Chapter 5
Gap Analysis
I. Sources of Gaps
II. Types of Gaps
III. Measures to Close Gaps
Ch. 5
Gap Analysis
Goal: To build the channel that both
meets service output demands and does so
at a minimum cost of performing the
Necessary Channel flows.
Gap Analysis Framework:
Sources of Gaps  Types of Gaps
 Closing Gaps
TIMELINE OF CHANGES IN THE AIRLINE TRAVEL CHANNEL
2/10/95:
Delta limits
agent
commission
s to $50 on
RT, $25 on
one-way
tickets for
U.S. travel
2/10/97:
SAS, KLM,
Lufthansa
cut domestic
commissions
to 5-7.5%
2/11/95:
American,
Northwest
follow
2/13/95:
United, USAir
follow
2/14/95:
Continental
follows
2/16/95:
AMEX,
Carlson
Wagonlit
announce
fees for
travel
services
2/17/95:
Travel agents file
antitrust lawsuit;
U.S. Justice
Dept.
investigation
launched
3/29/95:
Delta,
Continental
offer bonuses
to travel
agents
exceeding
sales goals
2/15/95:
TWA
follows
9/18/97:
United cuts
commissions to
8%, retains
$50/$25 caps
9/23/97:
American,
Delta follow
9/26/97:
Northwest,
Continental, USAir,
Midwest Express,
KLM, Lufthansa
follow
11/18/98:
American,
Delta, United
cap
commissions
on
international
flights at
$100/$50
11/20/98:
Continen
tal
follows
1996:
Airlines settle
lawsuit, paying
agents $86 million;
commission caps
remain in place.
Online ticketing
(e-ticketing)
begins.
10/8-12/99:
United cuts
commissions to 5%
with a maximum of
$50 for round-trip
domestic ticket, $100 for
round-trip international
flight; American, Delta,
Northwest, KLM match
I. Sources of Gaps
SOURCES
OF GAPS
Environmental Bounds:
- Local legal constraints (ex: CDW)
- Local physical and retailing infrastructure (ex: Online Bill
Payment)*
Managerial Bounds:
- Constraint due to lack of knowledge
- Constraint due to optimization at a higher level
FIGURE 5-2: ONLINE BILLING AND PAYMENT: GAP ANALYSIS
BOUNDS
GAPS
CLOSING THE GAPS
Environmental:
Technology infrastructure:
takes time to fully develop
initially endowed benefits more on
billers than on payers
is not universally available
is characterized by high fixed set-up
costs, but low marginal
implementation costs and thus is not
attractive unless significant scale is
achieved
Demand-side:
Assortment/variety (one-stop bill
payment site not available)
Waiting time too long (some e-bills
took 5 days to pay)
Information provision poor (thus e-bill
payment viewed as risky)
Supply-side:
Clear lowering of many channel flow
costs
But consumer (as a channel
member) bears more perceived risk,
with no compensating price cut
Cost cuts initially much more
available to biller than to payer
(asymmetric cost efficiencies that
hamper adoption)
Relax environmental bounds:
Build software applications to
generate back-office benefits for B2B
players
Presentment technology eventually
developed to improve
assortment/variety for consumer
payers
Increase promotional efforts 
generate information for consumers
Add new specialist channel members
New specialists develop new
technology to provide integrated
benefits to consumers and B2B
payers
FIGURE 5-3: ONLINE BILLING AND PAYMENT: A VIRTUOUS CYCLE
C o n s u m e rs
adopt
e -b ill p a ym e n t
B a n k s , b ille rs in c re a s e
p ro m o e ffo rts to p u b lic iz e
e -b ill p a ym e n t; m a y e v e n
c u t c o s t to c o n s u m e r
S c a le g o e s u p a t b ille r
or bank
D u e to e c o n o m ie s o f s c a le ,
p e r-tra n s a c tio n c o s t o f
o ffe rin g e -b ill p a ym e n t fa lls
Note: the B2B process exhibits a similar path, with the added inducement to payers of the development
of technologies to integrate bill payment information with back-office (accounts payable, inventory
management, and ordering) processes.
II. Types of Gaps
TYPES
OF GAPS
SOD: Service Output Demanded
SOS: Service Output Supplied
Demand-Side Gaps: ex) Retail Music Sales
SOS < SOD
SOS > SOD
Which SO(s) ?
Supply-Side Gaps: ex) CDW’s Promotion Cost
Flow cost is too high
Which flow(s)?
