Service Output Design (SOD)Range of service outputsMeasuring relative importance of service outputsSOD identifies segmentation for marketing channel designMeeting the SOD

Range of Service Outputs (Typical Consumer Segment) Purchase process: easy to find, select and buyPurchases delivered homeInfo on product usageFast buying processInfo on comparingAbility to see, touch and inspectPrice rangeExperience provides social interactionPlace sells desired brands

Range of Service Outputs (Typical B2B Segment) References and credentialsFinancial stabilityProduct demonstrations and trialsProactive advice and consultingAssistance during decision making processOne-stop solutionLowest priceInstallation and training supportAfter sales support

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

Service OutputsMajor service outputs:Bulk-breakingDesired number of unitsSpatial convenienceWaiting time or delivery timeBetween ordering and receiving Breadth of assortmentProduct variety

Service OutputsService outputs are produced by channel members at a costMaximizing service outputs impact competitive prices due to increased channel costChannel 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)Full-ServiceResponsiveSupportReferences/CredentialsLowestTotalCostPre-SalesSalesPost-SalesVARsAssociations,Events,AwarenessEffortsThird-Party SupplyOut-sourceDealersTeleSales/TeleMktgInternal Support- Install, Training & Service GroupSegment

Trends in End-user PreferencesConsumer and HH:'Poverty' of timeIncreased knowledge about products and availability (internet access)Wide income distribution leading to demand for product varietyOverlap in consumer SOHO segments (bulk-breaking of office supplies)

Meeting SODKey factors determining SOD delivery:CostCost of providing services vis-a-vis end-users are willing to payCompetitivenessEase of entry with better servicesExcellence in other elements of marketing mix

Role of SOD AnalysisAssess segment attractivenessTarget a subset of the segment identifiedCustomize the marketing channel system solution for each targeted segment

THE SERVICE OUTPUT DEMANDS (SOD) TEMPLATE 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:SEGMENT

NAME/

DESCRIPTORBULK BREAKINGSPATIAL

CONVENIENCEDELIVERY/

WAITING TIMEASSORTMENT/

VARIETYCUSTOMER

SERVICEINFORMATION

PROVISION1.2.3.4.5.

Channel FlowsEight generic channel flowsChannel and efficiency templateZero-based channel design

8 Generic Channel FlowsProducer WholesalerRetailerConsumer

Sheet1

Marketing FlowCost Represented

Physical possessionStorage & delivery

OwnershipInventory carrying

PromotionPersonnel selling, advtg, PR

NegotiationTime and legal

FinancingTerms of sale, credit terms

RiskingGuarantees, insurance, service

OrderingOrder processing

PaymentCollection, bad debts

&C&A

&CPage &P

Channel Efficiency Template

Sheet1

Weights for flowsProportional performance of channel members

Channel flowsCostsBenefit potentialFinal weightProducerWholesalerRetailerConsumerTotal

Physical possession100

Ownership100

Promotion100

Negotiation100

Financing100

Risking100

Ordering100

Payment100

Total100N/A100N/AN/AN/AN/AN/A

&C&A

&CPage &P

BUILDING MATERIALS COMPANY EFFICIENCY TEMPLATE FOR

CHANNEL SERVING END-USERS THROUGH RETAILIERS:

UNDISGUISED DATA

WEIGHTS FOR FLOWS:PROPORTIONAL FLOW PERFORMANCE OF

CHANNEL MEMBER:COSTSBENEFIT POTENTIAL (High, Medium, or Low)FINAL

WEIGHTMfgr.RetailerEnd-userTOTALPHYSICALPOSSESSION30High35303040100OWNERSHIP12Medium15304030100PROMOTION10Low820800100NEGOTIATION5Low/Medium4206020100FINANCING25Medium29303040100RISKING5Low2305020100ORDERING6Low3206020100PAYMENT7Low4206020100TOTAL100N/A100N/AN/AN/AN/ANORMATIVE PROFIT SHAREN/AN/AN/A28%39%33%100

