Supply Chain and Logistics
Management
Lecture Five
Dr/ Hend Awad Mahmoud
Chapter Two
Logistics and
customer value
Customer retention indicators
❑ Customer retention refers to the strategies and actions that a
business takes to keep its existing customers and encourage
them to continue doing business with the company over time.
The goal is to build long-term relationships with customers,
increasing their loyalty and satisfaction so they return for repeat
purchases or services. Explains the importance of customer
retention and the lifetime value of a customer.
❑ Effective customer retention often involves providing excellent
customer service, offering rewards or incentives, personalizing
experiences, addressing customer feedback, and maintaining
consistent communication with customers. By focusing on
retention, businesses can reduce the cost of acquiring new
customers and improve overall profitability.
❑ A prime objective of any customer service strategy should be to
enhance customer retention. Whilst customer service obviously
also plays a role in winning new customers it is perhaps the
most potent weapon in the marketing armoury for the keeping
of customers.
❑ There is rapidly emerging a new focus in marketing and logistics
on the creation of ‘relationships’ with customers.
❑ Many markets are characterized by a high level of ‘churn’ or
‘promiscuity’ amongst the customer base. In these markets
customers will buy one brand on one occasion and then are just
as likely to buy another on the next occasion.
❑ The principle behind ‘relationship marketing’ is that the
organization should consciously strive to develop marketing
strategies to maintain and strengthen customer loyalty.
Market- driven supply chain
❑ Market-driven supply chains refer to supply chain strategies that
are primarily influenced by customer demand and market
conditions rather than by internal production schedules or
forecasts. In a market-driven supply chain, the business focuses
on responding quickly and efficiently to changes in customer
preferences, demand patterns, and external market forces.
❑ This new perspective sees the consumer not at the end of the
supply chain but at its start.
❑ Key features of market-driven supply chains include
✓ Customer-Centric: The supply chain is designed around customer
needs and market trends, ensuring that products and services
align closely with consumer demand.
✓ Flexibility and Responsiveness: The supply chain is agile and
able to adapt quickly to changes in demand, whether due to
market shifts, seasonality, or other factors.
❑ Key features of market-driven supply chains include
✓ Real-Time Data: Market-driven supply chains often rely on real-
time data and analytics to track demand signals, consumer
behavior, and inventory levels, allowing businesses to make
informed decisions quickly.
✓ Collaboration: These supply chains emphasize collaboration with
suppliers, manufacturers, and distributors to ensure that products
are available where and when customers want them.
❖ In effect this is the philosophical difference between supply
chain management and what more properly might be called
‘demand chain management’.
As one author has suggested:
Managing demand chains is … fundamentally different to
managing supply chains. Hence, demand chain requires turning
the supply chain on its head and taking the end user as the
organization’s point of departure and not its final destination.
Figure 5.1
suggests an
appropriate
sequence of actions
to create a market-
driven supply chain.
Linking customer value to supply chain strategy
❑ This sequence begins with an understanding of the value that
customers seek in the market in which the company competes.
❑ This customer insight will enable the identification of the real
market segmentation, i.e. the clusters of customers who share the
same value preferences.
❑ For example, The Spanish fashion chain Zara provides an excellent
example of how market understanding and supply chain excellence
can create real value for its target customers.
Identifying customers’ service needs
❑ It is important to remember that no two customers will ever be
segments in terms of their service requirements.
❑ However, it will often be the case that customers will fall into
groups or ‘segments’ that are characterized by a broad similarity
of service needs.
❑ These groupings might be thought of as ‘service segments.
❑ Market research can be of great assistance in understanding this
service segmentation and it is often surprising to see how little
formal research is conducted in this crucial area.
❑ Market research is the process of gathering, analyzing, and
interpreting information about a market, including information
about the target audience, competitors, and the overall industry
environment. The goal of market research is to understand
consumer needs, preferences, and behaviors, as well as to assess
market trends, competition, and potential opportunities or threats.
❑The approach to service segmentation suggested here follows a
three-stage process:
✓ Identify the key components of customer service as seen by
customers themselves.
✓ Establish the relative importance of those service components to
customers.
✓ Identify ‘clusters’ of customers according to similarity of service
preferences.
1. Identify the key components of customer service as seen by
customers themselves.
❑A common failing in business is to assume that ‘we know what our
customers want’.
2. Establish the relative importance of those service components to
customers.
❑ One of the simplest ways of discovering the importance a
customer attaches to each element of customer service is to take
the components generated by means of the process described in
step 1 and to ask a representative sample of customers to rank
order them from the ‘most important’ to the ‘least important’.
❑ In practice this is difficult, particularly with a large number of
components, and would not give any insight into the relative
importance of each element.
❑ Alternatively, a form of rating scale could be used. For example,
the respondents could be asked to place a weight from 1 to 10
against each component according to how much importance they
attached to each element.
3. Identify ‘clusters’ of customers according to similarity of service
preferences.
❑ the final step is to see if any similarities of preference emerge.
❑ If one group of respondents, for example, has a clearly distinct set
of priorities from another then it would be reasonable to think of
them both as different service segments.
❑ How can these customer service segments be identified? One
technique that has been successfully used in this connection is
cluster analysis.
❑ Cluster analysis is defined as a computer-based method for
looking across a set of data and seeking to ‘match’ respondents
across as many dimensions as possible.