Channel Analysis FrameworkCHANNEL DESIGN

Segmentation

Channel StructureSplitting the WorkloadDegree of Commitment

Gap Analysis

CHANNEL IMPLEMENTATION

Channel Power Channel Conflict

Manage/Defuse Conflict

Channel Coordination

INSIGHTS FOR SPECIFIC CHANNEL INSTITUTIONS

Start with the End User

Demand side of the marketing channel design first describe end user behavior.

Grouping end users in the market by demands for service outputs.

How end-users want to buy and what he wants to buy products and services.

Segment based on demands for service outputs

Service Outputs

Channel system perform duties that reduce end users search, waiting time ,storage and other cost .These benefits are called service output of the channel.

Bulk breaking Spatial convenience Waiting time Product variety Customer service Information provision

Bulk-Breaking

Enabling customers to buy in their desired possibly small number of units .

Smaller lot size( more bulk breaking the channel does:= higher service output level to end user= higher price per unit

Accumulating

Spatial Convenience

Reducing customers’ transportation requirements and search costs

Shopping centers neighborhood supermarkets superstores vending machine gas stations ,are few examples of channel

forms design to satisfy consumers demand for spatial convenience.

Waiting Time

The Time period between ordering and receiving products and services

Longer waiting times mean customers must be able to predict needs and plan further in advance.

The longer the end user are willing to wait the more the compensation they receive.

Quick delivery is associated with a high price paid.

Quick delivery may also vary between the purchase of Original equipment versus post-sale service.

Product Variety and Assortment Variety

Generically different classes of goods This is the Breadth of the product lines.

Assortment Different models/ within each product category. Assortment refers to the Depth of the product brands. Example : Discount department stores have limited

assortment of fast-moving low priced items. Specialty store offers deepest assortment of

goods. What assortment of goods is offered to the

target market is also very important.

Product Variety and AssortmentAssortment Broad Narrow

Shallow

Limited assortment of a wide variety of products

1.Chen one 2.HKB

Limited assortment of a limited variety of goods

1.Burger corner2.Potato and potato

Deep

Comprehensive assortment of a wide variety of products

1.Macro2.Metro3.Hyper star

Comprehensive assortment of a limited variety of goods

1.Apple (i-store)2.HP (Compsi)3.Home Appliances 4.Cars showrooms

Variety

Customer Service

Customer service refers to: Easing the shopping and purchase process for end users.

Greater sales and profit. Customer service must be sensitive

to the targeted end-users.

Information Provision

Education of customers about: Product attributes Product usage capabilities Solutions retailing Pre-purchase services Post-purchase services

Level of Service Outputs and Intermediaries

The greater the level of service outputs demanded, the more likely it is that intermediaries will be included in the channel system Small lots Reduced waiting time. Marketing Flow.

Balancing Service Outputs and Price End-users choose between:

Low-service-output, low-price channel High-service-output, high-price channel

Price is not a service output

Free-riding Alienable Inalienable

Service Outputs—Alienable or InalienableRunning shoes at NB store versus zappos.com

Service Output Alienable Inalienable

Trying on

Expert advice

Easy returns

Association with pro runners

X

X

X

X

Segmenting the Market by service Output demand

Identify all relevant service outputs A priori segmentation Service output segmentation

Maximally similar within groups Maximally different between groups On dimensions that matter

Marketing Research for Segmentation

Please rate each of the following in terms of importance on a 1-5 scale with 5 being most important.

DemonstrationsAssistanceInstallationSupport after saleRelationshipLow price 5 5

555555

555555

Marketing Research for Segmentation

Constant-sum scalesPlease divide 100 points between these different services, such that the most important have the most pointsDemonstrationsAssistanceInstallationSupport after saleRelationshipLow price

14181310

243

1311194414

9

Meeting Service Output Demands (or not) Can be very expensive and time-

consuming Are there times when the demands can

go unmet? Cost—prohibitively expensive

Decide whether or not to provide the service Decide whether to cover the cost or explicitly

charge the customer Competitive—what do the competitors offer?

Providing extra service may not affect market share

Meeting Service Output Demands (or not) Are there times when the demands can

go unmet? (continued) Ease of entry

New competitors Other elements of excellence in offering

Very low price Truly superior product

Selecting Segments to Target Assess segment attractiveness Select segments to target and not to

target Customize the marketing channel for

each targeted segment Create new marketing channels Modify existing marketing channels

Activity

Get into your teams and answer the following:Provide one example (existing company’s product or service) that uses at least two different channel distribution approaches to facilitate significantly different needs of two market segments.Describe how these approaches changes the value structure of the original product.

