Service Output Design (SOD)

Range of service outputs Measuring relative importance of service outputs SOD identifies segmentation for marketing channel design Meeting the SOD

Range of Service Outputs

(Typical Consumer Segment)

Purchase process: easy to find, select and buy Purchases delivered home Info on product usage Fast buying process Info on comparing Ability to see, touch and inspect Price range Experience provides social interaction Place sells desired brands

Range of Service Outputs

(Typical B2B Segment)

References and credentials Financial stability Product demonstrations and trials Proactive advice and consulting Assistance during decision making process One-stop solution Lowest price Installation and training support After sales support

Service Output Measurements

Get the measurement on a scale: Low, moderate, high or very high Alternatively, Get a measurement for each of the attributes on a scale of 1 to 4 or 5 or 6 or 7 or 10 Higher the scale range, more the sample size Get the ranking of different service output types to measure their relative importance

Service Outputs

Major service outputs: Bulk-breaking Desired number of units Spatial convenience Waiting time or delivery time Between ordering and receiving Breadth of assortment Product variety

Service Outputs

Service outputs are produced by channel members at a cost Maximizing service outputs impact competitive prices due to increased channel cost Channel design should optimize service outputs and channel costs

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
Dealers

Sales

VARs

TeleSales/ TeleMktg Internal Support - Install, Training & Service Group

ThirdParty Supply Outsource

Post-Sales

Segment

Full-Service

Responsive Support

References/ Credentials

Lowest Total Cost

Trends in End-user Preferences

Consumer and HH: 'Poverty' of time Increased knowledge about products and availability (internet access) Wide income distribution leading to demand for product variety Overlap in consumer SOHO segments (bulkbreaking of office supplies)

Meeting SOD

Key factors determining SOD delivery: Cost Cost of providing services vis-a-vis end-users are willing to pay Competitiveness Ease of entry with better services Excellence in other elements of marketing mix

Role of SOD Analysis

Assess segment attractiveness Target a subset of the segment identified Customize the marketing channel system solution for each targeted segment

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.

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.

Channel Flows

Eight generic channel flows Channel and efficiency template Zero-based channel design

8 Generic Channel Flows

Producer Wholesaler Retailer Consumer

Marketing Flow
Physical possession Ownership Promotion Negotiation Financing Risking Ordering Payment

Cost Represented
Storage & delivery Inventory carrying Personnel selling, advtg, PR Time and legal Terms of sale, credit terms Guarantees, insurance, service Order processing Collection, bad debts

Channel Efficiency Template

Weights for flows Proportional performance of channel members Benefit Final Channel flows Costs Retailer Consumer Total potential weight Producer Wholesaler

Physical possession Ownership Promotion Negotiation Financing Risking Ordering Payment Total

100N/A

100N/A

N/A

N/A

N/A

100 100 100 100 100 100 100 100 N/A

BUILDING MATERIALS COMPANY EFFICIENCY TEMPLATE FOR CHANNEL SERVING END-USERS THROUGH RETAILIERS: UNDISGUISED DATA

WEIGHTS FOR FLOWS: COSTS BENEFIT FINAL POTENTI AL (High, WEIGHT Medium, or Low)
High 35

PROPORTIONAL FLOW PERFORMANCE OF CHANNEL MEMBER: Mfgr. Retailer End-user TOTAL

PHYSICAL POSSESSION

30

30

30

40

100

OWNERSHIP
PROMOTION NEGOTIATION FINANCING RISKING ORDERING PAYMENT TOTAL NORMATIVE PROFIT SHARE

12
10 5 25 5 6 7 100 N/A

Medium
Low Low/Medium Medium Low Low Low N/A N/A

15
8 4 29 2 3 4 100 N/A

30
20 20 30 30 20 20 N/A 28%

40
80 60 30 50 60 60 N/A 39%

30
0 20 40 20 20 20 N/A 33%

100
100 100 100 100 100 100 N/A 100

BUILDING MATERIALS COMPANY EFFICIENCY TEMPLATE FOR CHANNEL SERVING END-USERS THROUGH RETAILERS: RANKORDER DATA

WEIGHTS FOR FLOWS:

PROPORTIONAL FLOW PERFORMANCE OF CHANNEL MEMBER:

FINAL WEIGHT Mfgr. Retailer End-user TOTAL

COSTS

BENEFIT POTENTIAL (High, Medium, or Low) High

PHYSICAL POSSESSION

30

35

100

OWNERSHIP
PROMOTION NEGOTIATION FINANCING RISKING

12
10 5 25 5

Medium
Low Low/Medium Medium Low

15
8 4 29 2

2
1 1 2 2

2
3 2 2 2

2
0 1 2 1

100
100 100 100 100

ORDERING
PAYMENT TOTAL

6
7 100

Low
Low N/A N/A

3
4 100 N/A

1
1 N/A ?

2
2 N/A ?

