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PUBLIC SECTOR ENTREPRENEURSHIP AND ADMINISTRATION
- 2. Information Classification: General AGENDA • LEARNING OBJECTIVES • INTRODUCTION • END-USER SEGMENTATION CRITERIA: SERVICE OUTPUTS • SEGMENTING END-USERS BY SERVICE OUTPUT • OMNI-CHANNELS AND END-USER SEGMENTS • TAKE AWAYS
- 3. Information Classification: General LEARNING OBJECTIVES • UNDERSTAND HOW END-USERS AND THEIR DEMANDS DICTATE THE DESIGN OF MARKETING CHANNELS • DEFINE SERVICE OUTPUTS AND HOW TO IDENTIFY AND ANALYZE THEM • DISTINGUISH BETWEEN CHANNELAND MARKET SEGMENTATION RECOGNIZE HOW TO DIVIDE A MARKET • DESCRIBE HOW TO TARGET CHANNEL SEGMENTS TO OPTIMIZE SALES AND PROFITS • EVALUATE WHEN AND WHETHER TO TRY TO MEET ALL EXPRESSED SERVICE OUTPUT DEMANDS IN THE SHORT RUN IN A PARTICULAR MARKET • DESCRIBE THE RELATIONSHIP BETWEEN SERVICE OUTPUT DEMANDS AND SOLUTIONS TO OVERALL CHANNEL DESIGN PROBLEMS
- 4. Information Classification: General INTRODUCTION • Channel strategies • Make buying easy, convenient, efficient and cost effective • Focus on end user • How does end user use product? • Service outputs • Reducing search efforts • Reducing waiting time • Reducing need for storage • Can be used to segment markets • A corporation may by technology straight from manufacturer with special service bundle • Many examples of Omni-channel’s involved with this • Ordering items online • Researching specifications • Must address end consumers needs first
- 5. Information Classification: General EXAMPLE: GROCERY SHOPPING IN CHINA IN CHINA IN 2007, 80 PERCENT OF ALL FOOD SOLD WENT THROUGH TRADITIONAL “WET MARKETS” THAT COMPRISED COUNTLESS NUMBERS OF SMALL STALLS, EACH SELLING A VERY NARROW ASSORTMENT OF PRODUCTS, SUCH AS FRESH FRUIT OR FISH. THE REMAINING 20 PERCENT OF SALES WAS SPLIT ABOUT EVENLY AMONG 1,500 LARGE AND 20,000 SMALL SUPERMARKETS. THE LARGER SUPERMARKETS WERE MOSTLY LOCATED IN MAJOR CITIES. THAT IS, ABOUT A DECADE AGO, WELL-TO-DO CONSUMERS IN THE BIGGEST CITIES SHOPPED LIKE WESTERN CONSUMERS IN MODERN, STATE-OF-THE-ART SUPERMARKETS, BUT THE VAST POPULATION OF MIDDLE AND LOWER INCOME CONSUMERS, ESPECIALLY THOSE WHO LIVED IN SMALLER CITIES, TOWNS, AND RURAL AREAS, SHOPPED IN WET MARKETS THAT LOOKED MUCH LIKE THE CHANNELS AVAILABLE THROUGHOUT THE DEVELOPING WORLD. IN THE PAST 10 YEARS THOUGH, MASSIVE EXPANSION HAS INCREASED THE RANKS OF HYPERMARKETS AND SUPERMARKETS. BY 2015, CHINA HOSTED MORE THAN 33,000 SUPERMARKETS AND 8,500 HYPERMARKETS. MAJOR INTERNATIONAL PLAYERS SUCH AS WALMART, METRO, AND CARREFOUR COMPETE WITH LEADING DOMESTIC CHAINS SUCH AS YONGHUI. THESE SUPERMARKETS AND HYPERMARKETS PUSH SOPHISTICATED IN-STORE PROMOTIONS AND COMPLEX, SEAMLESS OMNI-CHANNEL EXPERIENCES. THE STORES OFTEN COEXIST IN THE SAME GEOGRAPHIC AREAS AS WET MARKETS AND CONVENIENCE STORES, WHICH TARGET END-USERS WHO MAY PREFER TO BUY IN SMALL QUANTITIES ON A DAILY BASIS FROM A FAMILIAR NEIGHBORHOOD RETAILER BY PAYING CASH; THESE CONSUMERS OFTEN FIND THE POSH SETTINGS OF SUPERMARKETS TOO INTIMIDATING AND UNWELCOMING.