In your teams:1. As a channel manger for a new fragrance (Febreeze), describe how you would determine the segmentation based end-user service output demands?

2. How would you define what is the optimal channel (flows, structure, intensity, ABC)? Provide a couple of specific examples to demonstrate your ideas.

TABLE 2-2: ONLINE BILL PAYMENT: THE CONSUMER EXPERIENCE

OPTION: Paper Bill Payment Direct Biller Online Pay Third-Party Online Bill Payer (e.g. bank, Quicken)

SET-UP PROCESS: None Consumer logs on to biller’s website;Enters information about account, name, bank account fr/which payment will be made, etc.;Picks a password, specific to this website, to gain access in future;Activation usually occurs within 24 hours

Consumer logs on to third-party website;Enters information about each account individually;Picks a password, specific to this site but common across all bills paid at this site, to gain access in future

BILL PRESENT-MENT TO CONSUMER:

Consumer receives bill through U.S. mail in envelope containing summary of bill charges & due date, payment stub, & payment envelope

Either through U.S. mail (see paper bill) or electronic bill presentment through e-mail alert; both note payment due date

Arrival of electronic bill noted through e-mail alert;Third party may/may not offer actual bill presentment

CONSUMER BILL REVIEW AND PAYMENT AUTHOR-IZATION:

Consumer reconciles bill with paper receipts; fills out payment stub; writes paper check; inserts check and stub in envelope; puts U.S. first-class stamp on envelope; mails payment

Consumer reconciles bill with receipts;Visits biller website’s payment page;Enters amount and date of payment;[website indicates how fast payment will be made]

Consumer visits third party’s website to view bill (if no presentment by third party) and reconcile;Enters amount and date of payment (may need up to 5 days to clear payment)

CONFIRMA-TION OF PAYMENT TO CONSUMER:

Only when next bill is received does consumer learn if previous payment was received in time (unless consumer telephones biller)

Typically, e-mail confirmation of payment receipt the day payment is recorded

Typically, e-mail confirmation that payment was made

COST TO CONSUMER:

Cost of first-class stamp;No cost to learn system;Cost of time to process bill & write check;Cost of paper check;Risk-adjusted cost of late payment (perceived very low)No monthly fee for payment processing

No stamp;Initial learning time, for each biller’s system;Cost of time to check bill’s accuracy;No check writing or cost;Risk-adjusted cost of late payment (perceived low);No monthly fee for payment processing

No stamp;Initial learning time, once for whole system;Cost of time to check bill’s accuracy;No check writing or cost;Risk-adjusted cost of late payments (moderate: up to 5 days to clear payment)May be a monthly fee (e.g., Quicken: $9.95/month for up to 20 bills, plus $2.49 per 5 bills thereafter; but many banks now do not charge for service);May be low cost to integrate with home financial records (e.g., Quicken financial software program)

FIGURE 2-1: IDEAL CHANNEL SYSTEM FOR BUSINESS-TO-BUSINESS SEGMENTS BUYING A NEW HIGH-TECHNOLOGY PRODUCT

Manufacturer(New High Technology Product)

Full-Service ResponsiveSupport

References/Credentials

LowestTotalCost

Pre-Sales

Sales

Post-Sales

VARs

Associations,Events,

AwarenessEfforts

Third-Party

SupplyOut-

source

DealersTeleSales/TeleMktg

Internal Support- Install, Training &

Service Group

Segment

Source: Reprinted with permission of Rick Wilson, Chicago Strategy Associates, 2000.

TABLE 2-4: SHIPPING CHARGES FOR $150 PURCHASE OF SHIRTS FROM LAND’S END

Buyer’s Location

Shipping Method

Shipping Charge

Time to Delivery

United States Standard UPS $11.95 3 to 5 business days

Mexico Surface Mail $20.00 8 to 12 weeks

Mexico Priority Air $30.00 2 to 4 weeks

Mexico UPS $50.00 1 to 2 weeks

Source: www.landsend.com website.

 FIGURE 2-2: ADVERTISING COPY FOR AN AD FOR BN.COM

Advertising Copy Service Output Offered

“Really free shipping”: offers free shipping if 2 or more items are purchased. “We make it easy and simple.”

Customer service

“Fast & easy returns”: end-user can return unwanted books to a bricks-and-mortar Barnes & Noble bookstore. “Just try and return something to a store that isn’t there.”

