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Logistics and Marketing Integration: Enhancing Competitive Advantages

Pankaj M. Madhani

Introduction
Success of a business as well as delivery of higher customer service is largely dependent on
achieving an effective coordination and integration among individual units of the organization.
Researchers have long recognized the importance of customer service in achieving customer
satisfaction. The interface between logistics and marketing is critical to the delivery of customer
service. However, achieving outstanding customer service levels is complex and challenging
because it involves inter functional co-ordination, especially between the logistics and marketing
functions. Without the successful link of logistics and marketing, the firm may be unable to provide
good customer services and meet customer expectations, resulting in a dissatisfied customer or a
lost sale. In fact, organizations often succeed or fail depending on their levels of customer service.

Logistics and marketing are usually concerned with satisfying the customers' needs and wants,
respectively through their supply and demand functions in a marketing channel. The logistics
activity may be dependent on a marketing activity in a marketing channel, and vice versa. The
malfunctioning of one activity may severely impact the functioning of other activities. Therefore,
the satisfaction of supply and the satisfaction of demand of customers' needs and wants have to be
coordinated and synchronized in order to achieve customer value proposition. This research works
in this direction and provides various frameworks for integrating logistics and marketing.

Literature Review
Logistics operations are responsible for the efficient and effective handling of a firm’s goods and
services with the ultimate aim to minimize costs, to improve customer service and to create a
competitive advantage (Christopher, 2006).The efficient and effective logistics management is
major component for organizational success. An important functional area in logistics is
warehousing management. Warehousing can be a highly costly and labor-intensive function
(Murphy and Poist, 1993).

Logistics interacts with a number of different areas within an organization, such as operations
(production), marketing, procurement, and human resource management (Coyle et al., 1992) with
the most common interface being with marketing (Schary, 1984).Although marketing was
originally considered as including activities related to demand creation (personal selling,
advertising, sales promotion) and demand supply (physical distribution), it has evolved to focus
primarily on demand creation. Hence, logistics has emerged as a discipline to address the demand
supply activities inherent in the physical distribution functions to fulfill the demand (Lambert and
Cook, 1990).Warehousing and distribution are critical to the successful marketing of products: if
the product is not where customers want it, when they want it, it is unlikely to sell (Lawrence,
1998).The typical interface between the logistics and marketing is in the area of customer service
(Sharma et al., 1995).
_____________________________________________________________________________

Madhani, P. M. (2017), “Logistics and Marketing Integration: Enhancing Competitive


Advantages”, The IUP Journal of Management Research, Vol. 16, No. 3, pp. 7-29.

Electronic copy available at: https://ssrn.com/abstract=3013541


The importance of marketing’s collaborative and coordinated relations with other departments in
order to achieve marketing objectives has been emphasized by Ruekert and Walker (1987).
Empirical research indicates that marketing’s inter functional integration is positively related to a
variety of business performance indicators such as departmental performance, company
performance, and psycho-social outcomes such as satisfaction in working with other departments
(Kahn, 1996).According to O’Leary-Kelly and Flores’s (2002), “Integration refers to the extent to
which separate parties work together in a cooperative manner to arrive at mutually acceptable
outcomes.” Similarly, it is defined as: “Integration is a process of interdepartmental interaction
and interdepartmental collaboration that brings departments together into a cohesive organization”
(Kahn and Mentzer, 1998). Two types or levels of integration are generally considered – internal
integration and external integration. Internal integration examines integration across various parts
of a single organization; external integration examines integration that occurs between
organizations (Pagell, 2004).

Examples of internal integration is the extent to which logistics activities interact with other intra-
firm functional areas (Stock et al., 1998), while, external integration crosses firm boundaries and
extends to the supply chain (Gimenez and Ventura, 2005). Stevens (1989) suggests that companies
should integrate internally first (internal integration), and then extend the integration to their
supply chain partners (external integration). Even though brand is strongly developed in the mind
of the customer by various promotional tools (marketing activities), if the product is not in the
stock or on the shelves (logistics activities) and at the same time there is present a substitute
product, customers will in most cases turn to the other brand. This indicates that logistics is greatly
important in overall business performance. Main reason for Wal-Mart’s dominant position in the
retailing world has been its superior logistics system (Longo and Facenda, 2002). Many companies
have failed to recognize the importance of logistics (customer service) to a successful marketing
program (Sterling and Lambert 1987; Lambert and Harrington 1989).

