Chapter 5

Gap Analysis
I. Sources of Gaps

III.Types of Gaps

V. 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

2/11/95:
2/10/95: American, 2/16/95: 2/17/95: 3/29/95: 1996:
Delta limits Northwest AMEX, Travel agents file Delta, Airlines settle
agent follow Carlson antitrust lawsuit; Continental lawsuit, paying
commission 2/13/95: Wagonlit U.S. Justice Dept. offer bonuses agents $86 million;
s to $50 on United, USAir announce investigation to travel commission caps
RT, $25 on follow fees for launched agents remain in place.
one-way 2/14/95: travel exceeding
tickets for services sales goals Online ticketing
Continental
U.S. travel (e-ticketing)
follows
2/15/95: begins.
TWA
follows

2/10/97: 9/18/97:
SAS, KLM, United cuts 11/18/98: 11/20/98: 10/8-12/99:
Lufthansa commissions to American, Continen United cuts
cut domestic 8%, retains Delta, United tal commissions to 5%
commissions $50/$25 caps cap follows with a maximum of
to 5-7.5% commissions
9/26/97: $50 for round-trip
on international domestic ticket, $100 for
Northwest,
9/23/97: flights at round-trip international
Continental, USAir,
American, $100/$50 flight; American, Delta,
Midwest Express,
Delta follow KLM, Lufthansa Northwest, KLM match
follow
 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
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
GAPS
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)
CLOSING THE GAPS
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

Consumers
adopt
e-bill payment

Banks, billers increase

promo efforts to publicize Scale goes up at biller
e-bill payment; may even or bank
cut cost to consumer

Due to economies of scale,

per-transaction cost of
offering e-bill payment falls

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) CDWs 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/ BULK SPATIAL DELIVERY/ ASSORTMENT/ Customer
DESCRIPTOR BREAKING CONVENIENCE WAITING VARIETY Service
TIME

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

Demand-side No Demand- Demand-side

COST Gap Side Gap Gap
PERFORMANCE (SOD>SOS) (SOD=SOS) (SOS>SOD)
LEVEL:
Price/value Price/value
No Supply-Side proposition=right proposition=right
Gap (Efficient for a less No Gaps for a more
Flow Cost) demanding demanding
segment! segment!
Supply-side Gap Insufficient SO High cost, but High costs and
(Inefficiently High provision, at high SOs are right: SO is too high:
Flow Cost) costs: price &/or value is good, but no extra value
cost too high, price &/or cost is created, but price
value too low high &/or cost is high
 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 Joes

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 BULK SPATIAL DELIVERY/ ASSORTMEN CUSTOMER INFORMATION MAJOR

NAME/ BREAKING CONVENIENC WAITING TIME T/ VARIETY SERVICE PROVISION CHANNEL
DESCRIPTO E FOR THIS
R 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 BULK SPATIAL DELIVERY/ ASST/ CUSTOMER INFORMATION MAJOR

NAME/ BREAKING CONVENIENCE WAITING TIME VARIETY SERVICE PROVISION CHANNEL
DESCRIPTO FOR THIS
R SEGMENT
1. Small H Original Original M H (SOS=SOD) H (both pre- Value-added
business (SOS=SOD) equipment: M equipment: M (SOS>SOD) sale and post- reseller like
buyer (SOS=SOD) (SOS>SOD) sale) CDW, or
Post-sale Post-sale (SOS=SOD) retailer
service: H service: H
(SOS=SOD) (SOS=SOD)
2. Large L Original Original M/H M (SOS>SOD) L (SOS>SOD) Manufacture
business (SOS>SOD) equipment: H equipment: M (SOS=SOD) r direct, or
buyer (SOS=SOD) (SOS>SOD) large reseller
Post-sale Post-sale like CDW
service: L service: L
(SOS>SOD) (SOS>SOD)
3. Govt/ L Original Original M/H H (SOS=SOD) H (both pre- Manufacture
education (SOS>SOD) equipment: H equipment: M (SOS=SOD) sale and post- r direct, or
(SOS=SOD) (SOS>SOD) sale) reseller; 23
Post-sale Post-sale (SOS=SOD) percent from
service: H service: M small
(SOS=SOD) (SOS>SOD) 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 CHANNEL ENVIRONMENTAL/ SUPPLY-SIDE PLANNED DO/DID ACTIONS

[targeting which MEMBERS AND MANAGERIAL GAPS TECHNIQUES FOR CREATE OTHER
segment(s)?] FLOWS THEY BOUNDS [affecting which CLOSING GAPS GAPS?
PERFORM flow(s)?]
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.

2001 2003 2005

Direct inbound 23% 19% 17%

Direct outbound 18% 23% 25%
Internet Direct 8% 13% 12%
Dealer/VAR/SI
28% 22% 20%
Retail
19% 20% 21%
Others
5% 4% 4%
Total Units 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 CHANNEL ENVIRONMENTAL SUPPLY-SIDE PLANNED DO/DID ACTIONS

[targeting which MEMBERS AND (E) / MANAGERIAL GAPS TECHNIQUES FOR CREATE OTHER
segment(s)?] FLOWS THEY (M) BOUNDS [affecting which CLOSING GAPS GAPS?
PERFORM* flow(s)?]
1. CDW direct to Manufacturer; (M): no screening of Promotion [sales Better screening of No
buyer ( small CDW; recruits for force new recruits Buying from CDW
business buyer) Sm. Bus. Buyer expected longevity training/turnover] closes gaps for
with firm customer in Risking
2. CDW direct to Manufacturer; (E): government Promotion [sales Better screening of No
buyer ( large CDW, CDW-G; requires 23 percent force new recruits;
business buyer, Lg. Bus. Buyer or of purchases from training/turnover] Rely on consortium
government) Government Buyer small vendors Negotiation [cannot channel structure
(M): no screening of close 23% of deals (below)
recruits for with government]
expected longevity
with firm
3. CDW + small Manufacturer; (E): government Promotion [sales Better screening of No
business VAR CDW-G; requires 23 percent force new recruits;
consortium Small VAR; of purchases from training/turnover]; Negotiation gap
member ( consortium partner small vendors; (Negotiation: only a above is closed
government) Government Buyer (M): VARs small gap for a small VAR through consortium
business size not in the CDW with small VARs
(M): no screening of alliance)
recruits for
expected longevity
with firm

Note: all channel members perform all flows to some extent. Key channel flows of interest are promotion, negotiation, and risking.