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Distribution Channel Management
Chapter 2
Segmentation for
Marketing Channel Design:
Service Outputs
Chapter 2 Outlines
Learning Objectives
- Understand the central role played by end-users and their demands
in the design of marketing channels.
- Know what service outputs are and how to identify and analyze
them.
- Be able to divide market into channel segments for the purpose of
designing or modifying a marketing channel.
- Be able to evaluate when and whether to try to meet all expressed
service output demands in the short run in a particular market.
- Understand the relationship between service output demands and
solutions to overall channel design problems.
Service Outputs
Points of Discussion
- The importance of end-users (target market) in the
planning of marketing activities.
- What are the nature of end-users’ demand?
(What are the factors influencing end-users buying
decision?)
- What end-users want to buy?
- How end-users want to buy?
Service Outputs
End-users’ Demand
What
How
End-users Want to Buy?
(Features and Benefits)
End-users Want to Buy?
(Service Outputs)
Service Outputs
End-users’ Demand in Purchasing a Notebook
What
How
End-users Want to Buy?
(Features and Benefits)
End-users Want to Buy?
(Service Outputs)
Generate End-users’ Demand
1) Product attributes; 2) Service Outputs
Divide participants into 6 groups
• Groups 1 & 2 generate end-users’ demand for a mobile phone.
• Groups 3 & 4 generate end-users’ demand for a renown
branded apparel.
• Groups 5 & 6 generate end-users’ demand for instant noodle.
• Send a representative to present your
group’s answer.
Prentice Hall, Inc. ©
2006
5-6
TABLE 2-1: ESTIMATED NUMBER OF U.S. CONSUMERS
USING ONLINE BILL PAYMENT, VARIOUS YEARS
YEAR
# U.S. CONSUMERS PAYING AT
LEAST 1 BILL ONLINE (millions, est.)
% OF U.S.
POPULATION (est.)
1998
3.4
1.3%
…
…
…
2001
20.4
7.3%
2002
25.5
9.1%
2003
35.0
12.5%
2004
65.0
23.0%
Notes:
1998: in 1998, just 2% of U.S. households used online bill payment, according to Tower Group (Bielski 2003). From U.S. Census data, in 1998, there were 100
million households in the U.S., with an average of 1.7 adults per household; thus, 2 million households or 3.4 million adults were using online bill payment in
1998.
2001: A Forrester Research report said that nearly 17 million U.S. households will pay bills online in 2002, up 41 percent from 2001 numbers (Higgins 2002).
Thus, in 2001, 12 million U.S. households paid bills online. From U.S. Census data, there were 108 million households in the U.S., with an average of 2.58
adults per household; thus, there were 20.4 million adults using online bill payment in 2001.
2002: The same Forrester Research report said that nearly 17 million U.S. households will pay bills online in 2002 (Higgins 2002), while a Tower Group report
said that 13.7% of U.S. households did pay bills online in 2002 (Bielski 2003). The table therefore reports the numbers from Bielski. There were 109 million
households in the U.S. in 2002; thus, 15 million households paid bills online. Further, there were an average of 2.58 adults per household in the U.S. in 2002
(from U.S. Census data), yielding the estimate of 25.5 million adult online bill payers in 2002.
2003 and 2004: A Gartner study cites 65 million U.S. consumers paying at least some bills online, and reports this is almost twice as many as in 2003 (Park,
Elgin et al. 2004). We therefore estimate that 35 million U.S. consumers paid bills online in 2003.
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 PRESENTMAIL 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
AUTHORIZATION:
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)
CONFIRMATION 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 2-2: 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.
Service Outputs
The meaning of Service Output
“The value-added services created by channel members
and consumed by end-users along with the product
purchased”
Service Outputs include
- Bulk-breaking
- Spatial convenience
- Waiting and delivery time
- Assortment and variety
- Customer service
- Information provision
Segmenting the Market
by Service Output Demands
Points of Discussion
- The different groups of end-users value service outputs
differently.
- The constant-sum scale is the most useful approach in
determining channel segmentation according to service
output demands.
- The key factors determining the responsive rate to the
unmet service output demands.
- The service output demand template.
Segmenting the Market
by Service Output Demands
Different groups of end-users
value service output differently
High End
Low End
Very service sensitive
Low price sensitive
Specialized channel
Low service sensitive
High price sensitive
Multiple marketing channel
x Bulk-breaking
// Spatial convenience
// Waiting and delivery time
// Assortment and variety
// Customer service
x information provision
/ Bulk-breaking
/ Spatial convenience
x Waiting and delivery time
/ Assortment and variety
x Customer service
x information provision
TABLE 2-3: BUSINESS-TO-BUSINESS CHANNEL SEGMENTS FOR A
NEW HIGH-TECHNOLOGY PRODUCT
Respondents allocated 100 points among the following supplier-provided service outputs according to their importance to their company:
= Greatest Discriminating Attributes
= Additional Important Attributes
Lowest Total Cost/
Pre-Sales Info
Segment
Responsive Support/
Post-Sales Segment
Full-Service
Relationship Segment
References and
Credentials Segment
References and Credentials
5
4
6
25
Financial Stability and
Longevity
4
4
5
16
Product Demonstrations &
Trials
11
10
8
20
Proactive Advice & Consulting
10
9
8
10
Responsive Assistance During
Decision Process
14
9
10
6
4
1
18
3
Lowest Price
32
8
8
6
Installation and Training
Support
10
15
12
10
Responsive Problem Solving
After Sale
8
29
10
3
Ongoing Relationship with a
Supplier
1
11
15
1
100
100
100
100
16%
13%
61%
10%
Possible Service
Output Priorities
One-Stop Solution
Total
% Respondents
Source: Reprinted with permission of Rick Wilson, Chicago Strategy Associates, 2000.
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
Sales
VARs
Internal Support
-Install, Training &
Service Group
Post-Sales
Segment
TeleSales/
TeleMktg
Dealers
Full-Service
Responsive
Support
References/
Credentials
Source: Reprinted with permission of Rick Wilson, Chicago Strategy Associates, 2000.
ThirdParty
Supply
Outsource
Lowest
Total
Cost
Segmenting the Market
by Service Output Demands
The key factors determining whether and how quickly
to respond to knowledge about unmet service output
demand include:
• Cost
• Competitive
• Ease of entry
• Other elements of excellence in market offering
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.
6.
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.