- 6. Information Classification: General END-USER SEGMENTATION CRITERIA: SERVICE OUTPUTS • Channel systems remain when they reduce end-users costs through 6 service outputs • Bulk breaking • Allows purchasing smaller units when normally produced in larger batch • Reduces unnecessary use of storage • End-user may be willing to pay more • Spatial convenience • Reduces transportation and search costs • Includes delivery, and pick up of repairable products
- 7. FIGURE 10.1 DRIVERS OF SERVICE OUTPUTS IN CHANNELS Extent of Bulk Breaking Desired Spatial Convenience Waiting or Delivery Time Product Variety and Assortment Customer Service Information Sharing Ability to buy desired amount Ease of access, distance Time between order and delivery Breadth and depth of product lines Ease of shopping Education and engagement
- 8. Information Classification: General EXAMPLE: APPS TO CUT WAIT TIMES (USA) FAST FOOD AND FAST CASUAL RESTAURANTS ARE POPULAR DESTINATIONS AND CAN GET CROWDED AT CERTAIN TIMES OF THE DAY, SUCH AS DURING LUNCH HOURS. MANY PATRONS STAND IN LINE AT CHIPOTLE AND WAIT THEIR TURN TO ORDER, AFTER WHICH THEY CAN WATCH THEIR FOOD BEING PREPARED RIGHT IN FRONT OF THEM. BUT LIKE MANY RESTAURANT CHAINS, CHIPOTLE ALSO OFFERS AN APP TO ENABLE CONSUMERS TO ORDER THEIR FOOD AHEAD. WITH THESE APPS, USERS CAN REDUCE THEIR WAIT TIMES BY PREORDERING, THEN SIMPLY ARRIVING AT THE RESTAURANT CHAINS, CHIPOTLE ALSO OFFERS AN APP TO ENABLE CONSUMERS TO ORDER THEIR FOOD AHEAD, WITH THESE APPS, USERS CAN REDUCE THEIR WAIT TIMES BUT PREORDERING, THEN SIMPLY ARRIVING AT THE RESTAURANT TO PICK UP THEIR MEAL. IN THIS SENSE, THEY CUT IN LINE, PASSING BY THOSE CUSTOMERS PATIENTLY WAITING THEIR TURN. THIS DISTINCTION CLEARLY HIGHLIGHTS TWO DIFFERENT TYPES OF END-USERS: THOSE WHO ENJOY THE RITUAL OF GOING TO A RESTAURANT, ORDERING, AND SEEING THEIR FOOD PREPARED FRESH VERSUS THOSE WHO SIMPLY WANT THEIR FOOD QUICKLY. THE APP CATERS TO THE NEEDS OF THOSE WHO WANT TO REDUCE THEIR WAIT TIMES; MIGHT IT ALSO END UP ALIENATING THOSE WHO WAIT PATIENTLY IN LINE THOUGH? WALK-IN, NO APPOINTMENT HAIR SALON CHAINS SUCH AS GREAT CLIPS SIMILARLY USE ONLINE CHECK-IN APPS TO HELP PATRONS REDUCE THEIR WAIT TIMES. WHEN THEY GO TO REGISTER ONLINE, THEY ARE INFORMED OF THE ESTIMATED WAIT TIMES AND THEN CAN CHECK IN ONLINE AND ARRIVE AT THE SALON AT THE BEST ESTIMATED TIME OF SERVICE.