Quick delivery (for returns), spatial convenience; note implicit comparison with amazon.com, the pure-play online bookseller

“Books not bait”: promises no additional sales pitches to buy non-book products.

Assortment/variety: just books (targeting the book lover). Again, note implicit comparison with amazon.com.

“Same day delivery in Manhattan”: delivery by 7:00 p.m. on any item(s) ordered by 11:00 a.m. that day. “No other online bookseller offers that.”

Quick delivery: the offer is possible because of Barnes & Noble’s warehouses in New Jersey, near Manhattan. Note direct comparison with other online booksellers (notably, amazon.com)

“The gift card that gives more”: can be used either online or in the bricks-and-mortar bookstores, nationwide.

Spatial convenience, assortment/variety: when buying a gift for a friend, this provides virtually limitless assortment, and does so anywhere the recipient lives in the United States.

“bn.com – 1,000,000 titles; amazon.com – 375,000 titles” Assortment/variety: direct comparison with amazon.com, offering a broader assortment of titles to the consumer

Source: advertisement for bn.com in Wall Street Journal, November 20, 2002, p. A11.

TABLE 2-5: THE SERVICE OUTPUT DEMANDS (SOD) TEMPLATE

SERVICE OUTPUT DEMAND:

SEGMENT NAME/ DESCRIPTOR

BULK BREAKING SPATIAL CONVENIENCE

DELIVERY/ WAITING TIME

ASSORTMENT/ VARIETY

CUSTOMER SERVICE

INFORMATION PROVISION

1.

2.

3.

4.

5.

INSTRUCTIONS: If quantitative marketing-research data are available to enter numerical ratings in each cell, this should be done. If not, an intuitive ranking can be imposed by noting for each segment whether demand for the given service output is high, medium, or low.

TABLE 1-1: SERVICE OUTPUT DEMAND DIFFERENCES(an example of segmentation in the book-buying market)

Browser buying best-sellers to take on vacation Student buying textbooks for fall semester at college

DescriptorService Output Demand Level Descriptor

Service Output Demand Level

Bulk-breaking

“I’m looking for some ‘good read’ paperbacks to enjoy.” Medium “I only need one copy of my

Marketing textbook!” High

Spatial convenience

“I have lots of errands to run before leaving town, so I’ll be going past

several bookstores.”Medium “I don’t have a car, so I can’t travel

far to buy.” High

Waiting and delivery time

“I’m not worried about getting the books now… I can even pick up a

few when I’m out of town if need be.”Low

“I just got to campus, but classes are starting tomorrow and I’ll need

my books by then.”High

Assortment and variety

“I want the best choice available, so that I can pick what looks good.” High “I’m just buying what’s on my

course reading list.” Low

Customer service

“I like to stop for a coffee when book browsing.” High “I can find books myself, and don’t

need any special help.” Low

Information provision

“I value the opinions of a well-read bookstore employee; I can’t always

tell a good book from a bad one before I buy.”

High“My professors have already

decided what I’ll read this semester.”

Low

  FAMILY OFFICE EMPLOYEESERVICE OUTPUT

DESCRIPTOR SERVICE OUTPUT DEMAND LEVEL

DESCRIPTOR SERVICE OUTPUT DEMAND

LEVEL

Bulk-breaking “I buy groceries weekly for my family, and all of us like soft drinks”

 LOW

“I’m on my coffee break and I have only have time for one can of soft drink”

 HIGH

Spatial convenience

“I drive to the supermarkets in my area to shop”

 LOW

“I only have 15 minutes for my break, so I need to buy whatever is handy”

 HIGH

Quick delivery “We usually have some extra cans of soft drinks in the house, so I’ll just come back the next time if I can’t find the drinks I want on this trip”

   

LOW

“If I don’t get my soft drink right at 3:00 when my break starts, I’ll never have a chance to go back later and get one”

   

HIGH

Assortment and variety

“My husband and I like Coke and Pepsi, but our kids aren’t permitted to drink caffeinated soft drinks. They like caffeine-free fruit-flavored soft drinks”

   

HIGH

“I can’t be too particular about which soft drink I pick. It’s important to me to get one, as long as it has caffeine”

   

MODERATE

TABLE 2.1: SERVICE OUTPUT DEMAND DIFFERENCES(an example of segmentation in the soft drink market)

Activity

Read Appendix 2 A Fill out the template with the product

assigned to your Team