Marketing Logistics

Martin Christopher, Helen Peck

• Publisher: Routledge
• Year: 2012
• Print ISBN: 9781138174290
• eBook ISBN: 9781136379734
• Topic: Business
• Subtopic: Business General
• Index: Business

This interface is being recognized by business organizations as a key priority for management, and both practitioners and academics alike have placed a greater emphasis on the need to view the supply chain as a whole as the vehicle by which competitive advantage is achieved.

As well as drawing upon current research and the experience of firms worldwide, Marketing Logistics uses numerous 'mini-cases' and vignettes to illustrate the key messages in each chapter and bring the theory to life.

This book is an invaluable resource for managers who seek to understand more about the way in which the supply chain should be managed to improve their organization's competitive position, as well as students undertaking degree-level courses in marketing, logistics and supply chain management.

Chapter 1

The new market place

In many Western economies the dynamics of the market place have changed in recent years. Markets are increasingly characterised by sophisticated and demanding customers and consumers, within a competitive environment that is far more volatile and less predictable than before. Under these conditions marketing’s reliance on the classic ‘4 Ps’ of product, price, promotion and place is no longer sufficient to achieve market leadership. Instead, winning companies are those that can speed up the rate of innovation, bring new products and services to the market place faster, and replenish demand in shorter lead times and with greater reliability – in short, these companies are more responsive. Creating the responsive organisation has to be the main priority of management in any business, and achieving it requires a much greater focus on the processes through which demand is met. This is the arena of marketing logistics – the critical interface between the market place and the organisation seeking to satisfy customer requirements.

In recent years there has been a growing questioning of the effectiveness of marketing as it has conventionally been practised. Whilst the basic principles of marketing still hold – that is, the identification of customer needs and the satisfaction of them at a profit to the supplier – there is some doubt as to whether the focus of ‘traditional’ marketing upon branding and positioning is still appropriate. In this classic model the routes to competitive advantage have typically been based upon strong brands, corporate images, media advertising and, in some cases, price. These are the classic components of conventional marketing strategies. In today’s turbulent market place, however, it is no longer sufficient to have attractive products, competitively priced and creatively advertised. There has been a growing tendency for customers to want more – specifically, to require ever-higher levels of service.

Customer service has become the competitive battleground in many industries. It can provide a significant opportunity to differentiate an otherwise standard product and to tailor the company’s offering to meet specific customer requirements.

This trend towards the service-sensitive customer is as apparent in industrial markets as it is in consumer markets. Hence companies supplying the car industry, for example, must be capable of providing just-in-time deliveries direct to the assembly line; similarly, a food manufacturer supplying a large supermarket chain must have an equivalent logistics capability, enabling it to keep the retail shelf filled whilst minimising the amount of inventory in the system. The evidence from across a range of markets suggests that a critical determinant of whether orders are won or lost, and hence the basis for becoming a preferred supplier, is customer service. Time has become a far more critical element in the competitive process. Customers in every market want ever-shorter lead times; product availability often overcomes brand or supplier loyalty – meaning that if the customer’s preferred brand is not available and a substitute is, then the likelihood is a lost sale.

The changing marketing environment

It has to be recognised that there have been some radical changes in the marketing environment since marketing first came to prominence in the early 1960s. Fifty years ago, organisations that had even the most rudimentary understanding of the marketing concept were able to reap the harvest of fast-growing markets comprising customers who had money to spend. In such conditions it was easy to believe that the company’s marketing effort was the main driver of this success. In reality, that success was due as much to the fact that the business was being carried along with the tidal wave of market growth.

The most significant change to impact on Western companies since that time has been the maturing of the markets in which they compete. Mature markets have certain characteristics that mark them out as being significantly different from growth markets, and chief amongst these are:

Sophisticated and experienced customers

Perceived equality of product functionality

Transition from a sellers’ market to a buyers’ market

Price competition.

Customer sophistication

In the majority of Western economies, today’s customers and consumers have seen it all – they have been there and ‘bought the T-shirt’. In industrial markets, as well as fast-moving consumer goods markets, the supplier is now faced with a buyer who is much more demanding and less easily persuaded by marketing ‘hype’. One consequence of this change is the gradual decline in brand loyalty in many markets. Brand loyalty has been replaced by brand preference. What this means is that the buyer may prefer to buy a particular product from a particular supplier for a variety of reasons – for example, physical characteristics, attributes, convenience, etc. However, this is not the same as loyalty. If, for example, a product is out of stock on the shelf, are shoppers willing to take another brand? Often they are. Or if an original equipment manufacturer finds that delivery lead times from one supplier are not as reliable as those provided by a competitor, then the likelihood is that the business will switch. Buyers in industrial markets are increasingly subjecting suppliers to rigorous ‘vendor appraisals’, and will switch suppliers if performance fails to meet their requirements – knowing that a product of equivalent technical quality is available from alternative sources.

Perceived product equality

Mature markets exhibit similar characteristics to commodity markets in that customers perceive little difference between competing offers. In such conditions, as we have suggested, if the preferred brand is not available, customers will willingly accept a substitute. Even products/markets with high rates of innovation do not seem immune from this tendency to ‘commoditisation’; take, for example, the personal computer market, where clones and ‘me-too’s’ now account for significant market shares.

