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8/10/2019 Segmentation for Marketing Channel Design for Service Output
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Segmentation for MCD : Service
Outputs Is dependent on the end-users
demands for a product/ service
Demand into notwhat they want to
consume but howend-users want to
buy and use the products/ services
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Survey Resultsof grocery shoppers
11% found grocery shopping fun
83% thought it took too much of time
50% felt saving time is more importantthan money
85% said they were looking at saving
time 93% were looking at making their lives
simpler
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Peapod Shopping Steps
Who performs this step
Shopping process step GS Peapod
Plan what to buy Shopper Shopper
Travel to grocery store Shopper Peapod
Walk aisles of store Shopper Peapod
Pick & choose items Shopper Peapod
Checkout process Shopper Peapod
Bag groceries Shopper Peapod
Transport groceries home Shopper Peapod
Unpack groceries Shopper Shopper
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Peapod Operations Initially orders were taken on-line through a
proprietary software. Peapod employees then shopped the aisles of actual
Jewel-Osco stores to fill each order & delivered at aspecified time
In October98 they started the WWW based accesssystem
The new software made gave an option of speediercheck out, nutrients & ingredients list, & acumulative list of what has been purchased during an
on-line shopping trip. In December 1998 Peapod started their 1st dedicated
distribution center leading to a reduced delivery coststo customers, efficient assortment of grocery, diary &frozen products & to be replenished just in time basisby suppliers
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Peapod Operations
Perishable products are planned to be Cross-
docked implying that they will sit in inventory
for a minimal amount of time They have also introduced a new transportation
routing to lower costs of delivery
Delivery charges varies from $ 9.95 per order with
no monthly fees to $5 per order plus $4.95 flat
charges per month or unlimited deliveries for
$19.95 per month.
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Peapod Operations
In August 98 they started pre selected bundles of
products to fit niche buying occasions like the
holiday season, new baby gifts, Christmas giftsetc., with deliveries across the nation
They also tied up with Greatfoods.com to give
services of packaged foods
This gave them an opportunity to make a brand
name across the country even where they were not
present
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Relevance of peapod operations to
shoppers
Research done by Chicago Strategy
Associates found three main segments of
grocery shoppers
Low priced & comparisons segment - 43%
Efficiency seekers segment - 39%
Branded products delivered segment - 18%
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Relevance of peapod operations to
shoppers Branded products segments placed a very high importance
on availability of specific brands & off these 44% were
high internet users which made them the target customers
for on-line shopping.
Also off these segments the branded products segments
placed high importance on home delivery & said that it
enhanced their shopping experience.
75% of the people in this segment were females & fromdual income families
Also 70% and more of families had an income of $60,000
annually
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Relevance of peapod operations to
shoppers
Anderson consulting has through a study
found that 42% of Americans would like to
have the comfort of shopping from homefor commodities or staple items
Also that by the year 2005, 20% of retail
grocery volume is expected to be from on-line shopping
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Louis P Bucklins frame work for marketing
channels
Other things being equal ( in particular
price, end users will prefer to deal with a
marketing channel that provides a higherlevel of generic service outputs like:
Bulk breaking
Spatial convenience Waiting or delivery time
Product variety
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Bulk Breaking
Ability of the end user to buy in desired smallquantities though the original produced packagingcould be big.
Purchases move directly into consumption ratherthan into inventory
Lesser product handling by the end user
Lesser storage space & costs
Increases the service output of the MC Which could lead to an increased price for the end
user
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Spatial convenience
Is the distance convenience of shopping to the enduser.
It increases customer sat because of the shorter
distances involved. Exs are neighborhood supermarkets, convenience
stores, vending machines, gas stations etc.,
Companies like Grainger in the US offer spatial
convenience to business customers by offeringthem their requirements by having branches atdistances of 20 minutes from most businessestablishments
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Waiting time or delivery time
Is defined as the time period that the end user mustwait between ordering & receiving goods/service.
Quick delivery is highly valued by industrial users The longer the waiting period for a product/
service higher is the compensation (i.e., the lowerthe prices) they receive.