TABLE 5-1: U.S. RETAIL MUSIC SALES, 1999-2003
Year
Sales in $billion
1999
$14.6
2000
$14.3
2001
$13.7
2002
$12.8
2003
$11.8
TABLE 5-2: AVERAGE RETAIL CD PRICES IN THE U.S.
Time Period
Average Price
2002 (Q1)
$13.90
2002 (Q2)
$13.90
2002 (Q3)
$13.60
2002 (Q4)
$13.90
2003 (Q1)
$13.80
2003 (Q2)
$13.70
2003 (Q3)
$13.50
2003 (Q4)
$13.55
2004 (Q1)
$13.25
In response to flagging sales, Vivendi Universal dropped price of Music
CDs from $16.98 to $12.98 in September 2003.
SERVICE OUTPUT DEMAND TEMPLATE
SERVICE OUTPUT DEMAND:
SEGMENT
NAME/
DESCRIPTOR
BULK
BREAKING
SPATIAL
CONVENIENCE
DELIVERY/
WAITING
TIME
ASSORTMENT/
VARIETY
Customer
Service
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.
FIGURE 5-6: TYPES OF GAPS
COST
PERFORMANCE
LEVEL:
Demand-side
Gap
(SOD>SOS)
No DemandSide Gap
(SOD=SOS)
Demand-side
Gap
(SOS>SOD)
Price/value
Price/value
No Supply-Side proposition=right
proposition=right
Gaps
No
Gap (Efficient
for a more
for a less
Flow Cost)
demanding
demanding
segment!
segment!
High costs and
High cost, but
Insufficient SO
Supply-side Gap
SO is too high:
SO’s are right:
(Inefficiently High provision, at high
costs: price &/or value is good, but no extra value
Flow Cost)
price &/or cost is created, but price
cost too high,
&/or cost is high
high
value too low
III. Closing Gaps
CLOSING
GAPS
Closing Demand-Side Gaps:
- Offer tiered service levels
- Expand/contract provision of service outputs; ex) Microsoft
Media Center PC with HP* (store-within-store)
- Change/Fine-tune segment(s) targeted: ex) Specialty grocers’
response to Trader Joe’s
Closing Supply-Side Gaps:
- Change flow responsibilities of current members
- Invest in new low-cost distribution technologies*
- Bring in new channel members
FIGURE 5-8: DEMAND-SIDE GAP ANALYSIS TEMPLATE
SERVICE OUTPUT LEVEL DEMANDED (SOD) VERSUS SERVICE OUTPUT LEVEL SUPPLIED (SOS)
SEGMENT
NAME/
DESCRIPTO
R
BULK
BREAKING
SPATIAL
CONVENIENC
E
DELIVERY/
WAITING TIME
ASSORTMEN
T/ VARIETY
CUSTOMER
SERVICE
INFORMATION
PROVISION
MAJOR
CHANNEL
FOR THIS
SEGMENT
1.
2.
3.
4.
5.
Notes and directions for using this template:
Enter names and/or descriptions for each segment.
Enter whether SOS>SOD, SOS<SOD, or SOS=SOD for each service output and each segment. Add footnotes to explain
entries if necessary. If known and relevant, footnote can record any supply-side gaps that lead to each demand-side gap.
Record major channel used by each segment, i.e., how does this segment of buyers choose to buy?
FIGURE 5-10: DEMAND-SIDE GAP ANALYSIS TEMPLATE:
CDW EXAMPLE
SERVICE OUTPUT LEVEL DEMANDED (SOD: L/M/H) VERSUS
SERVICE OUTPUT LEVEL SUPPLIED BY CDW (SOS)
SEGMENT
NAME/
DESCRIPTO
R
BULK
BREAKING
SPATIAL
CONVENIENCE
DELIVERY/
WAITING TIME
ASST/
VARIETY
CUSTOMER
SERVICE
1. Small
business
buyer
H
(SOS=SOD)
Original
equipment: M
(SOS=SOD)
Post-sale
service: H
(SOS=SOD)
2. Large
business
buyer
L
(SOS>SOD)
3. Gov’t/
education
L
(SOS>SOD)
INFORMATION
PROVISION
MAJOR
CHANNEL
FOR THIS
SEGMENT
Original
equipment: M
(SOS>SOD)
Post-sale
service: H
(SOS=SOD)
M
(SOS>SOD)
H (SOS=SOD)
H (both presale and postsale)
(SOS=SOD)
Value-added
reseller like
CDW, or
retailer
Original
equipment: H
(SOS=SOD)
Post-sale
service: L
(SOS>SOD)
Original
equipment: M
(SOS>SOD)
Post-sale
service: L
(SOS>SOD)
M/H
(SOS=SOD)
M (SOS>SOD)
L (SOS>SOD)
Manufacture
r direct, or
large
reseller like
CDW
Original
equipment: H
(SOS=SOD)
Post-sale
service: H
(SOS=SOD)
Original
equipment: M
(SOS>SOD)
Post-sale
service: M
(SOS>SOD)
M/H
(SOS=SOD)
H (SOS=SOD)
H (both presale and postsale)
(SOS=SOD)
Manufacture
r direct, or
reseller; 23
percent from
small
business
(VARs)
FIGURE 5-9: SUPPLY-SIDE GAP ANALYSIS TEMPLATE
(to be used in conjunction with Demand-Side
Gap Analysis Template, Figure 5-8)
CHANNEL
[targeting which
segment(s)?]
