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Marketing Basics - Kotler Philip

Product Goals

Many companies set the goal of product distribution to ensure the delivery of the right products to the right places at the right time with the lowest possible costs. Unfortunately, none of the product distribution systems can simultaneously provide maximum service for customers and minimize distribution costs. Maximum customer service involves maintaining large inventories, an impeccable transportation system and the presence of many warehouses. But all this contributes to the growth of distribution costs. Focusing on cost reduction implies a cheap transportation system, maintaining small inventory and having a small number of warehouses.

The cost of distribution is often interconnected in inverse proportion.

• The manager of the forwarding and transport service prefers in all possible cases to ship the goods by rail rather than by plane. This reduces the transportation costs of the company. However, due to the slower speed of railways, working capital is linked longer, payments from customers are delayed, and, in addition, such delivery may force customers to make purchases from competitors offering shorter terms.

• To keep costs to a minimum, the shipping department uses cheap containers. And this leads to numerous damage to the goods along the way and causes consumer dissatisfaction.

• The manager of the inventory service prefers to have small inventories in order to reduce their maintenance costs. However, cases of lack of goods are becoming more frequent, the number of unfulfilled orders is growing, the amount of clerical work is increasing, there is a need to produce unplanned batches of goods and use expensive means of expedited delivery. Given that the organization of goods distribution involves great compromises, a systematic approach to making such decisions is necessary.

The starting point for creating a product distribution system is to study the needs of customers and competitors' offers. Consumers are interested in: 1) timely delivery of goods, 2) supplier’s willingness to meet the urgent needs of the client, 3) accurate handling of goods during loading and unloading, 4) supplier’s willingness to take back defective goods and quickly replace them, 5) supplier’s willingness to support goods inventories for the sake of the client.

The firm needs to study the comparative importance of these types of services in the eyes of customers. For example, for buyers of photocopy equipment, the terms of service repairs are of great importance. Therefore, Xerox Corporation has developed standards for the provision of service and repair services, according to which it undertakes to "bring into operation a failed device anywhere in the continental United States within three hours of receipt of a service request." The corporation’s technical maintenance department employs 12 thousand repair and supply specialists.

When developing its own standards for maintenance, a firm must always consider competitors' standards. As a rule, she wants to provide customers with at least the same level of service that competitors offer. However, the main goal is to maximize profits, not sales. Therefore, the company should think about what costs the organization of high-level services will entail. Some firms offer more modest service, but at low prices. Others - a larger volume of services than competitors, but charge a price for them with a premium to cover higher costs.

Be that as it may, the firm must formulate the goals of its product distribution system, which can guide the planning process. For example, Coca-Cola Corporation seeks to "bring Coca-Cola to the outstretched arm of your desire." Sometimes firms go even further by developing standards for each component of a service system. One of the manufacturers of household goods has established the following service standards: 1) within seven days to fulfill at least 95% of requests for delivery of goods received from dealers, 2) to fulfill orders of dealers with an accuracy of 99%, 3) within three hours to answer queries dealers on the status of the implementation of their orders; 4) to ensure that the quantity of goods damaged in transit does not exceed 1%.

Having developed a set of goals of goods distribution, the company proceeds to the formation of such a system of goods distribution, which will ensure the achievement of these goals with minimal costs. In this case, decisions must be made on the following main issues:

I. How should customers work? (order processing)

2. Where should inventory be stored? (storage)

3. What stock should always be at hand? (inventory)

4. How should I ship the goods? (transportation)

We will now examine all four of these aspects and their relevance in terms of marketing.