FIGURE 1-4: ORGANIZATION OF THE TEXT

Channel DesignProcess:

SEGMENTATION: Chapter 2

Decisions About

Efficient Channel Response:

CHANNEL STRUCTURE:Chapter 4

SPLITTING THE WORKLOAD:Chapter 3

DEGREE OF COMMITMENT:Chapters 8, 9

GAP ANALYSIS: Chapter 5

Channel ManagementProcess:

CHANNEL CONFLICT:Chapter 7

MANAGE/DEFUSE CONFLICT:

Chapters 6, 7, 8, 9, 10

GOAL: Channel Coordination

CHANNEL POWER:Chapter 6

INSIGHTS FOR SPECIFIC CHANNEL INSTITUTIONS:Chapters 11, 12, 13

Chapter 3Supply Side Channel Analysis:

Channel Flows and Efficiency Analysis

Key Topics for Ch. 3

I. Review: Three Examples of Service Output DemandI. High Tech ProductII. Peapod (Online grocery shopping)III. Charles Schwab

II. Channel Flows

III. Channel Efficiency Analysis: Efficiency Template

  SERVICE OUTPUT DEMAND:

SEGMENT NAME/ DESCRIPTOR

BULK BREAKING

SPATIAL CONVENIENCE

DELIVERY/ WAITING

TIME

ASSORTMENT/ VARIETY

OTHER SOD(s)

 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.

SERVICE OUTPUT DEMAND TEMPLATE

Possible Service Output Priorities

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

One-Stop Solution 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

Total 100 100 100 100

% Respondents 16% 13% 61% 10%

= Greatest Discriminating Attributes = Additional Important Attributes

Ex 1) B2B CHANNEL SEGMENTS FOR A NEW HIGH-TECH PRODUCT

Manufacturer(New High Technology Product)

 Full-Service

 Responsive

Support

 References/Credentials

LowestTotalCost

Pre-Sales

Sales

Post-Sales

    

VARs

Associations,Events,

AwarenessEfforts

   

Third-Party

SupplyOut-

source

Dealers TeleSales/TeleMktg

Internal Support- Install, Training &

Service Group

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

IDEAL CHANNEL SYSTEM FOR B2B SEGMENTS BUYING A NEW HIGH-TECH PRODUCT

  Who Performs This Step In:

Shopping Process Step A Standard Grocery Store Shopping Trip:

A Peapod Shopping Experience

Plan what to buy (prepare shopping list)

Shopper Shopper

Travel to grocery store Shopper PEAPOD

Walk aisles of store Shopper PEAPOD

Pick grocery items one by one

Shopper PEAPOD

Check-out process Shopper PEAPOD

Bag groceries Shopper PEAPOD

Transport groceries home Shopper PEAPOD

Unpack groceries Shopper Shopper

Example 2) PEAPOD GROCERY SHOPPING STEPS

Individual Segment's Relative Importance of Service Output Range of Service Outputs Demanded

"Branded Products Delivered"

"Low Price/Comparisons"

"Fast/Efficient Purchase Process"

Purchase process easy to find, select & buy

HIGH Moderate HIGH

Purchases are delivered to home

VERY HIGH Low Low

Information on product usage/ needs planning

Low HIGH Low

Fast and efficient buying process

HIGH Low VERY HIGH

Information on comparing and choosing

Moderate VERY HIGH Low

Ability to see, touch and inspect products

Moderate Moderate HIGH

Absolute lowest prices Moderate VERY HIGH Low Experience provides social interaction

Low VERY HIGH Low

Place sells specific brands desired

VERY HIGH Moderate Moderate

Percent who are heavy Internet users

44% 23% 31%

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

THREE CHANNEL SEGMENTS FOR GROCERY SHOPPING

On a 10 point scale(1 = lowest importance and 10 = highest importance)

Low Price andEfficiency Segments

Home DeliverySegment

Importance of homedelivery in creating idealgrocery shoppingexperience…

1.8 7.4

Improvement in havinggroceries delivered toyour home would makeshopping more ideal…