Achieving excellent customer satisfaction through outstanding service levels is challenging


because it involves inter-functional co-ordination between logistics and marketing functions
(Emerson and Grimm, 1996).Logistics and marketing have tended not to consult and coordinate
with each other. In fact, their relations tend to be characterized by conflict and lack of
communication rather than by collaborative integration (Ellinger, 2000). Johnson and Borger
(1997) list some important complaints about logistics and emphasize the fact that marketing do
not completely understand what the real meaning of logistics function is. However, a well-
coordinated, harmonic relationship between logistics and marketing is reported to create higher
satisfaction levels for both groups (Lynagh and Poist, 1984). Similarly, Ellinger et al., (2000), and
Emerson and Grimm (1996) show that cooperatively managed logistics and marketing activities
increases satisfaction, reduces faults in delivery, provides efficiency in price and service policies
and positively influence overall business performance.

Poor coordination between logistics and marketing can impact company performance in terms of
longer transit times, higher level of loss and damage, higher transport costs and higher packaging
costs (Murphy and Poist, 1996). Logistics may account for nearly 45% of all marketing
expenditures (Lambert and Stock 1993). Setting marketing mix strategy without regard to the true
logistics cost of the product can also be costly. For a long time, Barilla, a leading pasta
manufacturer in Italy, offered special price discounts to customers who ordered full truck load

Electronic copy available at: https://ssrn.com/abstract=3013541


quantities. Such marketing mix strategy, however, created customer order patterns that were highly
spiky, erratic and unpredictable. Ultimately, the logistics costs (manufacturing, inventory and
handling) were so high they outstripped the benefits from full truck load transportation (Hammond,
1994).

The integration of logistics and marketing is necessary to bring the logistics sources of advantage
into the realm of effectiveness, or drivers of differentiation. The ‘place’ function may be viewed
in the form of customer service, as the point of greatest interface between logistics and marketing
(Lambert and Stock 1993). Hence, this research focuses on logistics and marketing integration and
identifies various factors influencing logistics and marketing integration.

Logistics and Marketing Focus: Place Utility, Time Utility and Possession Utility
The evolution of various concepts in logistics such as ECR, JIT and QR have focused on enhancing
service level of customers. Efficient customer response (ECR) aims to fulfil the changing demands
and requirements of the customer through effective collaboration across all supply chain members,
in order to enhance the effectiveness of merchandising efforts, inventory flow and supply chain
administration. ECR strives to improve the efficiency of firms' business activities and is primarily
divided into two activities: supply-side and demand-side. The supply-side (i.e. the logistics
activities) incorporates efficient replenishment, while the demand-side (i.e. the marketing
activities) incorporates efficient store assortments, as well as promotion. Accordingly, ECR
incorporates both the logistics activities and the marketing activities in a marketing channel
context. Other recent business philosophies that indirectly emphasize the interrelationship between
the logistics activities and the marketing activities are just-in-time (JIT) and quick response (QR).
As applied to logistics, JIT can be conceived as a business concept that center on minimum delay
and minimum inventory. QR is an approach to meeting customer demand by supplying the right
quantity, variety and quality at the right time to the right place at the right price (Harrison and Van
Hoek, 2008).

Hence, it is evident that both logistics and marketing functions play an important role in creating
satisfied customers. Logistics is supposed to produce a high level of customer service in traditional
terms, e.g. availability, short and reliable lead times. Physical handling and distribution in the
marketing of goods is approximately one-half the total costs of marketing (Converse,
1954).Logistics is operationally focused on demand satisfaction and hence provides place and time
utility, by ensuring the product is at the right place, at the time the customer wants it, and in an
undamaged condition. Place utility refers to having products available where they are needed by
customers and accordingly products are moved from locations of lesser value (e.g., shampoo stored
in a warehouse) to locations of greater value (e.g., shampoo available on a supermarket shelf).
Time utility refers to having products available when they are needed by customers. Different
products have different sensitivities to time; five-day late delivery of perishable items likely has
more serious consequences than five-day late delivery of nonperishable items (Murphy and Wood,
2007).

Place utility and time utility also provides place usefulness and time usefulness respectively.
Customer satisfaction also includes maximization of place and time usefulness. Place usefulness
could be described as a created or added value to a product by possibility of buying and consuming
it in a proper place. Logistics is directly responsible for adding of place usefulness to a product, as

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the effectiveness of moving of products from a manufacturing place to a sales place depends. Time
usefulness is a value created by making a product accessible in proper time. Logistic activities aim
to add place and time usefulness to a product. Logistics clearly contributes to place and time
utilities, which then allows marketers to offer possession utility to prospective customers.
Marketing typically focuses on demand creation through product, price, and promotion mixes and
facilitates possession utility. Inter functional co-ordination between logistics and marketing is
important since outstanding customer service requires all of the above activities.

