BA 331 Exam 1 Best Notes (Scott) Ch. 2.doc

BA 331 Exam 1 Best Notes (Scott) Ch. 2 Customer Value and how Logistics affects it; Customer Service; Availability/Out-of-Stock Customer Value is created through customer service. Customer Value = Perceptions of Benefits/Total Cost of Ownership Customer Value = Quality x Service / Cost x Time Example used in class = TLC (Total Logistic Control) SCM role in marketing mix - providing customers with products they want, when they want, in right condition, right price, etc. Consumer Franchise x Customer Franchise x Supply Chain Efficiency = Marketing effectiveness Consumer Franchise = Corporate Image, Brand Values, Availability Customer Franchise = Customer Service, Partnership, Quick Response Supply Chain Efficiency = Flexibility, Reduced Assets, Low-cost supplier Marketing Effectiveness = Market Share, Customer Retention, Superior ROI Customer Service: a process for providing significant value-added benefits to the supply chain in a cost-effective way. This definition illustrates the trend to think of customer service as a process-focused orientation that includes supply chain management concepts. Competitive Advantage is achieved through Customer Value which is achieved through Customer Service. Logistic and Supply Chain are inseparable from Marketing. They meet at Place/customer service levels. Perfect Order Concept All Products and Services have Logistics and Supply Chain behind them. Perfect Order Concept Correct order entry Items are available Ship date allows delivery Order picked correctly Paperwork complete Timely arrival Product as expected Shipment not damaged Correct invoice Accurate overcharges No customer deductions No errors in payment processing You have your core product. Outside of your core product you have the service related to the product, also known as the customer experience. How to calculate: If the actual performance across all orders for the last 12 months was as follows: On-time: 90% In-full: 80% Error-free: 70% The actual perfect order achievement would be 90% x 80% x 70% = 50.4% The likelihood that a perfect order was achieved during the period under review was only 50.4 per cent! Shrinking service window ? customers demanding higher levels of service Today?s Competitive Reality: Zero sum gain competition Commodity-type competition Rising customer service ?bar? Demand maintenance is key to profitability Segmentation of customers based upon service requirements and profitability/value to the firm You can?t be all things to all customers! You must divide customers into groups. These are called segment customers. Define Customer-Service objectives Set Customer Service Priorities and Standards Execute the strategy Re-Evaluate Remember though, service doesn?t matter without product. There is a direct relationship between Revenue and Service Level. There is also a direct relationship between Cost of Service and Service Level. HOWEVER, at some point a company will end up spending more if it tries to maximize Customer Service. Therefore, the customer is not always right! This reiterates the point that customer have to be broken up into groups. If you try to do everything your customers want then at some point costs will exceed revenue. 3 levels of customer service focus:  basic service, satisfaction focus, success focus Basic Service: achieve internal standards (specified performance cycle of fill rate) Satisfaction focus: Meet customer expectations ( arrive on time with right product as measured by the customer) Success focus: Customers of choice achieve their objectives (logistics operation can provide product and service in a manner that ensure long term customer) Make customers happy by segmenting the market! 80/20 or Pareto rule 20% of the people do 80% of the work Determine strategic profitability of customer Categorize customers based upon strategic importance Focus on customers that bring in the most profit Establish different customer strategy for each category If we to rank how we spend our time by segmenting our customers, we can achieve? Stronger franchise with best customers Lower logistics costs Higher inventory turns Reduced expediting KNOW THE CUSTOMER SERVICE LEVEL MATRIX Other Things to Know Stock out: when a consumer goes to purchase an item and it is out-of-stock In a study, over a quarter of shoppers bought a different brand when faced with a stock out. 37% said they would shop elsewhere. Other research has suggested that two-thirds of shopping decisions are made at the point of purchase. Persistent stock-outs can drive customers away from the brand and/or the store permanently. In a major study of customer service practices, LaLonde and Zinszer suggested that customer service could be examined under three headings. Pre-transaction elements Transaction elements Post-transaction elements It is because of the multivariate nature of customer service and because of the widely differing requirements of specific markets that it is essential for any business to have a clearly identified policy towards customer service. Lifetime Value = Average transaction value x Yearly frequency of Purchase x Customer ?life expectancy? Zara is one of the worlds most successful and dynamic apparel businesses. Their model is responsive, flexible, and built on relationship. KNOW Slide 4 Look at p. 75