The waiting period for a product/ service isindicative of the value being place by consumersfor that product/service
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Breadth of assortment
Wider the breadth of assortment or the
availability of product variety higher is the
service outputs of the channel The higher the service output of the
channel, higher is the distribution costs
because of the inventory carrying costswhich is passed onto the end user.
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Trends in B2B buyer preferences
Outsourcingrefers spinning off particular
corporate activities or functions to outside
providers. The outside providers are generally specialists
with up-to-date technological know how& lower
costs due to economies of scale.
Some of the activities that are outsourced are
invoicing, shipping, financing, selling itself, etc.,
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Trends in B2B buyer preferences
Downsizing refers to the reduction in
number of employees in a firm.
Hence the existing employees would haveto indulge in multi tasking & would not
have time to indulge in service output
functions they used to earlier. This could again lead to outsourcing
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Trends in B2B buyer preferences
Alphabet soup refer to the various initiatives
undertaken in the management of business
channels wherein there are acronyms of alphabetsto describe them like JIT, ECR, etc.,
These methodologies have increased an increase
in business buyers demands for quick delivery,
spatial convenience, bulk breaking & assortment& variety.
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Trends in consumer preferences
Poverty of time is well summarizedinthis
statement We are desperate for a few minutes of
rest. If we did not have help, we would fall down Hence it becomes imperative for channel
managers to design channels to offer one stop
shopping experience.
Design more non store based channels for retailing
like having a catalog , on line shopping etc.,
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Trends in consumer preferences
Increased knowledge about products &availability Customers are well informed about
product characteristics, availability & pricing
This could be because of an increased mobility ofcustomers today in comparison to the past.
It thus becomes important for organizations to findout the areas of awareness of customers & work
on them. If customers are aware of product alternatives it
becomes imperative for companies to work on thedegree of competitiveness.
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Trends in consumer preferences
Increased polarity of incomes
Increased number of self employed workers
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Segmenting the markets by SODs
It is important to study understand all the relevantSODs by different end-users by conductingqualitative focus groups or one-on-one exploratory
interviews. These interviews will generate unbiased list of all
the service outputs that apply to the particularproduct & market in question
Research should be designed & conducted fromstart to define channel segments that best describeend-users service output demands & more on their
purchasing patterns.
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Segmenting the markets by SODs
The focus is more on the purchasing pattern isbecause end-users preferred shopping & buyinghabits rarely correlate with their preference forschemes offered by the management.
The channel segmentation process should bedesigned to produce groups of buyers who are : Who are maximally similar
Who are maximally different
Differ on dimensions that matter to building adistribution system.
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Meeting service output demands
One of the basic tenets of marketing is that the seller has toidentify & then meet the needs of its end-users.
Similarly it means in creating & running a marketing
channel systems the seller has to keep in mind the serviceoutputs demanded by targeted end-users, the creation &maintenance of which could be time consuming &expensive.
The question arises whether there are market conditionsunder which a channel manager can profitably serve asegment in the market without fully meeting the SODscharacterized by them. Ex Peapod
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Meeting service output demands
The key factors determining whether & how quickly torespond to knowledge about unmet service output demandsinclude the following
Cost : At times meeting the SODs of end-users could froma supply perspective become so expensive that the end-
user is unwilling to pay that price. Ex shippingtechnologies
Competitiveness : Here the question that arises is whetherany existing competitors can beat the channels currentservice output provision levels. Hence the added cost of
increasing the service outputs of this channel will notincrease the market share of the channel. However ifcompetitors increase their channel output service levels itwould become imperative for the existing channel toincorporate necessary changes
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Meeting service output demands
Ease of entry: Competition is not only from existing firms,channels already existing or entrants to the industry butfrom those channels that fail to deliver the service outputsof the end users. This is because competition can leveragetechnology to meet those service outputs ex Citibank
ATMs. Hence it is important while formulating a channelto block entry of new competitors.
Other elements of excellence in marketing offering: Themarketing channel is one part of the overall marketing mix.A truly superior product or a tremendously low price canlead end users to buy through a channel that does not quitemeet their service output requirements. This just meansthat the existence of an unmet service output demandmeans there is a potential threat to the channel that offerssome but not all the elements of the marketing mix tailoredto the target end users demands.
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