3.8 6.7

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

THREE CHANNEL SEGMENTS: VALUE OF HOME DELIVERY

  Bulk-Breaking Spatial Convenience

Delivery/Wait Time

Assortment/ Variety

Pre-Sale Service

   

  

Minimum investment

amount

Ease of initiating transactions and

transfers between fund families and consequent

transfer costs

 Initiation/

execution time (including

between fund families)

  

Assortment of funds offered to

investors

 Amount of investment

advice required before sale of mutual fund

DIY - Sophisticated Investor

Varies High High High Low

Service-Demanding Sophisticated Investor

Varies Medium High High High

Unsophisticated Investor

Varies (likely to be smaller)

Low Low High High

Source: Carmichael, Trent, Bill Norris, Rob Rozwat, and Emiko Taguchi (1996), "Charles Schwab OneSource: Channel Audit." Used with permission of the authors.

Example 3) SCHWAB: SERVICE OUTPUT DEMANDS FOR MUTUAL FUND INVESTORS

SOD defined forThis industry as:

  Bulk-Breaking Spatial Convenience

Delivery/Wait Time

Assortment/ Variety

Pre-Sale Service

   SOD defined as:

  

Minimum investment

amount

Ease of initiating transactions and

transfers between fund families and consequent

transfer costs

 Initiation/

execution time (including

between fund families)

  

Assortment of funds offered to

investors

 Amount of investment

advice required before sale of mutual fund

Direct Sales by Mutual Fund Family

 Medium/High

 Low

High (within family)

Low (between families)

High (most families offer a

variety of funds)

 Low

Traditional Brokerage and Investment Advisors

Low Low Medium/High High High

Mutual Fund Supermarket

High High High (both within and between

families)

High Low

Source: Carmichael, Trent, Bill Norris, Rob Rozwat, and Emiko Taguchi (1996), "Charles Schwab OneSource: Channel Audit." Used with permission of the authors.

SCHWAB: SERVICE OUTPUTS SUPPLIED BY DIFFERENT CHANNELS FOR THE MUTUAL FUND INDUSTRY

 

 Physical PossessionOwnership

Promotion

Negotiation

Financing

Risking

Ordering

Payment

 Physical PossessionOwnership

Promotion

Negotiation

Financing

Risking

Ordering

Payment

 Physical PossessionOwnership

Promotion

Negotiation

Financing

Risking

Ordering

Payment

FIGURE 1.2: MARKETING FLOWS IN CHANNELS 

Producers Wholesalers Retailers

ConsumersIndustrial

and Household

Commercial Channel Subsystem

The arrows above show flows of activity in the channel (e.g. physical possession flows from producers to wholesalers to retailers to consumers).

13

Allocating Five Marketing Functions in an Automobile Channel*

Information Function

Promotion Function

Customer

Customer

Customer

Customer

Advertising Agency

Suppliers

Suppliers

Suppliers

Suppliers

Suppliers

Physical Function

Title Function

Payment Function

Customer

Transporters

Warehouses

Manufacturer

Transporters

Warehouses

Dealers Transporters

Manufacturer

Dealers

Banks Manufacturer

Banks

Dealers

Banks

Transporters

Warehouses Banks

Manufacturer

Transporters

Warehouses Banks

Dealers

Transporters Banks

Manufacturer

Advertising Agency

Dealers

Exhibit 3.1

©McGraw-Hill Companies, Inc. 2002

MARKETING FLOWS IN CHANNELS

Marketing Flow Cost Represented

Physical possession Storage and delivery costs

Ownership Inventory carrying costs

Promotion Personal selling, advertising, sales promotion, publicity, public relations costs, trade show costs

Negotiation Time and legal costs

Financing Credit terms, terms and conditions of sale

Risking Price guarantees, returns allowances, warranties, insurance, repair, and after-sale service costs

Ordering Order-processing costs

Payment Collections, bad debt costs

Each flow carries a cost. Some examples of costs of various flows are given below:

Example 1: CDW’S PARTICIPATION IN VARIOUS CHANNEL FLOWS Channel Flow CDW’s Investment in Flow

Physical possession

(a) CDW has a 400,000 sq. ft. warehouse.(b) CDW ships 99 percent of orders the day they are received.(c) For CDW’s gov’t buyers, CDW has instituted an “asset tagging” system that lets buyer track what product is going where; product is scanned into both buyer and CDW databases, for later ease in tracking products (e.g. for service calls)(d) CDW buys product in large volumes from mfgrs., taking in approximately eight trailer-loads of product from various suppliers every day. Loads are received in bulk, with few added services.

Promotion (a) CDW devotes a salesperson to every account (even small, new ones!), so that an end-user can talk to a real person about technology needs, system configurations, post-sale service, etc. (b) Salespeople go through 6½ weeks of basic training, then 6 months of on-the-job coaching, then a year of monthly training sessions.(c) New hires are assigned to small-business accounts to get more opportunities to close sales.(d) Salespeople contact clients not through in-person sales calls (too expensive), but through phone/e-mail.(e) CDW has longer-tenured salespeople than its competitors.

Negotiation (a) CDW-G started a small-business consortium in 2003 to help small firms compete more effectively for federal IT contracts. What CDW-G gives the small biz partner: lower prices on computers than they could otherwise get; business leads; and access to CDW’s help desk and product tools; CDW also handles shipping and billing, reducing the small biz partner’s channel flow burden. What the small biz partner provides: access to contracts CDW could not otherwise get.

Financing (a) CDW collects receivables in just 32 days;CDW turns its inventories 2x per month;CDW has no debt.

Risking (a) “We’re a kind of chief technical officer for many smaller firms”: (b) In April 2004, CDW was authorized as a Cisco Systems Premier (CSP) partner, in serving the commercial customer market.

   

Example 2: PEAPOD SHOPPING AND FULFILLMENT PROCESS: ORIGINAL CHANNEL STRUCTURE

1. Shopper connects to Peapod system:      shops      Places order      Specifies 90-minute delivery window

ORDERING (shopper)

3. Order is transmitted to professional Peapod shoppers in the Jewel food store ORDERING (Peapod)

4. Order is shopped inside Jewel food store**Out-of-stocks are replaced with second choice if shopper has specified one during the online shopping step.

PHYSICAL POSSESSION (Jewel Peapod)

ACTIVITY: FLOW (performer):

2. Peapod server receives order, places in queue to shop

ORDERING (Peapod)PROMOTION (Peapod, via data storage)

Continued on next slide

   

Example 2: PEAPOD SHOPPING AND FULFILLMENT PROCESS: ORIGINAL CHANNEL STRUCTURE

8. Shopper unloads and puts away groceries

PHYSICAL POSSESSION (Shopper)OWNERSHIP (Shopper)

ACTIVITY: FLOW (performer):

5. Peapod pays Jewel for order

FINANCING (Jewel Peapod)RISKING (Jewel Peapod)

OWNERSHIP (Jewel Peapod)PAYMENT (Peapod Jewel)

6. Peapod packs order in temperature-appropriate delivery containers

PHYSICAL POSSESSION (Peapod)OWNERSHIP (Peapod)

RISKING (Peapod)

7. Peapod delivery person delivers order to shopper:**      unloads bags at shopper's door      accepts payment      accepts coupons (if any) ** If errors are discovered in the order, Peapod assumes responsibility for correcting them.