Logistics and Marketing Functions: Key Dimensions


Logistics use strategies to deliver high-quality products with competitive price and service levels.
These strategies should translate into functional policies that will bring the goods and services to
the customer (Stock and Lambert, 2001; Wisner et al., 2005; Goffnett et al., 2012).Logistics and
marketing integration is a key driver of supply chain management (SCM) performance as well as
customer satisfaction. SCM is defined as “the integration of key business processes from end user
through original suppliers that provides products, services, and information that add value for
customers and other stakeholders” (Lambert et al., 1998). SCM is a link between logistics and
marketing due to the interrelationship between marketing activities in marketing channels
(Mentzer et al., (2000); Lings (2000)). For supply chains to work effectively, co-ordination
between logistics and marketing functions is an important prerequisite (Murphy and Poist, 1996).

Logistics and SCM is the process of managing material and information flows from the source,
through the firm and to the customer and plays an important role in the ability of the firms to
remain competitive in the marketplace (Shankar, 2001; McGinnis et al., 2010).According to the
council of supply chain management professionals (CSCMP), “Logistics is that part of SCM that
plans, implements, and controls the efficient, effective forward and reverse flow and storage of
goods, services, and related information between the point of origin and the point of consumption
in order to meet customers' requirements” (www.cscmp.org). According to CSCMP, logistics
management activities typically comprise “inbound and outbound transportation management,
fleet management, warehousing, material handling, order fulfillment, logistics network design,
inventory management, supply/demand planning and management of third party logistics service
providers” (Kozlenkova et al., 2015). Logistics performance can be evaluated by considering
logistics costs, product availability in the market, conforming to the promised delivery dates and
quantities, flexibility in logistics activities, efficiency in inventory management and customer
satisfaction. Some major tasks of the logistics include cost minimization in the entire processing
of orders, and thereby, increasing the profitability in general (Gattorna et al., 1991).

Marketing channels satisfy demand by supplying goods and services at the right place, quantity,
quality and price. Marketing activities contribute to the sales promotion as well as sales activities
in a distribution channel to stimulate the demand. Other typical marketing activities are
merchandising, pricing, and communication. Altogether, these logistics and marketing activities
may be seen as a chain of interdependent activities that complement each other in order to facilitate
the exchange processes between the buyers and the sellers that are involved in the upstream and
downstream activities in a marketing channel.

While logistics is traditionally responsible for all operational activities, marketing is responsible
for all activities concerning the brand, designing a marketing plan and creating customer

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awareness. This different customer focus creates conflicts between logistics and marketing. Hence,
when sales are disappointing, marketing blames the logistics for its poor operation plan of an
otherwise brilliant marketing plan. And at the same time, logistics blame marketing for ineffective
marketing plan. The potential areas for conflict between logistics and marketing functions are –
purchasing, inventory, order processing, customer service and packaging (Lynagh and Poist 1984).
Logistics have complained that marketing do not understand, or refuse to acknowledge, the
strategic importance of logistics (Johnson and Schneider 1988). It is reported that purchasing,
determination of safety stock levels and order processing represented areas of disagreement
between logistics and marketing managers (Voorhees et al., 1988).

Despite logistics activities and the marketing activities being closely linked to one another, there
is often strained relationship between the two. As marketing places a heavy emphasis on customer
satisfaction, marketing believe that logistics are so concerned with cost cutting that customer
service often suffers. Likewise, logistics believe that marketing is unrealistic and waste money on
promotions. Consequently, logistics and marketing activities are from time to time treated as
separate from each other, which means that one or the other perspective is often neglected.

Logistics and Marketing Conflicts: 5Ps of Marketing Mix


McCarthy (1999) has classified the set of marketing tools or elements the firm uses to pursue its
marketing objectives into four broad groups of marketing mix variables, also called as the 4Ps of
marketing. Marketing focus on design and control of various marketing mix variables in order to
best satisfy needs of customers in the target market. The marketing mix includes the Product (what
the actual offering comprises), Price (the value exchanged for that offering), Promotion (the means
of communicating that offering to the target audience), and Place (the means of having the product
offering available to the final consumer). It’s evident that the 4Ps comprise typical marketing
activities such as promotion but they also include traditional logistics activities such as distribution
(i.e. place).There is close association between logistics and marketing as logistics is also referred
as the other half of marketing. That is, logistics is one component of the ‘place’ function while the
other component being channels. Logistics and marketing are linked through the distribution
element of the marketing mix i.e. one of the ‘P’s (Mentzer et al., 2000, Svensson 2003).