- 9. Information Classification: General END-USER SEGMENTATION CRITERIA: SERVICE OUTPUTS (CONT.) • Waiting or delivery time • Reduces need to plan consumption • End-users typically pay more for shorter wait times • Longer delivery times expected for original equipment than post-sales equipment • A hospital might be willing to pay more for a immediate emergency repair for equipment than the original order • Airline seats’ prices change as date of departure approaches • Usually a market with little infrastructure contains high wants for spatial convenience, minimal waiting time, and bulk breaking • The Mexican beer market is one such example, small distributors in apartments sell by the bottle to nearby residents
- 10. Information Classification: General END-USER SEGMENTATION CRITERIA: SERVICE OUTPUTS (CONT.) • Product variety • Greater variety costs more • Variety: generically different product classes, number of product lines • Discount department stores • Assortment: depth of product brands and models in product lines • Specialty stores • ‘Which’ is as important as ‘how many’ • JCPenney failed by trying to shift to products that appealed to consumers younger than their market • Hot Topic succeeds by quickly obtaining products their market, teen girls, will want
- 11. Information Classification: General END-USER SEGMENTATION CRITERIA: SERVICE OUTPUTS (CONT.) • Customer service • All aspects that ease shopping and purchasing process • Commercial suppliers • Retailers • Better customer service means more profits • Cable renounced for poor service • DirecTV differs itself by stationing employees as customer service locations to manage quality • Must be tailored to end user • Cabela's appeals to men, hunting enthusiasts and rural shoppers through deep, quality assortments and ambience to distract from shopping experience.
- 12. Information Classification: General END-USER SEGMENTATION CRITERIA: SERVICE OUTPUTS (CONT.) • Information sharing • Educating end users about products and providing services before and after the sale • Computer Industry • Specs and addons presale, maintenance and repair post sale • Also called ‘solutions retailing’ • Home Depot • DIY classes • HP and Microsoft • Experience centers • Pricing • Not as service output itself • Just the cost of the product and service outputs
- 13. Information Classification: General SEGMENTING END-USERS BY SERVICE OUTPUT • Groups of end-users have different service output needs, wanting to buy differently • Service-sensitive and price-insensitive • Fine men’s clothing • Albert Karoll visits his carefully accepted customers at home to provide quality service • Three step process • Generate list • Qualitative focus groups • Explorative interviews • Divide into segments • Divide based on common product or advertising decisions • Research to show end-users most common patterns • Should have groups with similar end-users that are different from each other in relevant ways • Preferable because service output needs rarely correlate with information relevant for advertisement • Name segments • Facilitates internal communication and organizational alignment
- 14. Information Classification: General TABLE 10.1 Service Output Priorities Lowest Total Cost/ Pre-Sales Info Segment Responsive Support/ Post- Sales Segment Full-Service Relationship Segment References and Credentials Segment References and credentials 5 4 6 25 Financial stability and longevity 4 4 5 16 Product demonstrations and trials 11 10 8 20 Proactive advice and consulting 10 9 8 10 Responsive assistance during decision process 14 9 10 6 One-stop solution 4 1 18 3 Lowest price 32 8 8 6 Installation and training support 10 15 12 10 Responsive problem solving after sale 8 29 10 3 Ongoing relationship with a supplier 1 11 15 1 Total 100 100 100 100 Percentage of Respondents 16% 13% 61% 10%
