Creating customer value and

developing logistics strategy

1
Customer value
Customer value is created when the
perceptions of benefits received from a
transaction exceed the total costs of ownership
(price and other related costs with purchase):







2
Logistics and customer value
Higher customer service and lower costs:
3
Components/drivers of customer value
4
Factors affecting customer value
1. Total cost ownerships:
Price
Other costs associated (e.g. inventory, ordering costs
etc.)
2. Gap between perception (perceived benefits) and
expectations:
Perception should be greater than expectations
5
Improving customer value
Marketing task: improving the perceived benefits
and/or reducing the total costs of ownership
Marketing and logistics strategy: maximizing this ratio
relative to that of competitors
B2B scenario: superior logistics performance, enabling
business-customers to serve their customers better with
less inventory and lower ordering costs

6
Linking customer value to
supply chain strategy
Trade-off among service elements:
On-time performance
Order fill rate
Invoice accuracy
A statement of how, where and
when value is to be created for
specific customers or market
segments
Availability
Responsiveness
Reliability
7
Efficient
Responsive
Partly efficient partly responsive
Value delivery systems and
competitive advantage
Value delivered to customers is critical to maintaining competitive advantage
Delivery systems:
o physical delivery of products
o presentation of service
o marketing channel mix
o flexibility of responses
o linking buyer-supplier logistics
o linking buyer-supplier information systems
Design of delivery system (should be linked to both customers and suppliers value
chains)

8
Role of firms/suppliers
in customers profitability
In business-to-business marketing (e.g. manufacturer to distributor) supplier
influences customer sales and profitability:
increase the customers chance of selling more product (revenue sharing)
and/or reduce their total costs ownership
increasing return on shelf-space [(profit/shelf-space) or
(profit/sales)*(sales/shelf-space)]

Note: profit/shelf-space is the margin and sales/shelf space is the shelf-space
productivity. Direct product profit (DPP) is also used as a tool in shelf-space
profitability (useful for retailers, super markets etc. who are into retail business)

9
Direct product profit (DPP) and shelf-yield
10
Understanding costs-to-serve
in supply chain strategy
11
Customer profitability matrix