CHANNEL
MEMBERS AND
FLOWS THEY
PERFORM
ENVIRONMENTAL/
MANAGERIAL
BOUNDS
SUPPLY-SIDE
GAPS
[affecting which
flow(s)?]
PLANNED
TECHNIQUES FOR
CLOSING GAPS
DO/DID ACTIONS
CREATE OTHER
GAPS?
1.
2.
3.
4.
5.
Notes:
Record routes to market in the channel system. List should include all channels recorded in Figure 5-4 above. Note the
segment or segments targeted through each channel.
Summarize channel members and key flows they perform (ideally, link this to the Efficiency Template analysis in
Chapter 3).
Note any environmental or managerial bounds facing this channel.
Note all supply-side gaps in this channel, by flow or flows affected.
If known, record techniques currently in use or planned for use to close gaps (or note that no action is planned, and why).
Analyze whether proposed/actual actions have created or will create other gaps.
Ch. 3
Building and Editing the Channel Value Chain I:
The Key Principles
Table 3-2: PC Channel Shipment Share in the U.S.
Direct inbound
Direct outbound
Internet Direct
Dealer/VAR/SI
Retail
Others
Total Units
2001
2003
2005
23%
18%
8%
28%
19%
5%
19%
23%
13%
22%
20%
4%
17%
25%
12%
20%
21%
4%
46.07Million
52.70Million
64.14Million
FIGURE 5-11: SUPPLY-SIDE GAP ANALYSIS TEMPLATE:
CDW EXAMPLE
(to be used in conjunction with Demand-Side Gap Analysis Template,
Figure 5-10)
CHANNEL
[targeting which
segment(s)?]
CHANNEL
MEMBERS AND
FLOWS THEY
PERFORM*
ENVIRONMENTAL
(E) / MANAGERIAL
(M) BOUNDS
SUPPLY-SIDE
GAPS
[affecting which
flow(s)?]
PLANNED
TECHNIQUES FOR
CLOSING GAPS
DO/DID ACTIONS
CREATE OTHER
GAPS?
1. CDW direct to
buyer ( small
business buyer)
Manufacturer;
CDW;
Sm. Bus. Buyer
(M): no screening
of recruits for
expected longevity
with firm
Promotion [sales
force
training/turnover]
Better screening of
new recruits
No
Buying from CDW
closes gaps for
customer in Risking
2. CDW direct to
buyer ( large
business buyer,
government)
Manufacturer;
CDW, CDW-G;
Lg. Bus. Buyer or
Government Buyer
(E): government
requires 23 percent
of purchases from
small vendors
(M): no screening
of recruits for
expected longevity
with firm
Promotion [sales
force
training/turnover]
Negotiation [cannot
close 23% of deals
with government]
Better screening of
new recruits;
Rely on consortium
channel structure
(below)
No
3. CDW + small
business VAR
consortium
member (
government)
Manufacturer;
CDW-G;
Small VAR;
consortium partner
Government Buyer
(E): government
requires 23 percent
of purchases from
small vendors;
(M): VAR’s small
business size
(M): no screening
of recruits for
expected longevity
with firm
Promotion [sales
force
training/turnover];
(Negotiation: only a
gap for a small VAR
not in the CDW
alliance)
Better screening of
new recruits;
Negotiation gap
above is closed
through consortium
with small VARs
No
Note: all channel members perform all flows to some extent. Key channel flows of interest are promotion, negotiation, and risking.