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

P roducer Wholesaler R etailer C onsum er

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 R T potential weight Producer Wholesaler etailer Consumer otal

Physical possession Ownership Promotion Negotiation Financing Risking Ordering Payment Total

100N/A

100 N/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:

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

COSTS

BENEFIT POTEN TIAL (High,

Medium, or Low)

PHYSICAL POSSESSION OWNERSHIP PROMOTION NEGOTIATION FINANCING RISKING ORDERING PAYMENT TOTAL NORMATIVE PROFIT

30

High

35

30

30

40

100

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)

PHYSICAL POSSESSION OWNERSHIP PROMOTION NEGOTIATION FINANCING RISKING ORDERING PAYMENT TOTAL NORMATIVE PROFIT SHARE

30 12 10 5 25 5 6 7 100 N/A

High Medium Low Low/Mediu m Medium Low Low Low N/A N/A

35 15 8 4 29 2 3 4 100 N/A

2 2 1 1 2 2 1 1 N/A ?

2 2 3 2 2 2 2 2 N/A ?

2 2 0 1 2 1 1 1 N/A ?

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

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: FINAL WEIGHT Mfgr. Retailer End-user TOTAL

COSTS

BENEFIT POTENTIAL (High,

Medium, or Low)

PHYSICAL POSSESSION OWNERSHIP PROMOTION NEGOTIATION FINANCING RISKING ORDERING PAYMENT TOTAL NORMATIVE PROFIT SHARE

30 12 10 5 25 5 6 7 100 N/A

High Medium Low Low/Mediu m Medium Low Low Low N/A N/A

35 15 8 4 29 2 3 4 100 N/A

33 33 25 25 33 40 25 25 N/A 32%

33 33 75 50 33 40 50 50 N/A 38%

33 33 0 25 33 20 25 25 N/A 29%

100 100 100 100 100 100 100 100 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'e own inventoryform the basis for estimating the demand The Bullwhip effect can be controlled by better communication and forecasing 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 Physi l ershi Pr m i egoti tion Financing Risking Or ering Payment ssessi Intermediaries who can perform
Contract warehouse, Shi ing com any, Distri utor, Retailers (bricks, catalog and on-line) Contract warehouse, Distributor, Retailers (bricks, catalog and on-line) Distributor, Retailers (bricks, catalog and on-line), Broker , Franchisees, Independent sales reps Distributor,Independent sales reps,Export Marketing companies Distributor, Retailers (bricks, catalog and on-line), Broker , Franchisees, Banks, Credit card companies Distributor, Retailers (bricks, catalog and on-line), Franchisees, Credit card companies Distributor, Retailers (bricks, catalog and on-line), Franchisees, Independent sales reps Distributor, Retailers (bricks, catalog and on-line), 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 For the Manufacturer

Limited coverage is currency More selectivity = more money Exclusive distribution = Manufacturers use the money to pay the Channel Members for : - limiting its own coverage of brand in product category (gaining exclusive dealing is very expensive) - supporting premium positioning of the brand - finding a narrow target market - coordinating more closely with the manufacturer - making-supplier specific investments new products new markets differentiated marketing strategy requiring downstream implementation - accepting limited direct selling by manufacturer - accepting the risk of becoming dependent on a strong brand Manufacturers need to pay more when : - the product category is important to the Channel Member - the product category is intensely competitive

FIGURE 4- 3: CATEGORY SELECTIVITY: THE DOWNSTREAM CHANNEL MEMBERS CONSIDERATIONS

For the Downstream Channel For Downstream C annel

Limiting brand assortment is currency Fever brand more money clusive dealing Downstream annel embers se the money to

ember ember

ay the supplier or embers trading area

limiting the number of ompetitors who an arry the brand in the hannel - providing desired brands that fit the hannel - wording losely to help the hannel embers strategy

ember achieve competitive advantage

- making hannel-Member-specific investments new products new markets differentiated hannel Member strategy requiring supplier cooperation - accepting the risk of becoming dependent on a strong hannel Member Downstream hannel Members 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 Geographic domain Specific customer domain

Domain:
  

Managing Channel Conflicts



Managing conflicts:
   

Establish exclusive domains Reimburse distributors Handover new accounts Apply equity principle