PHYSICAL POSSESSION (Peapod Shopper)

OWNERSHIP (Peapod Shopper)PAYMENT (Shopper Peapod)

Mutual Fund Family

("Producer")

Mutual Fund Family

("Producer")

Investment Advisor (product

design)

Investment Advisor (product

design)

Fund Administrator (management,

administrative services to fund)

Fund Administrator (management,

administrative services to fund)

Fund Distributor (underwriting, manages the

marketing and promotion functions)

Fund Distributor (underwriting, manages the

marketing and promotion functions)

Custodian (asset custody, safekeeping, transfer)

Custodian (asset custody, safekeeping, transfer)

Transfer Agent (maintain records of fund ownership, process and record share

purchases and redemptions)

Transfer Agent (maintain records of fund ownership, process and record share

purchases and redemptions)

  

Flows Performed by Various Entities: (splitting the functions)Investment Advisor: promotion (through portfolio design)Fund Administrator: negotiation (through management of administrative processes)Fund Distributor: promotion (through performance of selling and marketing tasks)Custodian: physical possession, risking (through responsibility for safekeeping of shares)Transfer Agent: ordering, payment (through responsibility for processing orders and recording share purchases/redemptions)

Example 3: SCHWAB: IDENTITIES AND ROLES OF COMPANIES INVOLVED IN “PRODUCING” MUTUAL FUNDS

Producers (including all entities in Figure 4.3):

"Independent" Fund Managers

(Kaufmann, Gabelli, Wasatch)

"Independent" Fund Managers

(Kaufmann, Gabelli, Wasatch)

"Direct" Mutual Fund Company(Fidelity, Vanguard, T. Rowe

Price)

"Direct" Mutual Fund Company(Fidelity, Vanguard, T. Rowe

Price)

"Indirect" Mutual Fund Company

(Putnam, Kemper, Franklin)

"Indirect" Mutual Fund Company

(Putnam, Kemper, Franklin)

Banks & Trusts(Bankers Trust, Northern

Trust)

Banks & Trusts(Bankers Trust, Northern

Trust)

Mutual Fund "Supermarket"Mutual Fund

"Supermarket" Registered Investment Advisor (RIA)

Registered Investment Advisor (RIA)

BrokersBrokers Retail BankRetail Bank

Do-It-Yourself InvestorDo-It-Yourself Investor Unsophisticated InvestorUnsophisticated Investor

Service-Demanding InvestorService-Demanding Investor

Sales Commission: Sales Load or 12b-1 Fees

12b-1 Fees: 0.25-0.35%

Annual Fees: 1.0-1.5%Loads: low to high

Annual Fees: 1.0-1.5%Loads: none to low

Annual Fees: 1.0-1.5%Loads: 3.0-5.0+%Advisory Fee: 1.0-

2.0%

Annual Fees: 1.0-1.5%

Loads: 3.0-5.0+%Advisory Fee: 1.0-

3.0%

Annual Fees: 0.9-1.25%Loads: 3.0-5.0+%

  

Intermediaries:

Consumers:

FIGURE 4.4: SCHWAB STRUCTURE OF MUTUAL FUND DISTRIBUTION CHANNELS

FIGURE 3-4: THE BULLWHIP EFFECT

Consumption Customer Retailers Wholesalers Manufacturers Suppliers

Source: Based on the lecture notes of Enver Yücesan at INSEAD.

Demand change at the consumer level magnify into larger changes upstream Stockouts or inventory holding cost surges

The Efficiency Template

I. Purpose

II. Firm Perspective (cf. SOD)

III. Focus: Benefit Versus Cost of Each Channel Activity

IV.Need a Template for Each Channel

V. Include End-Users in the Analysis

VI.For your exercise,

FIGURE 3-3: THE EFFICIENCY TEMPLATE

WEIGHTS FOR FLOWS: PROPORTIONAL FLOW PERFORMANCE OFCHANNEL MEMBER:

COSTS*

BENEFIT POTENTIAL

(High, Medium, or

Low)*

FINAL WEIGHT*

1 2 3 4(end-user)

TOTAL

PHYSICAL POSSESSION**

100

OWNERSHIP 100

PROMOTION 100

NEGOTIATION 100

FINANCING 100

RISKING 100

ORDERING 100

PAYMENT 100

TOTAL 100 N/A 100 N/A N/A N/A N/A N/A

NORMATIVE PROFIT SHARE***

N/A N/A N/A 100

* Entries in column must add up to 100 points.** Entries across row (sum of proportional flow performance of channel members 1 through 4) for each channel member must add up to 100 points.*** Normative profit share of channel member i is calculated as: (final weight, physical possession)*(channel member i's proportional flow performance of physical possession) + … + (final weight, payment)*(channel member i's proportional flow performance of payment). Entries across row (sum of normative profit shares for channel members 1 through 4) must add up to 100 points.

