Results of Research Conducted between 1994 and 1997.
The consumer goods supply chain has experienced substantial changes in recent years. The new contours of the competitive environment were outlined from the opening of the domestic market to imports of quality products and the much acclaimed economic stabilization. It is based on these changes and their business implications that leading companies are keeping an extensive monitoring of the relations between industry and commerce with the objective of exploring the opportunities that emerge in the market. It is in this context that logistics has been explored as a core competence, being effectively framed in the marketing strategy of vanguard companies.
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The trend towards “customization” of products, the growing bargaining power of trade and greater competition, due to globalization, are among the factors that have negatively pressured the sector's profitability level. It is in this general environment that customer service has been seen as the best way to maintain the customer base and gain new markets. Knowing the customer's needs, as well as their perception of the quality of the services provided, has become fundamental for those companies that intend to add value to the products sold as a way of differentiating and, consequently, leveraging their businesses.
In this sense, logistics competence fits into the marketing success equation because of the way in which it affects three fundamental issues:
- Customer needs come before products and services;
- Products and services have value only when available and positioned from the customer's perspective;
- Profitability is more important than volume.
The first point refers to the relevance attributed by customers to the products and services offered. Any effort that is not perceived as relevant to the customers' business can affect both the profitability and the potential of transactions with them. On the other hand, every effort to find the best way to meet customer needs can be in vain if the performance of operations does not meet expectations. Finally, success is closely linked to the level of profitability resulting from accumulated transactions. Therefore, the challenge is to maintain relevance to the largest possible number of customers through segmentation, with different and compatible service standards, which are justified by the increase in profitability of the business as a whole. For this to happen, customer focus is key to success.
However, maintaining focus when the target is mobile is not a trivial task. After all, the dynamics of the competitive environment is permanently influencing the scale of market values; what is indispensable today may be something disposable in the next moment; an excellent level of service can soon become a minimum level of quality. After all, customers and companies not only learn to expect good service but also to demand it. As a result of increasing competition, the minimum acceptable for good service remains under pressure and is continually rising.
If an effective and efficient marketing strategy is one that achieves its customer benefit objectives with the minimum investment in resources, the fundamental idea is that the maximum level of success is achieved to the extent that all activities contribute to meeting the expectations of specific segments or customers. It is clear, therefore, that the discernment of what the customer values, on a permanent basis, is a key condition for ensuring business success.
It is within this general framework that the Center for Studies in Logistics, in partnership with industrial companies, has carried out periodic field surveys with commerce, since 1994, with the aim of monitoring their perception of the following issues:
- What is the importance of the industry's distribution service in the trade purchase decision?
- What are the priority dimensions of the physical distribution service?
- What is the level of dissatisfaction with the service provided?
This research effort is the result of the recognition, by the industry, that the trade has valued the distribution service in the purchase decision process. In other words, the sponsoring companies (see box) reveal themselves to be oriented towards the needs of the client, with the firm conviction that the service is a fundamental part of the success of their businesses.
METHODOLOGICAL CONSIDERATIONS
At this point, it is important to note that, from a methodological point of view, service quality is related to the ability to minimize discrepancies between expectations and perceptions of customers and their suppliers. Misidentification of customer priorities by the supplier is likely to lead to customer dissatisfaction. A correct analysis of service attributes that bring positive impacts on the performance of the logistics system offers the company the opportunity to segment key customers.
The research results presented below involved 348 interviews carried out between Rio de Janeiro and São Paulo in 1994, 1995 and 1997.
CUSTOMER SERVICE IN THE TRADE PURCHASE DECISION PROCESS
Figure 2 shows the evolution over time of the four classic marketing variables during the period between the 1994 and 1997 surveys. The 1999 values represent the respondents' forecasts for the two-year horizon after the last survey. Respondents were asked what was the relative importance of the variables product, price, customer service and promotion and advertising in their purchasing decision with their suppliers, considering a total of 100 points.
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The results confirm that the distribution service is increasingly influencing the purchase decision on the part of the commerce to the detriment of the price. This is a reflection of the search for better services and greater logistical efficiency that leads to increasing levels of demand throughout the physical distribution process of industries.
PRIORITIES OF THE PHYSICAL DISTRIBUTION SERVICE
Figure 3 shows the evolution of what commerce values considering the different dimensions of the service offered by the industry. Some important issues can be identified:
- The basic service dimensions related to time and availability are among the most important in the perception of commerce. Suppliers that provide low-quality services in these dimensions generate undesirable costs for their customers, such as lost sales due to stock-outs and higher cost of keeping stock to cover delays and delivery lead-times above expectations;
- Commerce prefers less variability over shorter delivery cycles. Receipt uncertainties generate more costs than longer, but more rigid deadlines;
- The demand for lean supply has increased the importance of fault remediation procedures, as a way of minimizing deficiencies in the suppliers' physical distribution service;
- Flexibility and support information remain undervalued, contrary to what is observed in companies from countries with more developed logistics.