- 15. FIGURE 10.2 IDENTIFYING SERVICE OUTPUT SEGMENTS Step 1: Identify Segments Being Served Step 2: Establish Service Output Demand for Each Segment Step 3: Look for Patterns Allocate points across outputs by segment; define High, Medium, and Low demand segments Identify which segments value a particular output over all others
- 16. Information Classification: General EXAMPLE: KIRANA STORES IN INDIA THERE ARE AN ESTIMATED 10-12 MILLION KIRANA STORES IN INDIA. THESE NEIGHBORHOOD GROCERS ACCOUNT FOR 96 PERCENT OF GROCERY SALES, WHEREAS MODERN, AIR-CONDITIONED SUPERMARKETS HAVE FAILED TO MAKE HEADWAY IN INDIA, FOR SEVERAL REASONS. THE KIRANA STORES HAVE INTIMATE KNOWLEDGE OF THEIR CUSTOMERS AND KNOW HOW TO STOCK ITEMS PREFERRED BY THE INDIVIDUAL HOUSEHOLDS, SOMETIMES BOUGHT REGULARLY ONLY A BY SINGLE FAMILY OR TWO. THEY ARE WILLING TO TAKE ORDERS OVER THE TELEPHONE, THEN DELIVER THE SELECTED ITEMS FOR FREE AND NEARLY IMMEDIATELY. FOR REGULAR CUSTOMERS, THEY OFTEN OFFER CREDIT SERVICES. MANY KIRANA STORES CLUSTER NEAR OTHER STORES THAT OFFER DIFFERENT WARES, SO TOGETHER THEY CREATE A CONVENIENT SHOPPING SITE FOR MULTIPLE ITEMS, EVEN IF IT IS NOT OFFICIALLY ONE-STOP SHOPPING. SHOPPERS DO NOT HAVE TO DRIVE ON INDIA’S NOTORIOUSLY POTHOLED, CONGESTED ROADS, AS THEY WOULD TO ACCESS THE SUPERMARKETS THAT TEND TO BE MORE DISTANT. FURTHERMORE, MANY CONSUMERS PREFER TO SHOP FOR PRODUCE AND DAIRY DAILY OR EVERY FEW DAYS. SUPERMARKETS ARE ALSO STYMIED BY INDIA’S LAWS, WHICH FAVOR THE SMALL KIRANA STORES, AND BY THE HIGH COST OF REAL ESTATE AND AIR CONDITIONING, WHICH MAKE IT CHALLENGING TO OPERATE LARGE SUPERMARKETS COST EFFECTIVELY. IN CONTRAST, KIRANA STORES USE THEIR WHOLESALERS LIKE WAREHOUSE SERVICES AND SEEK TO TURN OVER ALL THEIR MERCHANDISE QUICKLY. THE SUPERMARKET CHAINS HAVE NOT BEEN ABLE TO CHANGE INDIAN SHOPPERS; PREFERENCES; E-COMMERCE ALSO HAS PROVEN DIFFICULT. FINALLY, WITHOUT THE INFLUENCE TO DEMAND BETTER DEALS FROM MANUFACTURERS, INDIAN SUPERMARKET CHAINS CANNOT PASS ON DEEP SAVINGS TO END-CUSTOMERS, WHICH IS OFTEN THE BASIS OF SUPERMARKETS’ APPEAL IN OTHER NATIONS.
- 17. Information Classification: General SEGMENTING END-USERS BY SERVICE OUTPUT (DATA) • Trade off between price and service inputs • Different segments want more of different service outputs • One channel strategy does not fit all segments • Price not the only consideration
- 18. Information Classification: General TABLE 10.2: SERVICE OUTPUT SEGMENTATION TEMPLATE SERVICE OUTPUT DEMAND Segment Name/ Descriptor Bulk Breaking Spatial Convenience Delivery/Waiting Time Assortment/Variety Customer Service Information Sharing 1 . 2 . 3 . 4 . 5 .
- 19. Information Classification: General OMNI-CHANNELS AND END-USER SEGMENTS • More difficult to track offline interactions than online • Different segments prefer different channels • Phone, email, chat, virtual reality, etc. • Research shopping • When one channel is used only for research, and the purchase is made in another • Customer segmentation could effect channel segmentation, and vice versa • Brand choice effected by brand’s channels • Channels used effected by Brand choice
- 20. Information Classification: General TAKE AWAYS • An end-users decision about where or from whom to purchase a product (or service) depends not just on what the end-user is buying but also on how the end-user wants to buy. • The elements that describe how the product or service can be bought are called service outputs. Formally, service outputs are the productive outputs of the marketing channel, over which end-users exert demand and preference influences. • A general list of service outputs, customizable to particular marketplace contexts, is: • Bulk breaking • Spatial convenience • Waiting time (or quick delivery) • Variety and assortment Customer service • Information sharing • End-users make trade-offs among different combinations of (a) products attributes, (b) price, and ( c ) service outputs offered by different sellers to make final purchase decisions.