Nickels and Jolson (1976) have introduced packaging as a fifth ‘P along with the 4P’s in the
marketing mix, stressing the importance of packaging in marketing. In marketing strategy,
packaging is a vital tool in the marketing mix. Packaging is too often ignored by firms, since twice
as much is spent annually on packaging as on above-the-line advertising and promotions (Rod,
1990). Inter-functional dealings between logistics and marketing occur across each of the five
elements of the marketing mix - product, place, price, promotionand packaging. The five Ps of
marketing mix is a useful tool when discussing the interface and interaction between logistics and
marketing as they represent major cause of conflict between them (Figure 1).

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5Ps of Marketing Mix
(Product, Place, Price, Promotion, Packaging)

ing)

Logistics Marketing

Figure 1: Conflict Zone: 5Ps of Marketing Mix

(Source: Framework developed by Author)

These 5Ps of marketing mix from the perspectives of logistics and marketing are explained below:

Product
Product refers to the physical product offered to the consumer; it also includes any services or
conveniences that are part of the offering such as product authentication, product recall, product
quality etc. Most marketers develop or market products suited to defined market segments, as this
(along with appropriate targeting and positioning) should help maximize sales and brand equity.
However, product design, which is often the purview of marketing, can also have important
implications for logistical effectiveness and efficiency. For example artistically designed long-
necked glass beverage containers might be more novel and distinctive than aluminum cans:
however from a logistics perspective long-necked bottles take up more space and are more likely
to be damaged during transit than aluminum cans. Similarly, the marked increase in product
offerings by marketing - which allows for more customer choice, creates logistical challenges in
terms of identification, storage, and tracking. Such different perspectives of logistics and
marketing on product will lead to conflict between them.

Product as a marketing mix tool is among the strongest disagreements between logistics and
marketing because of their varied responsibility for inventory policies (Speh 1977; Voorhees et
al., 1988). Marketing often prefer to carry higher quantities of particular items (high inventory)
because this reduces the likelihood of stock outs. From a logistics perspective higher quantities of
inventory necessitate additional storage space and increase inventory carrying costs and hence
logistics prefer less stock (low inventory). In that context Emmelhainz et al., (1991) have suggested
that careful ordering and effective stock policies by logistics can help firm to reduce the cost of
lost sales associated with retail stock outs. Reliable and dependable delivery allows for a more
consistent order cycle, which can help to reduce stock out possibilities and thus help in increasing
customer satisfaction.

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Pricing
Pricing decision includes not only the value of product to the firms, but also considers value to the
customers for the price paid. Pricing method used by firm to quote the selling price of the product
also depends on transportation cost. It is mainly because transportation costs can account for up to
50 percent of a product's total logistics costs (Swenseth and Godfrey, 2002). A firm can control its
transportation costs by using one of several pricing methods. The two most common methods are
Free on Board (FOB) origin and FOB destination (delivered) pricing systems. An FOB origin price
does not include any transportation costs to the firm. With this type of pricing, the purchaser is
responsible for the selection of the transportation mode(s) as well as carriers because the buyer
assumes the expense of the transportation from a warehouse or factory. FOB origin pricing is easy
for the logistics to administer and always yields the same net return from each transaction.
However, marketing don't necessarily like FOB origin pricing because it is extremely difficult to
adopt uniform retail prices on a regional or national basis. It is mainly because each purchaser is
at a different distance from a factory or warehouses; their landed costs-the price of the product at
the source plus transportation costs to its destination-are different.

In FOB destination pricing the marketing quotes the purchaser a price that includes both the price
of the product and the transportation cost to the purchaser's receiving dock, and the logistics has
the prerogative to select the mode(s) and carriers to deliver the product. An average amount of
transportation cost is added to the cost of each product as it reflects the cost of shipping the goods
to a point that is the average distance from the seller's place of business. Hence, with FOB
destination each purchaser ends up with the same landed cost. Marketing find FOB destination
pricing attractive as it enables a firm to expand the geographic area to which its product is sold
because distant customers in a region do not pay the full costs of transportation. Also, as each
purchaser has the same landed costs it is much easier for marketing to apply a uniform retail price
on a regional or national basis. As the marketing is responsible for product distribution it is the
logistics’ responsibility to understand the various distribution activities and the trade-offs among
them by selecting option that is most beneficial to the firm's overall objectives. FOB destination
allows marketing to increase the size of the market area, however, it also adds to the complexity
of logistics as the logistics function can be responsible for selecting the modes/carriers, negotiating
freight rates, filing loss and damage claims etc.