Transition from a sellers’ to a buyers’ market

Previously manufacturers tended to be the dominant force, as they ‘pushed’ products into a fragmented market place. Over the last few decades there has been a major swing in the balance of power in the distribution channel. Globalisation has further eroded manufacturer power as barriers to market entry from new sources of competition have been removed through the liberalisation of trade. As a result, customers today are less passive and are faced with greater choice.

Power in the distribution channel tends to reside with whoever has the strongest relationship with the end-user. In the past it was the manufacturer who had that relationship through its brand. Today the end-user is more likely to have a closer relationship with the retailer, whose own brand loyalty is in the ascendancy as traditional manufacturer brand loyalty declines. Conventionally, in consumer marketing particularly, advertising has long been seen as a means of building differential advantage. Whilst there can be no question that a strong media presence provides a foundation for market-place success, it seems that more and more decisions are taken at the point of purchase, suggesting that on-the-shelf presence is as important as media presence. Put another way, ‘share-of-shelf’ is as critical as ‘share-of-voice’.

Price competition

Almost by definition, the combined effect of the previous three factors is a downward pressure on price. As a result, there is a temptation to pursue tactical gains in sales volume through discounting in one form or another, which is compounded by the continuing demands for price reductions by powerful customers. Paradoxically, the more that organisations compete on price, the more they reinforce the customers’ view that they are indeed commodity suppliers.

Price deflation is likely to be as big a concern in the current decade as inflation was in previous years. Overcapacity exists on a worldwide scale in most industries, and where supply exceeds demand there is an inevitable downward pressure on price. The implications of falling real prices are significant. If margins are to be maintained, then obviously costs must fall at least as fast as prices. Thus it may be expected that retailers, for example, will be placing even more pressure on their suppliers for further price reductions. Equally, original equipment manufacturers such as car assembly companies will be looking to component suppliers to reduce their prices.

The commoditisation of the computer industry

In the early 1960s, IBM controlled 70 per cent of the computer market through its disparate range of incompatible computers. Customers – large corporations, governmental or institutional bodies – leased rather than bought the colossally expensive machines. Periodically, they would upgrade or replace them. The change inevitably subjected the customer to the expense of rewriting programs, regardless of whether the replacement machine was provided by IBM or a competitor. Wishing to reduce the risk of customer defections at this critical juncture, IBM standardised its programming in 1964, giving customers a real incentive to stay with ‘Big Blue’. In doing so, IBM created an enduring industry standard. The new standard effectively gave IBM control of the wider computing environment, and a brand that spelled service, safety and continuity in an uncertain world.

Information systems were, despite their expense, horribly unreliable. Buying the wrong system could be the kiss of death to a corporate career, but no one, it was said, was ever sacked for buying IBM. If an IBM system went wrong, then at least ‘Big Blue’ had the size and staying power to be around to help.

Few competitors could compete directly with the industry giant, but many smaller players, including minicomputer makers Digital Equipment Corp. and Hewlett-Packard, found unexploited niches where IBM had not yet set a standard. Meanwhile, other smaller entrepreneurial outfits enjoyed symbiotic relationships with Big Blue, developing programs and peripherals to complement IBM’s massively profitable product range.

Towards the end of the 1970s a new wave of competitors sprang up, drawn in by IBM’s fat margins. The newcomers, led by the Amdahl Corp., built and attempted to market whole computers that were IBM-compatible but were bigger, faster and, above all, cheaper than IBM’s own machines. In 1979 IBM suffered its first earnings drop in 28 years, having been forced to cut prices. The Amdahl Corp., being no longer able to undercut IBM to a degree that was sufficient to overcome the fear and perceived risk of a non-IBM purchase, was squeezed to the brink of oblivion. Scorched by the incident, IBM launched itself, and the industry as a whole, with quickened pace on a path towards the development of new basic technologies that would provide greater computing power at lower cost. In doing so the industry was adhering to the maxim of Moore’s law, a phenomenon identified in 1965 by Gordon Moore, a founder of the semiconductor manufacturer, Intel Corp. Moore postulated that, measured against price, the performance of semiconductor technology doubles every eighteen months. Slimmer margins demanded higher volumes, so speed of development became more important than ever.

IBM gradually moved to wider market coverage, competing head on in the minicomputer sector, and following others into the growing microcomputer market. However, the falling price of computing power had already conjured up a new breed of competitor: the personal computer makers. IBM hesitated at first but then, in August 1981, plunged into this turbulent new segment with the launch of its Personal Computer – the ‘PC’.

The PC was the first computer IBM had produced with a large proportion of components supplied by outsiders. The outsourced components included the core microprocessors and the operating systems that harness their power. IBM had the capabilities to deliver both but, hurrying to get the PC to market, chose instead to outsource them through non-exclusive agreements. The microprocessors came from Intel, and the operating system from an obscure software producer called Microsoft. IBM simply brought the parties together and then, using its legendary marketing capabilities and powerful brand, marketed the product.

The PC was technologically unremarkable but, bearing the IBM logo, it was an immediate success. By 1984 Big Blue held 34 per cent of t...

Table of contents

• Front Cover
• Half Title
• Title Page
• Copyright
• Contents
• Preface
• 1 The new market place
• 2 Building customer relationships
• 3 Creating customer value
• 4 Time-based competition
• 5 Demand-driven supply chains
• 6 Managing marketing logistics
• 7 Serving the global customer
• Index