TABLE 3.APP3A-1 BUILDING MATERIALS COMPANY EFFICIENCY TEMPLATE FOR

CHANNEL SERVING END-USERS THROUGH RETAILERS: (UNDISGUISED DATA)

WEIGHTS FOR FLOWS: PROPORTIONAL FLOW PERFORMANCE OFCHANNEL MEMBER:

COSTS BENEFIT POTENTIAL (High, Medium,

or Low)

FINAL WEIGHT

Mfgr. Retailer End-user(Contractors)

TOTAL

PHYSICAL POSSESSION

30 High 35 30 30 40 100

OWNERSHIP 12 Medium 15 30 40 30 100

PROMOTION 10 Low 8 20 80 0 100

NEGOTIATION 5 Low/Medium 4 20 60 20 100

FINANCING 25 Medium 29 30 30 40 100

RISKING 5 Low 2 30 50 20 100

ORDERING 6 Low 3 20 60 20 100

PAYMENT 7 Low 4 20 60 20 100

TOTAL 100 N/A 100 N/A N/A N/A N/A

NORMATIVE PROFIT SHARE

N/A N/A N/A 28% 39% 33%* 100

TABLE 3.APP3A-2 BUILDING MATERIALS COMPANY EFFICIENCY TEMPLATE FOR

CHANNEL SERVING END-USERS THROUGH RETAILERS: RANK-ORDER DATA (0-3)

WEIGHTS FOR FLOWS: PROPORTIONAL FLOW PERFORMANCE OFCHANNEL MEMBER:

COSTS BENEFIT POTENTIAL (High, Medium,

or Low)

FINAL WEIGHT

Mfgr. Retailer End-user(Contractors)

TOTAL

PHYSICAL POSSESSION

30 High 35 2 2 2 100

OWNERSHIP 12 Medium 15 2 2 2 100

PROMOTION 10 Low 8 1 3 0 100

NEGOTIATION 5 Low/Medium 4 1 2 1 100

FINANCING 25 Medium 29 2 2 2 100

RISKING 5 Low 2 2 2 1 100

ORDERING 6 Low 3 1 2 1 100

PAYMENT 7 Low 4 1 2 1 100

TOTAL 100 N/A 100 N/A N/A N/A N/A

NORMATIVE PROFIT SHARE

N/A N/A N/A ? ? ? 100

TABLE 3.APP3A-3 BUILDING MATERIALS COMPANY EFFICIENCY TEMPLATE FOR

CHANNEL SERVING END-USERS THROUGH RETAILERS : TRANSFORMED RANK-ORDER DATA

WEIGHTS FOR FLOWS: PROPORTIONAL FLOW PERFORMANCE OFCHANNEL MEMBER:

COSTS BENEFIT POTENTIAL (High, Medium,

or Low)

FINAL WEIGHT

Mfgr. Retailer End-user TOTAL

PHYSICAL POSSESSION

30 High 35 33 33 33 100

OWNERSHIP 12 Medium 15 33 33 33 100

PROMOTION 10 Low 8 25 75 0 100

NEGOTIATION 5 Low/Medium 4 25 50 25 100

FINANCING 25 Medium 29 33 33 33 100

RISKING 5 Low 2 40 40 20 100

ORDERING 6 Low 3 25 50 25 100

PAYMENT 7 Low 4 25 50 25 100

TOTAL 100 N/A 100 N/A N/A N/A N/A

NORMATIVE PROFIT SHARE

N/A N/A N/A 32% 38% 29% 100