Logistics and marketing may disagree in terms of whether to use FOB origin or FOB destination
(Johnson and Wood 1993) pricing when allocating transportation costs. When conflicts between
logistics and marketing are economic in nature, such as mismatch in pricing decisions, can be
sorted out by information sharing between logistics and marketing i.e. knowing the costs of
providing various levels of customer service to determine the trade-offs between costs and
customer service. In this way, ccollaborative efforts of logistics and marketing will reduce such
conflicts.

Place
Place (or distribution) decisions are those associated with channels of distribution that serve as the
means for getting the product to the prospective customers. The distribution channel performs
transactional, logistical, and facilitating functions. This most important variables in the marketing
mix tend to be logistical in nature, such as the ability to meet scheduled delivery times and accuracy
in order filling. Decisions regarding place function involve two types of channel networks:

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logistics and the marketing. Logistics decisions concern the most effective way to move and store
the product from where it is produced to where it is sold. As logistics channel handles the physical
flow of product, an effective logistics system can enable the firm to attract and utilize the most
productive channel. Place is an important decision from a marketing perspective also. The
traditional players in the marketing channel are the manufacturer, the wholesaler and the retailer.
Each in turn assumes ownership of the inventory of goods as well as risks associated with
temporary inventory ownership. Logistics emphasize centralized inventory and longer lead time
while marketing emphasize dispersed inventory and shorter delivery time. Hence, different
perspectives for logistics and the marketing for ‘place’ function causes conflict between them.

Promotion
Aim of promotion is to attract the customers to purchase a brand and to increase the number of
customers by making them switch to the brand under promotion. Marketing decision regarding
promotion strategy as to whether to push or pull products through distribution channels has
important implications (Coyle et al., 1992) for logistics. For example, the push strategy, with its
emphasis on building sales through promotions directed to various channel members, tends to be
more preferred by logistics. Hence, push strategies offer more certainty in terms of the amount of
product, and when it is needed, to various channel participants (Murphy and Poist, 1994.).

However, the pull strategy, with its emphasis on building sales through promotions directed to
customers to enhance customers’ awareness of, interest in, preference for, and desire for a product,
tends to be more preferred by marketing. In this scenario, many promotional decisions require
close coordination between logistics and marketing. One such scenario concerns the availability
of highly advertised products campaigns. When heavily promoted products are stocked out, it
badly damages firm's goodwill. In some situations imbalances of product supply and demand for
highly advertised products can be viewed as bait and switch tactics-that is enticing customers with
the promises of a low priced product only to find that it is unavailable but that a higher-priced
substitute product is readily available. Logistics and marketing may disagree in terms of whether
to use push or pull promotion strategy. Hence, better understanding between them is required to
avoid such conflicts.

Packaging
The major functions of packaging as highlighted by researchers are protection, containment,
preservation, apportionment, unitization, convenience, and communication of the product
(Robertson, 1990; Livingstone and Sparks, 1994). Some of these functions relate to logistics and
some to marketing. Paine (1981) emphasizes the fundamental functions of packaging as protecting,
containing, preserving and communicating the product. Packaging protects the product from
external environment. All products must be contained in order to provide easy handling,
warehousing and transport. For most food products, preservation is a vital function of packaging
which ensures that the product is sold fresh. The communication function of packaging is
threefold: communication of information (content, destination and means of handling), promoting
the product, and maximizing communication with consumers.

Paine (1981) also provides a broad definition of packaging as given below:


1. It is a coordinated system of preparing goods for transport, distribution, storage, retailing,
and end use;

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2. It is the means of ensuring safe delivery to the ultimate consumer in sound condition at
minimum cost and
3. It is a techno-economic function aimed at minimizing costs of delivery while maximizing
sales (and hence profits)

Packaging is an important component for both logistics and marketing (Prendergast and Pitt, 1996;
Sezen, 2005). However, diverse and conflicting needs on the fundamental functions of packaging
results in potential trade-offs among the logistics and marketing functions of packaging. Unit size
of the package and easy handling are logistics related concerns, whereas coloring and labeling a
package are some of the issues that concerns marketing also. In logistics, packaging refers to ease
of handling and protection, and in marketing, packaging is for promotional activities and educating
consumers (Vernuccio et al., 2010). These two packaging functions from logistics and marketing
perspective must work in tandem in order to result in cost reduction, time saving, and improved
service quality (Lambert et al., 1998).