1
1 N/A ?

100
100 N/A 100

NORMATIVE N/A PROFIT SHARE

BUILDING MATERIALS COMPANY EFFICIENCY TEMPLATE FOR CHANNEL SERVING END-USERS THROUGH RETAILERS : TRANSFORMED RANK-ORDER DATA

WEIGHTS FOR FLOWS:

PROPORTIONAL FLOW PERFORMANCE OF CHANNEL MEMBER: Retailer End-user TOTAL

COSTS BENEFIT FINAL Mfgr. POTENTIAL WEIGHT (High, Medium, or Low) PHYSICAL 30 POSSESSION OWNERSHIP 12 PROMOTION 10 NEGOTIATIO 5 N FINANCING 25 High Medium Low 35 15 8 33 33 25 25 33

33 33 75 50 33

33 33 0 25 33

100 100 100 100 100

Low/Mediu 4 m Medium 29

RISKING
ORDERING PAYMENT TOTAL NORMATIVE PROFIT SHARE

5
6 7 100 N/A

Low
Low Low N/A N/A

2
3 4 100 N/A

40
25 25 N/A
32%

40
50 50 N/A 38%

20
25 25 N/A 29%

100
100 100 N/A 100

Zero Based Channel Design

Channel design from scratch without a pre-existing channel structure Zero Based Channel Design:

Meets the target market segments SOD At minimum cost of performing the necessary channel flows that produce those service outputs

Bullwhip Effect

A phenomenon that occurs in distribution supply chain when the customer's order and one's own inventory form the basis for estimating the demand

The Bullwhip effect can be controlled by better communication and forecasting methods

THE BULLWHIP EFFECT

Equity Principle

The compensation in the channel system is to be given on the basis of values created by channel members This creates right incentives among channel members to sustain value generation in future

Channel Structures

Number of distinct channels that co-exist in the market Types of channel members that are in the channel The intensity or number of members of each type that co-exist in market

Intermediary Choices
Marketing Flow Intermediaries who can perform
Contract warehouse, Shipping company, Distributor, Physical possessionRetailers (bricks, catalog and on-line) Contract warehouse, Distributor, Retailers (bricks, Ownership catalog and on-line) Distributor, Retailers (bricks, catalog and on-line), Promotion Broker , Franchisees, Independent sales reps Distributor,Independent sales reps,Export Marketing Negotiation companies Distributor, Retailers (bricks, catalog and on-line), Financing Broker , Franchisees, Banks, Credit card companies Distributor, Retailers (bricks, catalog and on-line), Risking Franchisees, Credit card companies Distributor, Retailers (bricks, catalog and on-line), Ordering Franchisees, Independent sales reps Distributor, Retailers (bricks, catalog and on-line), Payment Franchisees, Shipping companies

Intensity of Distribution

Exclusive

One outlet per market Few outlets in each market Available as widely as possible in market

Selective

Intensive

How Many Channel Members?

Type of product Customer segment targeted Geographical spread Business expectation by the channel members Service level, the company wants to provide

FIGURE 4- 2: : SELECTIVE COVERAGE--THE MANUFACTURERS CONSIDERATIONS

For the Manufacturer

Limited coverage is currency M ore selectivity = more money Exclusive distribution = M anufacturers use the money to p ay the Channel M embers for : - limiting its own coverage of brand in product category (gaining exclusive dealing is very exp ensive) - sup porting p remium positioning of the brand - finding a narrow target market - coordinating more closely with the manufacturer - making-supp lier specific investments new products new markets differentiated marketing strategy requiring downstream implementation - accepting limited direct selling by manufacturer - accepting the risk of becoming dep endent on a strong brand M anufacturers need to pay more when : - the product category is imp ortant to the Channel M ember - the product category is intensely competitive

IGURE 4- 3: CATEGORY SELECTIVITY: THE DOWNSTREAM CHANNEL MEMBERS ONSIDERATIONS

For For the the Downstream Downstream Channel Channel Member Member
Limiting brand assortment is currency Fever brand = more money Exclusive dealing = Downstream Channel M embers use the money to pay the supp lier for : - limiting the number of competitors who can carry the brand in the Channel M embers trading area - p roviding desired brands that fit the Channel M embers strategy - wording closely to help the Channel M ember achieve competitive advantage - making Channel-M ember-specific investments new products new markets differentiated Channel M ember strategy requiring supplier cooperation - accepting the risk of becoming dependent on a strong Channel M ember Downstream Channel M embers need to pay more when : - the trading area is important to the supplier - the trading area is intensely competitive

Managing Channel Conflicts

Most common occurrence is the 'domain conflict'

Conflict with the company Conflict with other channel members Activity responsibility

Domain:

Geographic domain
Specific customer domain

Managing Channel Conflicts

Managing conflicts:

Establish exclusive domains Reimburse distributors Handover new accounts Apply equity principle