MARKETING CHANNELS

CHAPTER -5GAP ANALYSIS

Urmi Saha

WHAT IS GAP ANALYSIS?

Gap analysis is a tool that helps a company to compare its actual performance with its potential performance

A channel gap arises because of the boundations that prevent channel manager from optimising the channel structure

HOW TO ELIMINATE GAP?

In order to remove gap the channel manager need to design a zero based channel.

A channel system that is not zero based has either demand side gaps or supply side gaps or both

WHAT IS ZERO BASED CHANNEL?

The channel that both meets service output demands and does so at minimum cost of performing the necessary channel flows is called zero based channel

QUESTIONS TO BE ANSWERED WHILE STRUCTURING A ZERO BASED CHANNEL?

o What non-valued functions can be eliminated without damaging customer or channel satisfaction?

o Are there to be any redundant activates? Which of them could be eliminated to result in the lowest cost for the entire system?

o Is there a way to eliminate, redefine, or combine certain tasks in order to minimize steps in a sale or reduce its cycle time?

o Is it possible to automate certain activities in a way that reduces the unit cost of getting products to market, even though it will lead to increased fixed costs?

o Are there opportunities to modify information systems to reduce the costs of prospecting, order entry, or quote generation activities?

WHAT IS THE CAUSE OF GAP? Cause – management

has not thought carefully about target end users demands for service outputs or about managing the cost of running their channel

Advice – channel managers must pay attention to both demand side & supply side in designing their channel to avoid these gaps

WHAT ARE THE SOURCES OF GAPS?

Environmental bounds

Managerial bounds

•Local legal constraints

•Constraints due to lack of knowledge

•Local physical, retailing infrastructure

•Constraints due to optimization at a higher level

ENVIRONMENTAL CHANNEL BOUNDS V/S MANAGERIAL CHANNEL BOUNDS

Environmental bounds

Managerial bounds

•Imposed from outside of the organisation

•Imposed from inside of the organisation

•Imposed due to legal restrictions

•Imposed due to lack of knowledge of the channel manager

•Imposed due to lack of infrastructural capabilities in the market to support the optimal channel structure

•Due to optimisation at a higher level than the channel itself

WHAT ARE THE TYPES OF GAPS?

Demand-Side Gaps

Supply-Side Gaps

SOS<SOD

SOS>SOD

Which service output?

Flow cost is too high

Which flow?

Where,

SOS = service output supply

SOD =service output demand

WHAT ARE THE CAUSES OF DEMAND-SIDE CHANNEL GAP?

Cause 1 – providing particular service output to a particular segment of end users at too low a level (SOD>SOS)

Cause 2 – providing particular service output to a particular segment of end users at too high a level (SOD<SOS)

WHAT ARE THE IMPLICATIONS OF DEMAND-SIDE CHANNEL GAP?

SOD<SOS – inefficient operation of channel as consumer is not willing to pay for the high level of service offered to them due to their low valuation of that service

SOD>SOS – inefficient operation of channel as channel members are not able to forecast actual demand and hence they are losing an opportunity to make more profit by not fulfilling the demand

WHAT ARE THE GENERAL RULES IN CASE OF DEMAND-SIDE GAP?

If there is no competition in providing that particular service, then demand-side gap need not to be closed output.

But persistent demand side channel gaps provides an ideal opportunity for a channel to build overall market demand, as well as to capture more market share, by investing in improved service output levels.

WHAT ARE THE CAUSES OF SUPPLY-SIDE CHANNEL GAP?

It occurs when one or more of the channel flows are performed at a higher cost than the required cost.

It results to increase in overall cost incurred on all the channel flows.

It is a sign of an inefficient channel performance & it will the profit of each channel members.

WHAT ARE THE IMPLICATIONS OF SUPPLY-SIDE CHANNEL GAP?

It implies that there is a superior technology with the help of which the cost of performing the channel flows can be decreased without compromising the service output provision.

It also implies that the it will demotivate the channel members because their profits will be reduced due to increased cost.

WHAT ARE THE GENERAL RULES IN CASE OF SUPPLY-SIDE GAP?

It can exist in one or more channel flows simultaneously.

It may exist in one of a company’s channel without existing in all of them.

It may give rise to demand-side supply gaps. If it happens then it needs to be closed because it will decrease the cost as well as increase the service output provisions to target end-users.

COMBINED CHANNEL GAPS Demand side

SupplySide

Shortfall(SOD>SOS)

No Gap(SOD=SOS)

Oversupply(SOD<SOS)

No Gap(efficient total flow cost)

Increase SOs without making costs inefficient No Gaps

Reduce SOs or target a more demanding

segment

Gap (total flow costs too

high)

Increase SOs and reduce costs

Find better efficiencies to reduce costs

Reduce costs by reducing SOs

CLOSING DEMAND-SIDE CHANNEL GAP

Expanding or retracting the level of service outputs provided to the target market.

Offering multiple, tiered service output levels to appeal to different segments.

Altering the list of segments targeted.

CLOSING SUPPLY-SIDE CHANNEL GAP

Changing the roles of current channel members.

Investing in new distribution technologies to reduce cost.

Bringing in new distribution function specialists to improve the functioning of the channel.

CONCLUSION

I conclude that GAP analysis is an important concept because of the following reasons:- Helps to forecast actual demand, as a

result reduces gap between demand and supply.

Helps to reduce the costs incurred on channel flows, as a result maximises profit of channel members.

Helps in reducing the gap between actual performance and expected performance.

Ultimately contributes to efficient channel performance,

BIBLIOGRAPHY

MARKETING CHANNELS ,7th edition

By :-Anne T. Coughlan:-Eric Anderson:-Louis W. Stern:-Adel I. El-Ansary

THANKYOU