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LEVEL OF DISSATISFACTION OF SERVICES PROVIDED
The research sought to determine the percentage of dissatisfied people based on the measurement of three parameters: minimum expectations, market practices and best practices. The minimum expectation represents that service performance below which the customer feels dissatisfied. Best practice reflects the best performance among market vendors, therefore to be pursued as the benchmark. Finally, market practice represents the performance of a typical company among the main suppliers of the researched company.
Figure 4 shows the evolution of the percentage of dissatisfied customers between 1994 and 1997, considering the three basic dimensions of customer service. The percentage of people dissatisfied with market practice reduced in 1997 after the worsening observed in 1995 in relation to the results of 1994. These results are supported by the significant increase in demand verified right after the stabilization plan, which resulted in the deterioration of services provided between 1994 and 1995. The 1997 results can be attributed to an accommodation between supply and demand, as well as to the improvement of customer service processes by the industry in general.
It is interesting to observe that the companies that offer the best services practically did not show an increase in the number of dissatisfied people between 1994 and 1995. In fact, it is observed that the performance of the vanguard companies has improved a lot during the period considered. That is, in the perception of customers, companies that demonstrate the best practices are clearly different from companies with average performance.
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LEVEL OF EXPECTATIONS AND PERFORMANCE OF THE MARKET
Companies driven by market opportunities consider satisfying customer needs to be the main motivation for developing their logistics strategy. On the other hand, it is important to keep in mind that satisfaction results from the confrontation between expectations and performance perceived by the customer. And there is no better way to assess satisfaction than by asking the customer. There is no internal measurement system for companies that replaces assessment from the customer's perspective through field research.
The previous results raise an interesting question: After all, is dissatisfaction related to an increase in expectations or is the perceived performance of the market practice declining?
Companies with a clear service strategy explicitly specify their service standards. Competitive pressures drive leading companies to permanently commit themselves to a high quality service level. For example, it is common for leading companies to establish performance standards that meet 95% of the customer base. Federal Express, for example, stands out for offering 100% service level within 24 hours.
In our example that follows, if the industrial company intends to commit to meeting the expectations of 95% of its customers, and considering the trend that customers are increasingly demanding, it is essential that the service standards are periodically reviewed to verify whether these remain relevant to the customer base, retailers and wholesalers.
When analyzing the evolution of some variables that make up the service dimensions under discussion (availability, consistency and order cycle time), shown in Figure 5, one can observe the dynamics of the market in terms of expectations and perceived performance:
- The minimum expectation to meet 95% of the customer base either remains constant at high levels of performance or shows a strong growth.
- Market practice invariably falls short of performance expectations. That is, retail and wholesale customers are signaling great positioning opportunities for those industries that intend to differentiate themselves through the distribution service.
- The best practices measured in 1997 are equal to or higher than in 1997. These results reinforce the perception that industrial companies that hold the best practices pursue continuous improvement in their logistics operations.
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CONCLUSION
Research results confirm the trend that the distribution service is increasingly valued by retailers and wholesalers. This finding reinforces the thesis that the consumer goods industry should explore the service as a basis for differentiating itself from the competition, both on the side of the benefits embedded in its offers and by reducing the acquisition cost of having the product and/or service. .
It is important to emphasize that the benefits consist not only of the acquisition of the good or service, but also of the perceived quality of the performance of the distribution cycle – from the order through physical delivery to after-sales service. On the other hand, the cost has to be decomposed between the purchase price and the costs incurred in accessing the product or service due to lead-time, waiting time, stock-outs, etc.
As for the deployment of the physical distribution service, the trade indicates that the biggest concerns reside in those basic dimensions, namely: product availability, consistency, delivery frequency and order cycle time. The high level of importance attributed to the failure remediation system shows that the trade in general perceives that the basic service is below its expectations.
The low relative importance attributed to the information system and flexibilities dimensions seems to confirm that the basic needs of time and space still present great opportunities for differentiation. In countries where logistics are at a more advanced stage, the dimensions of time and space are seen as qualifiers while flexibility and the supporting information system are considered to be order winners.
The results presented regarding the logistical performance confirm that there is a long way to go in order to reduce the dissatisfaction of the retail and wholesale trade with the physical distribution service of the industry in general.
On the other hand, it is evident that vanguard companies are perceived to offer a differentiated performance. These are companies that are making progressive use of hardware and software technology to enhance their services as a way of adding value to specific customer segments and key accounts.
The recent meeting of the ECR Brasil movement (Efficient Consumer Response) is indisputable evidence that relationships in the supply chain are at the top of the agenda of the top management of leading companies. These companies realize that the “pot of gold” to be pursued is in the interfaces of the supply chain, that is, in the external integration between customers and suppliers. Therefore, discerning and monitoring these relationships is a prerequisite for establishing differentiated competitive strategies. It is in this arena that the next level of logistics excellence will be established.