Jönson (2000) classify different types of packaging as primary (consumer and sales packaging),
secondary (distribution and multi-unit packaging) or tertiary (transport packaging).Primary
packaging is mainly designed by marketing while secondary and tertiary packaging is mainly
designed by logistics. Primary packaging is in direct contact with the product, while secondary
packaging contains several primary packages. Tertiary packaging, e.g. pallets and roll containers,
is an assembly of a number of primary or secondary packages. As explained below, a large US
industrial corporation that neglected to consider logistical implications when designing marketing
policies resulted into a flop strategy: “ ... customers were given a large discount for orders requiring
twenty-five cases of goods at one time. It had been planned that this discount would be covered by
the savings from processing large orders. Unfortunately, the campaign flopped, because
distribution costs increased out of proportion. These increases were due to handling in uneconomic
batches, because a pallet load comprised twenty-four cases” (Attwood, 1971).

Research Methodology
A two stage methodological approach is adopted in this research. In the first stage, research focuses
on development of an interactive model of logistics and marketing integration to emphasize their
mutual interdependence and symbiotic relationship. The second stage involves the development
of a business value added framework to highlight value added for organization because of logistics
and marketing integration.

A) Logistics and Marketing Integration: An Interactive Model


Logistics and marketing are complementary - logistics satisfies demand, stimulated by marketing.
Better coordination of logistics (fulfills the demand) and marketing (creates demand) provides
greater value to customers, which in turn increases firm performance. For example, the essential
inbound and outbound logistics activities in a marketing channel are the procurement of materials
and components from the suppliers, and the physical distribution of finished goods to the
customers. It also includes activities such as transportation, warehousing, inventory management,
and material handling. Similarly, the marketing activities contribute to the promotion and sales
activities in a marketing channel. It also includes activities such as sales promotions,
merchandising, pricing, communication, and financing incentives. Logistic - marketing integration
on one hand, focus on customer satisfaction emphasizing marketing activities concerning related

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to product, price, promotion and distribution (place) supported by logistics place and time
usefulness. On the other hand, it emphasizes acceptable level of profit by reducing logistic costs.
Indeed, customer service has been recognized as “... the key link between logistics and marketing”
(Coyle et al., 1992).

Svensson (2002) highlighted that there is dependence between logistics activities and marketing
activities. The interdependence between logistics and marketing may be seen as mutual and
strongly interdependent. For example, a marketing activity may be dependent on the logistics
activities in a distribution channel, and vice versa. The malfunctioning of one activity may imply
the inefficient functioning of other activities in a marketing channel. Therefore, the satisfaction of
supply and the satisfaction of demand of customers' needs and wants have to be co-ordinated and
synchronized in a marketing channel in order to achieve a successful outcome. Logistic- marketing
integration synchronizes marketing-mix (product, price, promotion, sales policy and packaging)
and logistics-mix (transportation, warehousing, inventory management, orders’ realization and
service) to achieve the highest level of customer’s wants and needs satisfaction (Figure 2).

Provides
Insight

Collaborative Efforts
(Marketing Capability)

Inventory management Product mix


Ordering Logistics and
Logistics Promotion Marketing
Transportation
Marketing
Price
Integration
Warehousing Packaging

Collaborative Efforts
(Logistics Capability)

Provides
Support

Figure 2: Logistics and Marketing Integration: An Interactive Model

(Source: Model developed by author)

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B) Logistics and Marketing Integration: Development of a Business Value Added Framework
To grow and prosper in the time ahead, organizations must develop and implement competitive
business strategy that that satisfies the needs of the target market. The core of any business strategy
is the customer value proposition, which describes the unique mix of product and service attributes,
customer relations, and overall image that an organization offers. It also explains how the
organization will differentiate itself from rivals to attract, retain, and strengthen relationships with
targeted customers.

In the present scenario of competitive environment, more and more organizations are aggressively
searching for competitive advantages in order to get a better position in the markets. Competitive
advantage is the extent to which an organization is able to create a defensible position over its
competitors (Porter, 1985). The source of competitive advantage can be found in a firm’s ability
to differentiate itself from the competitors (Morgan and Strong, 2003). To gain competitive
advantage over its competitors, a firm must deliver value to its customers through cost advantage
by performing activities more efficiently than its competitors or by creating greater differentiation
advantage by performing the activities in a unique way in relation to competitors (Barney, 1991;
Peteraf, 1993; Slater, 1996). Having a competitive advantage for organization generally suggests
that they can have one or more of the following capabilities when compared to its competitors:
lower prices, higher dependability, and shorter delivery time. All these capabilities are positively
influenced by logistics and marketing integration.

