Marketing Channels
Segmentation for marketing
channel design
Service outputs
Chapter two
Segmentation for marketing
customer ?!!!
The start-up of a marketing channel design requires an analysis of the
end-user…the ultimate customer
…Only after understanding end-users demands can the channel
manager design a well-working channel that meets or exceeds those
demands.
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Three types of customer requirements companies need to consider:
Basic needs (expected needs) …often are so basic that the customer may fail to
mention them until we fail to perform them…their absence is very
dissatisfying…meeting these requirements often goes unnoticed by most customers.
Performance needs…are typically what we get by just asking customers what they
want. These requirements satisfy (or dissatisfy) in proportion to their presence (or
absence) in the product or service.
Excitement needs…are difficult to discover. They are beyond the customer’s
expectations. Their absence doesn’t dissatisfy; their presence excites. These are the
things that “wow” the customers and bring them back…it is the responsibility of the
organization to explore customer problems and find opportunities to uncover such
unspoken items.
End-user channel preferences
Note that the most useful insights for marketing
channel design are about
Rather than
How end-users want What end-users want
to buy products being to buy and consume
purchased
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End-user channel preferences
What end-users want to consume
Image Design Innovative
products
Quality Performance
End-user channel preferences
It is more than just the product itself is important to the customer…each
customer make a buying decision based on different factors…
Based on
demands for the O/P of
This call for another the marketing channel…
perspective…
i.e. service output
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Service outputs
What is The value added services created by channel
service members and consumed by end users along with the
O/P??? product purchased.
A particular product/service can be bought in multiple ways…it is not the product that
change but the method of buying and selling the product and the associated services
that accompany the product.
Customers buy a product plus service output bundle…Product attributes and
service output…at a given price.
Service outputs
In general, end-users prefer to deal a marketing channel that provides a
higher level of service outputs. There are six generic service outputs:
• Bulk breaking
• Spatial convenience
• Waiting or delivery time
• Product variety
• Customer service
• Information provision
These six service outputs cover the major categories of end-users demands
for different channel systems.
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Service outputs
refers to the end-users ability to buy their desired
Bulk (possibly small) number of units of a product or service
breaking even though they may be originally produced in large,
batch production lot sizes.
Buying in small lot sizes leads to:
…purchases move more easily directly into consumption and,
…reducing the need for end-user to carry unnecessary inventory.
The more The smaller The higher This leads to a
bulk- the lot size the channel higher per unit
breaking ... end-users ... service O/P price for the end
the channel can buy level to end- user.
does users.
Service outputs
Spatial provided by market decentralization of wholesale and
convenience retail outlets…increasing consumers’ satisfaction by
reducing transportation requirements and search
costs.
Community shopping centres, neighbourhood supermarkets, convenience
stores, vending machines and gas stations are some channel forms designed
to satisfy consumers’ demand for spatial convenience.
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Service outputs
Waiting the time period that the end-user must wait
time between ordering and receiving goods or post-
sale service.
The longer the waiting time, the more inconvenient it is for the end-user.
But…Usually, the longer that end-users are willing to wait, the more
compensation (the lower the prices) they receive…Conversely, quick delivery
is associated with a higher price paid.
Service outputs
The wider the breadth of
variety or the greater the Variety describes
Variety generically different
depth of product classes of goods
(depth of assortment available to making up the product
offering.
p. Line) the end-user…
&
Assortment …the higher the output of
the marketing channel
(depth of system and… Assortment refers to
p. Brand) the depth of product
brands or models
…the higher the overall offered within each
product generic
distribution costs. category
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Service outputs
Customer
service refers to all aspects of easing the shopping and
purchase process for end-user as they interact with
commercial suppliers or retailers.
Excellent customer service can translate directly into greater sales and
profits…
…The type of customer service offered must be sensitive to the targeted end-
user.
Service outputs
Information
provision refers to education of end-users about product
attributes or usage capabilities, or pre-purchase
and post-purchase services.
The provision of information is a crucial service output to the consumer…it is
helpful in generating new sales as well as upgrading sales from end-users.
For example:
PC buyers value presale information…
what products to buy, in what combinations, with what peripheral computer
devices attached and with what service packages…
…as well as post-sale information…if components or systems fail
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Service outputs
To conclude
The greater the level of service outputs demanded, the more likely it is that
intermediaries will be included in the channel structure…and…
…costs undoubtedly will then increase…and will be reflected in higher prices to
end-users.
Note that: Service O/Ps are wide ranging…but
they may not be exhaustive in all
situations…one should be flexible in defining
service O/Ps…different products and markets
may demand different service O/Ps
Service outputs
End-users have the choice between a low-service output, low price channel on the one
hand and a high-service output, high price channel on the other hand.
Price What is paid to consume the bundle of
product plus service outputs…
End-users make tradeoffs among different service O/Ps and product attributes
within a given price…to weigh which product/service bundle provides the
greatest overall satisfaction.
An ideal channel does not exist for a given end-user segment…So, the end-user
must trade off different service output bundles to decide from which channel to
buy.
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Segmenting the market by service
output demands
Service outputs differentiate the offerings of different marketing channels…
…different groups of end-users value service outputs differently…So, it is
important to consider the issue of channel segmentation according to service
output demands.
This means segmenting the market into groups of
end-users who differ not in what they want to buy
but in how they want to buy them.
Segmenting the market by service
output demands
So, what is segmentation…
Market segmentation…the process of dividing a market into distinct groups of
buyers with different needs, characteristics, buying preferences and the like…who
may require separate product bundle…
This means splitting the market into groups of end-users who are:
• Maximally similar within each group
• Maximally different between groups
Targeting…evaluating each market segment attractiveness and selecting one or
more profitable segments to enter…Or…choosing which segment not to target…and
customize the marketing channel to sell to the selected targeted segment
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Meeting service output demands
Cost:
When it is prohibitively expensive to meet the expressed service output
demands…
So, channel members must then decide whether or not to provide the
service…and if so…
…If the channel covers the cost for the consumer, its profit per sale drops…
...if it explicitly charges consumers for the high cost of providing high service
levels, its customer base and sales volume are likely to drop.
Meeting service output demands
Competitive:
The question here is whether existing competitors can beat this channel’s
current service output provision levels…
…It may be that no competitor currently in the market exceeds this channel
service output levels…
…therefore, the added cost of improving service would not lead to any change
in market share from current market sales for the channel.
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Meeting service output demands
Ease of entry:
But, competition comes not just from firms currently in operation…but also
from potential competitors…
…A channel that fails to meet end-user segments’ demands for service
outputs may find itself surprised by the incursion of new competition with
better technologies for meeting those demands…
…if entry is somehow is blockaded, the existing competitors can continue in
their current channel strategies…but if entry is easy, providing parity service
to the market may not be sufficient.
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