Channel Analysis Framework

CHANNEL DESIGN
Segmentation

Channel Structure
Splitting the Workload
Degree 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

Variety
Assortment
Assortment

Shallow

Broad

Narrow

Limited assortment of a
wide variety of products

Limited assortment of a
limited variety of goods

1.Chen one
2.HKB

1.Burger corner
2.Potato and potato

Comprehensive assortment Comprehensive assortment

of a wide variety of
of a limited variety of goods
products

Deep

1.Macro
2.Metro
3.Hyper star

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

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 OutputsAlienable or
Inalienable
Running shoes at NB store versus zappos.com
Service Output

Alienable

Trying on

Expert advice

Inalienable

Easy returns

Association
with pro
runners

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.
Demonstrations
Assistance
Installation
Support after sale
Relationship
Low price

5
5
5
5
5
5

5
5
5
5
5
5

Marketing Research for

Segmentation
Constant-sum scales
Please divide 100 points between these
different services, such that the most
important have the most points
Demonstrations 14
18
Assistance
13
Installation
Support after sale 10
2
Relationship
43
Low price

13
11
19
44
14
9

Meeting Service Output Demands (or

not)
Can be very expensive and time-

consuming
Are there times when the demands can
go unmet?
Costprohibitively expensive
Decide whether or not to provide the service
Decide whether to cover the cost or explicitly
charge the customer
Competitivewhat 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 companys 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 billers 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 PRESENTMENT 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 websites payment page;
Enters amount and date of payment;
[website indicates how fast payment will be made]

Consumer visits third partys 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 billers system;
Cost of time to check bills 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 bills 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)
Associations,
Events,
Awareness
Efforts

Pre-Sales
Dealers

Sales

VARs

Internal Support
- Install, Training &
Service Group

Post-Sales

Segment

TeleSales/
TeleMktg

Full-Service

Responsive
Support

References/
Credentials

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

ThirdParty
Supply
Outsource

Lowest
Total
Cost

TABLE 2-4: SHIPPING CHARGES FOR $150 PURCHASE OF SHIRTS FROM LANDS END

Buyers
Location

Shipping
Method

Shipping
Charge

Time to
Delivery

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

United States

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 bricksand-mortar Barnes & Noble bookstore. Just try and return something
to a store that isnt 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 & Nobles

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

Descriptor
Bulkbreaking

Service Output
Demand Level

Student buying textbooks for fall semester at college

Descriptor

Service Output
Demand Level

Im looking for some good read

paperbacks to enjoy.

Medium

I only need one copy of my

Marketing textbook!

High

Spatial
convenienc
e

I have lots of errands to run before

leaving town, so Ill be going past
several bookstores.

Medium

I dont have a car, so I cant travel

far to buy.

High

Waiting and
delivery
time

Im not worried about getting the

books now I can even pick up a
few when Im out of town if need be.

Low

I just got to campus, but classes

are starting tomorrow and Ill need
my books by then.

High

Assortment
and variety

I want the best choice available, so

that I can pick what looks good.

High

Im just buying whats 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 dont

need any special help.

Low

Information
provision

I value the opinions of a well-read

bookstore employee; I cant always
tell a good book from a bad one
before I buy.

High

My professors have already

decided what Ill read this
semester.

Low

TABLE 2.1: SERVICE OUTPUT DEMAND DIFFERENCES

(an example of segmentation in the soft drink market)
SERVICE
OUTPUT

FAMILY
SERVICE OUTPUT
DESCRIPTOR
DEMAND LEVEL

Bulk-breaking

I buy groceries
weekly for my family,
and all of us like soft
drinks

Spatial
convenience

I drive to the
supermarkets in my
area to shop

Quick delivery

We usually have some

extra cans of soft drinks
in the house, so Ill just
come back the next time
if I cant find the drinks
I want on this trip

Assortment
and variety

My husband and I like

Coke and Pepsi, but our
kids arent permitted to
drink caffeinated soft
drinks. They like
caffeine-free fruitflavored soft drinks

LOW

OFFICE EMPLOYEE
SERVICE
DESCRIPTOR

OUTPUT
DEMAND
LEVEL

Im on my coffee
break and I have only
have time for one can
of soft drink

HIGH

LOW

I only have 15 minutes

for my break, so I need to
buy whatever is handy

HIGH

LOW

If I dont get my soft

drink right at 3:00
when my break starts,
Ill never have a
chance to go back later
and get one

HIGH

HIGH

I cant be too
particular about which
soft drink I pick. Its
important to me to get
one, as long as it has
caffeine

MODERATE

Activity
Read Appendix 2 A
Fill out the template with the product

assigned to your Team