In Porter’s (1985) value chain, one of the four support activities (procurement) involves logistics
and all of the five primary activities involve logistics (inbound logistics, operations, and outbound
logistics), marketing (marketing activities), or both (service). Hence, logistics and marketing
functions are linked in a firm's efforts to create value, which suggests that these two functional
areas be coordinated in order to maximize value creation (Porter, 1985).

To demonstrate the ways in which integration of logistics and marketing can generate overall
business values for an organization, Porter’s (1985) value chain framework is used as a basis to
present a business value added framework as shown in Figure 3. The role of added value has long
been accepted as a means of securing competitive advantage (Normann and RamõÂrez, 1994;
Naumann, 1995) and long-term success of the firm (de Chernatony and McDonald, 1998).
According to Brown (1997), the value chain is a tool to segregate a business into strategically
relevant activities. This classification enables identification of the source of competitive advantage
by performing these activities more cheaply or better than its competitors. Slywotzky and Morrison
(1997) used a ‘customer-centric’ approach to propose a modern value chain in which the customer
is the first link to all that follows. Prior researchers have also used value added framework (Moon
and Ngai, 2008; Madhani 2011; Madhani 2012; Madhani 2015, Madhani 2016).

As shown in Figure 3, logistics and marketing integration will have positive impacts on all
elements of marketing mix of 5P’s (product, price, place, promotion and packaging) and enhances
customer value proposition. However, such marketing mix elements are independent variables for
5A’s (Availability, Affordability, Accessibility, Awareness and Assurance) of customer value
chain drivers which are in turn dependent variable and creates added value for the customers as
well as for the organization (Figure 3).

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Logistics Marketing

Logistics and Marketing Integration

PRODUCT PRICE PLACE PROMOTION PACKAGING

Less Marketing Mix Conflicts

I Provide the Value Communicate the Value

Customer Value Proposition

Revenue / Operating Income

ROI (Return on Investment)


Availability (Product)

Enterprise Value
S Affordability (Price)
T
Accessibility (Place)
P
Awareness (Promotion)
Assurance (Packaging)

Customer Value Chain Drivers Business Value Added

I = Identify the Value


S = Segmentation Based on Customer Value Need
T = Select Target
P = Positioning the Value

Figure 3: Logistics and Marketing Integration: A Business Value Added Framework

(Source: Framework developed by author)

Logistics and marketing integration can facilitate customer satisfaction through on-shelf stock of
desired product in store (Availability), reducing the cost of products, which can translate into lower
prices (Affordability), bringing a broader variety of choices closer to where the customer wishes
to buy (Accessibility), attracting customers of product and creating brand loyalty (Awareness) as
well as providing product aesthetics with proper protection (Assurance). Logistics and marketing
integration offers a unique way for a company to differentiate itself among competitors.

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Logistics and Marketing Integration: Various Scenarios
As shown in Figure 4, there are various scenarios of logistics and marketing integration. Quadrants
Q1 and Q4 have partial integration and represents low marketing as well as logistics capability.
Quadrant Q2 shows optimal performance as this quadrant represents high capability of logistics
and marketing and full integration between them. These quadrants are explained below.

Campbell’s Soup (Quadrant 1)


Sales department of Campbell’s Soup promoted chicken noodle (CN) soup product heavily around
the winter season, when demand usually remains very high. Due to this, production facilities were
used at peak level round-the-clock during the winter season, leading to high inventory and
subsequently more storage needs. The increase in revenue due to the increased demand of CN soup
stimulated through promotion scheme was balanced by the huge production costs. Final outcome
was costly promotion, inefficient sales deals and lost margins. The lack of detailed cost analysis
of CN soup by marketing led to considerable strain on operating and financial performance, what
Fortune Magazine termed “the Dumbest Marketing Ploy Ever” (Sellers, 1992). As shown in Figure
4, for Campbell’s Soup, the relationship between logistics and marketing was sub-optimal because
of untimely marketing efforts and partial integration as shown in Quadrant 1 (Q1).