BUILDING MATERIALS COMPANY EFFICIENCY TEMPLATE FOR

CHANNEL SERVING END-USERS THROUGH RETAILERS: RANK-

ORDER DATA

`WEIGHTS FOR FLOWS:PROPORTIONAL FLOW PERFORMANCE OF

CHANNEL MEMBER:COSTSBENEFIT POTENTIAL (High, Medium, or Low)FINAL WEIGHTMfgr.RetailerEnd-userTOTALPHYSICAL POSSESSION30High35222100OWNERSHIP12Medium15222100PROMOTION10Low8130100NEGOTIATION5Low/Medium4121100FINANCING25Medium29222100RISKING5Low2221100ORDERING6Low3121100PAYMENT7Low4121100TOTAL100N/A100N/AN/AN/AN/ANORMATIVE PROFIT SHAREN/AN/AN/A???100

BUILDING MATERIALS COMPANY EFFICIENCY TEMPLATE FOR

CHANNEL SERVING END-USERS THROUGH RETAILERS :

TRANSFORMED RANK-ORDER DATA

WEIGHTS FOR FLOWS:PROPORTIONAL FLOW PERFORMANCE OFCHANNEL MEMBER:COSTSBENEFIT POTENTIAL (High, Medium, or Low)FINAL WEIGHTMfgr.RetailerEnd-userTOTALPHYSICAL POSSESSION30High35333333100OWNERSHIP12Medium15333333100PROMOTION10Low825750100NEGOTIATION5Low/Medium4255025100FINANCING25Medium29333333100RISKING5Low2404020100ORDERING6Low3255025100PAYMENT7Low4255025100TOTAL100N/A100N/AN/AN/AN/ANORMATIVE PROFIT SHAREN/AN/AN/A32%38%29%100

Zero Based Channel DesignChannel design from scratch without a pre-existing channel structureZero Based Channel Design:Meets the target market segments SODAt minimum cost of performing the necessary channel flows that produce those service outputs

Bullwhip EffectA phenomenon that occurs in distribution supply chain when the customer's order and one's own inventory form the basis for estimating the demandThe 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 membersThis creates right incentives among channel members to sustain value generation in future

Channel StructuresNumber of distinct channels that co-exist in the marketTypes of channel members that are in the channelThe intensity or number of members of each type that co-exist in market

Intermediary Choices

Sheet1

Marketing FlowIntermediaries who can perform

Physical possessionContract warehouse, Shipping company, Distributor, Retailers (bricks, catalog and on-line)

OwnershipContract warehouse, Distributor, Retailers (bricks, catalog and on-line)

PromotionDistributor, Retailers (bricks, catalog and on-line), Broker , Franchisees, Independent sales reps

NegotiationDistributor,Independent sales reps,Export Marketing companies

FinancingDistributor, Retailers (bricks, catalog and on-line), Broker , Franchisees, Banks, Credit card companies

RiskingDistributor, Retailers (bricks, catalog and on-line), Franchisees, Credit card companies

OrderingDistributor, Retailers (bricks, catalog and on-line), Franchisees, Independent sales reps

PaymentDistributor, Retailers (bricks, catalog and on-line), Franchisees, Shipping companies

&C&A

&CPage &P

Intensity of DistributionExclusive One outlet per marketSelectiveFew outlets in each marketIntensive Available as widely as possible in market

How Many Channel Members?Type of productCustomer segment targetedGeographical spreadBusiness expectation by the channel membersService level, the company wants to provide

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

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

Managing Channel ConflictsMost common occurrence is the 'domain conflict'Conflict with the companyConflict with other channel membersDomain:Activity responsibilityGeographic domainSpecific customer domain

Managing Channel ConflictsManaging conflicts:Establish exclusive domainsReimburse distributorsHandover new accountsApply equity principle