BENCHMARK SURVEY – CUSTOMER SERVICE 2005 – PART 1

Result of research carried out between 1994 and 2004 on the evolution of the importance and quality of the physical distribution service of the consumer goods industry in the perception of supermarkets

This article is divided into two parts. The first explores how the economic environment affects the purchasing decision of trade with the consumer goods industry. The second will try to analyze the quality of the physical distribution service provided by the industry, in the perception of supermarkets. The analyzes are based on the results of the Benchmark – Customer Service survey, conducted periodically since 1994 by the Center for Studies in Logistics – CEL/Coppead/UFRJ.

THE ECONOMIC ENVIRONMENT

The dynamics of the commercial relationship between the supermarket retailer and the consumer goods industry, as observed in previous years' analyses, is strongly influenced by the prevailing economic scenario. In this sense, it is expected that the improvements experienced during 2004 can be confirmed in the coming years and, thus, trigger positive impacts for agents along the supply chain. And that these promising signs of the Brazilian economy may come to be considered, in the near future, as a milestone for the reversal of the negative picture that had persisted in recent years.

The country's weak performance observed until 2003 came after a period of broad expansion of economic activities, between 1994 and 1997, due to the success obtained in controlling inflation, when significant improvements were observed in key indicators, such as 28,9 % in the worker's income and 17,1% of the Gross Domestic Product (see Table 1).

Due to this cycle of economic growth, supermarket sales increased by 26,8% between 1995 and 1998 (or around 50%2, if one also considers the growth in sales in the second half of 1994, which already included significant positive impacts brought about by the economic stabilization plan).

In a later period, the government, with the objective of reversing the exhaustion of the economic expansion cycle, allowed the exchange rate to become more flexible, which in turn promoted the acceleration of price indices from 1999 onwards.

However, subsequent initiatives to combat inflation, which reached 14,7% in 2002 and 10,4% in 2003, had perverse effects on economic agents. As indicated in Table 1, between 1999 and 2003, workers' income – a determining factor for the performance of the entire supply chain – showed a significant loss of 23,4% in purchasing power, equivalent to all the gains obtained from the plan of economic stabilization in 1994. Consequently, this reduction in income contributed to the accumulated drop of 6,5% in supermarket sales. In general, the average GDP growth in the period, less than 1,8% per year, illustrates the poor performance of the economy as a whole.

After all, the 2004 economic indicators seem to herald the beginning of a virtuous cycle for agents in the consumer goods supply chain, notably with regard to commerce and industry. The results for the year were definitely promising: GDP growth of 4,9%; inflation of 6,1%, as well as a 0,2% increase in workers' income which, despite being discreet, after six years of successive declines, stimulated the propensity to spend; and the consequent 2,6% recovery in supermarket sales. Table 1 indicates the continuation of this positive economic scenario for 2005.

 THE BUSINESS PURCHASE DECISION PROCESS

The analyzes that follow explore the impacts of changes in the economic environment on business relationships between participants in the consumer goods supply chain, as illustrated in Figure 1.

Figure 1 presents the logic of the physical flow of goods between the industry and the consumer, which can be done directly, through wholesalers or through a retail network. This last case is the focus of the research carried out.

Figure 2 shows how the relative importance of the retailer's purchasing decision variables3 changed over the period considered by the survey. 2004 can be seen as a year of inversion of behavior in relations between industry and supermarket chains.

In the first place, it is interesting to note that Figure 2 points to a clear convergence of the relative importance of the purchasing decision variables in the retail trade. While the difference between the most important and the least important variable was 24,1 percentage points in 1994, in 2004 this difference was reduced to 12,8 percentage points. This means that industries must, more and more, balance the decision variables, product, price, physical distribution service4 and promotion and advertising, in their marketing strategies. That is, marketing strategies, which are traditionally centered on product and price variables, must increasingly consider the physical distribution service and promotion and advertising as differentiating variables from the competition, in that order.

Another relevant fact is the finding that, in 2004, commerce once again gave greater importance to the product variable in its purchasing decision with the industry, after a long period of decline since 1999. This happens at a time of recovery in economic indicators, according to previously analyzed.

To the extent that there is a positive expectation of improvement in market conditions, starting with the recovery of final consumer income, the pattern of commercial purchases tends to give more weight to the product to the detriment of the price. Therefore, if there is a cycle of sustained economic growth in the coming years, the product should gain relative weight in the retail purchasing decision process, as long as the purchasing power of the consumer allows it, as previously occurred, between 1994 and 1999.

In this sense, it is observed that the increase in consumer income of 28,9% between 1994 and 1997 gave impetus for the product to gain relevance in relation to price until 1999, since the slight decrease of 0,5% in 1998 was not enough to change the mood of the consumer.

However, it is important to point out that the subsequent 5,5% fall in income in 1999 (see Table 1) was decisive for the change in trade relations until 2003. As observed in Figure 2, between 1999 and 2003, a period of 23,4% in consumer purchasing power, price gained ground to the detriment of the product in purchasing decisions from retail to industry.

It is also interesting to highlight the trend towards an increase in the importance of the distribution service over the entire period considered by the survey. It is worth remembering that, regardless of the economic scenario, there is a trend towards increased competition between supply chains. This has pressured the industry to provide superior service in the two performance components of the physical distribution process: service level and operational efficiency.

From the point of view of the level of service, it is worth remembering that the consumer has been increasingly willing to buy a substitute product, or a similar one, if he does not find the one he wants. Therefore, it is up to the industry to seek to ensure a high level of availability in order not to lose sales.

Simultaneously, the quest for competitiveness implies pressure to recompose margins, primarily due to efforts to reduce transaction costs. In this sense, there is a constant search for operational efficiency, which is reflected, for example, in the adoption of initiatives to reduce safety stocks and order delivery times, without jeopardizing product availability. This reinforces the growing need to place greater emphasis on the physical distribution service in defining a winning marketing strategy.

The second part of this article, to be published in a future edition, will seek to assess: What is the level of satisfaction of the retail trade in relation to the distribution service provided by the consumer goods industry? What is your requirement level? Do companies holding the best practices have their performance differentiated by retail trade?

BIBLIOGRAPHY

FLEURY, PF, LAVALLE, CR Evaluation of the physical distribution service: the relationship between the consumer goods industry and the wholesale and retail trade. Management and Production, vol. 4, nº 2, August 1997.

CHRISTOPHER, M. Logistics and Supply Chain Management: strategies for reducing costs and improving service. Prentice Hall, 1998.

BOWERSOX, DJ, CLOSS, DJ Business Logistics: the supply chain integration process. Atlas publishing house, 2001.

¹ – Source: Conjuntura Econômica and Abras;
² – The rate of 29,19% in the first semester of 1995, in relation to the same period of 1994, is an indicator that supermarket sales had a significant growth in the second semester of 1994. The information available by Abras (Associação Brasileira de Supermarkets) do not allow calculating the growth rate of sales in 1994 compared to the previous year.
³ – Respondents were asked to distribute one hundred points among the four purchasing decision variables considered (Product, Price, Customer Service, Promotion and Advertising). A higher score indicates greater relevance. The result indicates the relative weight of these variables in the trade decision process with industry. In order to maintain data compatibility, the analysis that follows only considers São Paulo and Rio de Janeiro, as these are the only two markets that were the subject of research during the ten stages of the same, between 1994 and 2004. Recife, Curitiba and Belo Horizonte were added in the second, third and fourth phases of the survey, respectively.
⁴ – Named in the survey as Customer Service.