the end consumer which purchases the product and services to satisfy personal needs. The second type is an organizational end user for employees to perform their jobs in the organization. Although each entity in the chain serves their immediate customer they are ultimately driven by the demands of the final customer in the chain.

Types of Customer Relationships Three of the most common strategies used to satisfy customers are : standardized strategy, customized strategy, and niche strategy. In the standardized strategy, all customers are viewed in the same way. The advantage is that the customer receives a product at the lowest possible cost. Customized strategy enables a company to develop different versions of the product based on market needs. This results in higher priced products. A niche strategy targets only one segment of the market that specifically meets customer needs. This a good strategy for small firms or new companies. Customer relationship management (CRM) software allows a high degree of customization

Managing Customers Using CRM CRM involves managing long term relationships between the company and its customers in order to improve profitability. The ability to capture detailed customer information has become a reality with today’s sophisticated technology. The advantage of CRM is that it provides information that aids market segmentation as we can create clusters of customers based on profitability and other factors.

Voice of the Customer (VOC) Voice of the customer (VOC) is the process of capturing customer needs and preferences. Customer needs can be broken into three levels: basic needs, performance needs, and excitement needs. Basic needs are minimum customer needs. Performance needs differentiate one product from another. Excitement needs are normally not known by the customer in advance, but they elicit delight over the product. Quality function deployment (QFD) translates voice of the customer into specific product characteristics.

What is Customer Service? Customer service can be defined as a process of enhancing the level of customer satisfaction by meeting or exceeding customer expectations. Customer service includes activities such as billing and invoicing, product returns, and handling claims. Performance measures include meeting requirements for percentage of orders delivered on time or number of orders processed within acceptable time limits. Philosophy of customer service includes firm wide commitment to customers through superior service.

Impact on the Supply Chain A retail customer can lower their inventories if the supplier uses air (shorter transit time) rather than truck transport. However higher transportation costs are going to be incurred. Time refers to the time to complete an order. Dependability refers to meeting order cycle time and level of quality. Communication involves providing real time order status to all supply chain customers. Convenience is providing a greater amount of customization to their customers.

Measuring Customer Service The company can benchmark its performance against others in its industry. Effective performance measures focus on the customer service from the viewpoint of the customer rather than the supplier. On time delivery measure is particularly important in supply chain management. Using multiple measures enables a company to address potential problems on many customer service dimensions.

Global Customer Service Issues Global customer service levels should be designed to match local customer needs and expectations to the greatest degree possible. Factors that contribute to difference in customer service are the availability of supporting infrastructure, such as roads, power, communication network, local congestion, and time differences.

Channels of Distribution A channel of distribution is the way products and services are passed from the manufacturer to the final consumer. A direct channel structure is one where the transaction is directly from the producer to end user or final consumer. Indirect channels use intermediaries such as wholesalers and retailers to sell to final consumers.

Designing a Distribution Channel The purpose of a distribution channel is to provide consumers with the desired products and services at minimal cost. Three basic market coverage alternatives exist. The first is intensive distribution, that involves the placement of the product in as many outlets or locations as possible. The second is selective distribution, which involves placement of product in a limited number of outlets within a specific geographic area. Last is exclusive distribution which involves placement of a brand in only one outlet in each geographic area.

Distribution Versus Logistic Channel The logistics channel refers to the physical movement of products from where they are available to where they are needed. The distribution channel refers to the transactional entities involved such as dealers, distributors, and wholesalers. A warehouse is part of the logistics channel, whereas a wholesaler is part of the distribution channel.

The Impact of E-Commerce E-Commerce can provide success to a firm only if the firm can integrate the internet with existing channels of distribution. Many e-businesses have incurred financial losses due to incomplete consideration of shipping costs. Handling returns is a critical part of the supply chain. Customers purchasing online are likely to have a higher rate of return. Providing preprinted return labels makes the return process easier for customers.

Summary The task for marketing is to identify what customers need and want, create demand for company’s current and new products, and continue to identify market opportunities. Target marketing recognizes the diversity of customers and does not try to please all of them with the same product offering. The challenge for marketing is to identify the most effective market segments and their needs. Transactional marketing focused on obtaining successful exchanges or transactions with customers, as opposed to building long term relationships with customers. Relational marketing is based on the concept that it is more cost effective to retain current customers than to work to attract new ones. Marketing decisions fall in four categories (4Ps): product, price, place (distribution), and promotion. Product involves decisions that involve product characteristics that satisfy customer needs. Price refers to the pricing strategy developed for the product. Place deals with having the product where it is needed, and when it is needed. Promotion deals with advertising and sales techniques to increase product visibility and desirability. There are two types of end users. The first type is the end consumer which purchases the product and services to satisfy personal needs. The second type is an organizational end user for employees to perform their jobs in the organization. Three of the most common strategies used to satisfy customers are : standardized strategy, customized strategy, and niche strategy. In the standardized strategy, all customers are viewed in the same way. Customized strategy enables a company to develop different versions of the product based on market needs. A niche strategy targets only one segment of the market that specifically meets customer needs. This a good strategy for small firms or new companies. Customer relationship management (CRM) software allows a high degree of customization Voice of the customer (VOC) is the process of capturing customer needs and preferences. Quality function deployment (QFD) translates voice of the customer into specific product characteristics. Customer service can be defined as a process of enhancing the level of customer satisfaction by meeting or exceeding customer expectations. The logistics channel refers to the physical movement of products from where they are available to where they are needed. The distribution channel refers to the transactional entities involved such as dealers, distributors, and wholesalers.

Home Work 1. What is the task for marketing? 2. Explain the 4 Ps of marketing? 3. What is QFD? 4. What is the difference between a logistics channel and a distribution channel?