High
Q1 Q2
Logistics Capability

Partial Integration Full Integration


Campbell’s Soup Seven-Eleven Japan

Q3 Q4

No Integration Partial Integration

K-Mart
Low
Low High
Low
Marketing Capability

Figure 4: Logistics and Marketing Integration: Various Scenarios

(Source: Model developed by author)

K-Mart (Quadrant 4)
A central aspect of K-Mart’s marketing strategy was promotion of sales items to increase store
traffic and invariably increase store sales. However, the marketing efforts (issuing pamphlets and
circulars for promotions) were not tied to logistics and supply chain operations. K-Mart employees
lacked the training and skill to plan and control inventory properly. As a result, there were frequent

13
shortages of promoted sale items. Customers came in to buy the sale item, were frustrated that it
wasn’t there, and left the K-Mart store with dissatisfaction. Also, K-Mart’s cash registers often did
not have up-to-date information and would scan items and enter incorrect prices. That led to a
lawsuit in California, and K-Mart settled for $985,000 for overcharging its customers (Ballou,
2004).

Lack of co-ordination between logistics and marketing generated a brand nightmare and failure of
K-Mart’s business strategy. Late delivery to K-Mart stores by distribution centers was 11 percent
of the time or 1 in 10 deliveries. This was a big setback as most retailers are late only five percent
of the time (Muller, 2002). Even when the inventory was being received by the K-Mart stores on
time, the supply chain on average was wrong on 15 percent of stores’ orders received from
distribution centers. As a result there was mismatch of supply and demand, wrong demand signals,
and poor product plan. All these had a negative effect on K-Mart performance and it incurred huge
losses even as its competitors became more profitable. Finally K-Mart filed bankruptcy on January
22, 2002 (Madhani, 2010). For K-Mart the relationship between logistics and marketing was sub-
optimal because of its logistics limitation and partial integration as shown in Quadrant 4(Q4)
(Figure 5).

Seven-Eleven Japan (Quadrant 2)


Seven-Eleven Japan (SEJ), a legendary and largest convenience store chain in Japan has designed
its marketing strategy based on statistical analyses of correlations among trends of product
demands, timing differences, customer characteristics, store and local market condition
characteristics and product substitutions. It has invested in real-time information systems to timely
detect changes in market demand / customer preference and tracks data on sales (product ID,
quantity, time of day of purchase) and consumers (gender and age) at every store. Well before the
Internet era began, SEJ used satellite connections and ISDN lines to link all its stores with
distribution centers, suppliers, and logistics providers and send sales data to SEJ’s headquarters
where data is aggregated. The data is also processed and enables store managers to analyze hourly
sales trends and stock out rates of all SKUs by customer groups. The data allow the supply chain
to detect fluctuations in demand between stores, to alert suppliers to potential shifts in
requirements, to help reallocate inventory among stores, and to ensure that the company restocks
at the right time (Lee, 2004).

Marketing strategy of SEJ was innovative and supported by agile logistics. With logistics and
marketing integration, SEJ was able to achieve micro matching of supply and demand (by location,
time of day, day of week and also season). It has remarkably low stock out rates and had an
inventory turnover of 55. With gross profit margins of 30%, SEJ was also one of the most
profitable retailers in the world (Lee, 2004).As a result, SEJ was far above its competitors in terms
of sales per square foot, profitability, and market share. It was the third largest retailer in the world
in terms of market capitalization (Lee, 2001).SEJ was been able to give shareholder return 10 times
better than the Nikkei index in Japan. SEJ had a very agile logistics system which delivered fresh
and perishable products to stores three times a day to support their marketing decisions, without
increasing costs, via close collaboration between a manufacturer and a retailer (Takeda and
Matsuo, 2002). For SEJ the relationship between logistics and marketing was optimal because of
its logistics and marketing strengths and integration between them as shown in Quadrant 2 (Q2)
(Figure 4).

14
Conclusion
The interface between logistics and marketing is critical to the delivery of excellent customer
service and ensuring customer satisfaction. A key challenge facing organizations is the need to
integrate logistics as well as marketing functions as more often such internal functions operate like
functional “silos” rather than working together to meet the needs of the customer. The major cause
of conflict for logistics and marketing interface is related to 5Ps (product, price, place, promotion
and packaging) of marketing. Logistics is viewed as one of the 5Ps of marketing. Particularly, it is
one component of the ‘place’ function, the other part being channels. Logistics also contributes
deeply to customer service, which is a key component of the marketing concept.

On logistics and marketing integration, firm will earn strategic positioning of the cost efficient and
customer effective firm. From a customer viewpoint this means a seamless process and from a
company viewpoint it is the ability to operate across the functional silos. For organizations to be
successful in delivering higher customer value, logistics and marketing functions must be
integrated because the right product must be at the right price, advertised through proper
promotions, provided in right packaging and must be available at the right place. This research
provides various models for integration of logistics and marketing and develops business value
added framework for to demonstrate the ways in which integration of logistics and marketing can
generate overall business values for an organization,

15
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