- 21. Information Classification: General TAKE AWAYS • Segmenting the market by service output demands is a useful tool for channel design, because the resulting groups of end-users are similar (within each group) in terms of the channel that best serves their needs. • The ultimate purpose of a service output-based end-user analysis and design is to identify and assess end-user segments, target a subset of the segments identified, and customize the marketing channel system solution used to sell each targeted segment. • Omni-channel strategies and new technologies influence and shape end-user segments.
Editor's Notes
- A channel strategy must make buying easier, more convenient, efficient and cost effective for the end user in order to exist or remain viable. This involves analyzing not only what the end user needs, but how they need it. Things that reduce the before mentioned costs while addressing how the end user wants their product are service outputs. Examples include reducing search efforts, waiting time or need storage. End users can be segmented by the service outputs they want. An example is how some end users, such as a corporation purchasing technology, may purchase products directly from the manufacturer with a special service bundle. Ways omni-channels can be involved in delivering service outputs include providing the opportunity to order items online and allowing end users to research specifications before placing orders. Remember, these service outputs must address the end consumers needs.
- There are 6 main categories of service outputs: bulk breaking, spatial convenience, waiting for delivery time, product variety, customer service, and information sharing. Bulk breaking allows the end user to purchase the product in smaller units when normally it would be produced in larger batches. This reduces the need for storage on the part of the end user and because of that the end of user often pays more for product bundles that have been broken down. Spatial convenience is the convenience of end users not having to travel to obtain products the way they want them, and as such it reduces transportation costs. This could include delivery services, or the pick up of products needing repairs.
- Delivery time is how long the end user has to wait to receive their products. Reducing this usually results in the end user paying more for the convenience of fast delivery times. Moreover, longer delivery times are expected for original equipment than for post-sales equipment. A hospital might be more willing to pay more for repairs on medical equipment than for the original purchase of medical equipment, which is easier to plan for. Similarly, airline seat’s prices rise as the date of departure approaches.
- Product variety consists of Variety and assortment. Variety is the number of product lines offered, while assortment is the amount of different brands and models in those product lines. Greater variety will typically yield greater profits, however, variety is not enough on its own. The products offered must also match the end-user. A good example of a business that failed to recognize this is JCPenney, who began targeting a younger market than was appropriate for their business and changed their products accordingly. Meanwhile, Hot Topic has earned a reputation for appealing to their market, teenage girls, through an assortment of trending styles that they obtain and sell quickly enough to ride fads.
- Customer service is all of the aspects that ese the shopping and purchasing process for end-users from commercial suppliers or retailers. Typically, better customer service results in more profits. A notorious example of this done wrong is the cable industry, which has statistically been shown to have some of the worst reviews for customer service. DirecTV is the exception, because although they outsource their customer service like the other companies, they also station employees at those locations to monitor quality. Finally, customer service must be tailored for the end-user. Cabela's, for example, creates an out-doorsey ambience to distract men from experiencing shopping and carrying deep, quality assortments with nearby experts to help select the best gear.
- Information sharing is educating end-users about products and providing services before and after the sale. This is common in the computer industry where end-users conduct much research into the specs of computer products, as well as periphery addons, and require help when malfunctions occur. Another name for information sharing is ‘solutions retailing’. Home Depot and HP/Microsoft both provide information sharing services in a way that is expressed well with this other term, providing actual classes on how to use their products in physical locations, DIY classes at home depot, and ‘experience centers’ at select stores respectfully. Finally, it should be noted that price itself is not a service output. It is just the cost of the service outputs and the product itself.
- Groups of end-users can be segmented based on what service outputs they want. For example, when Alber Karoll, who sells fine men’s clothes, visits price-insensitive, carefully accepted customers at their homes to provide the most convenient service possible, he is recognizing that his clientele are part of a very specific market segment that wants service outputs regardless of price. Creating these segments can be broken down into three basic steps: generating a list of service outputs wanted, dividing them into segments, and naming those segments. First, generating a list could be done by having qualitative focus groups or conducting explorative interviews. Second, segments must actually be created. This can be done through dividing segments based on common product or advertising decisions, or based on research aimed at finding common patterns in end-users behavior. The second method is preferred since the factors relevant in product and advertising decisions rarely correlate with the service outputs those end-users want. Finally, the segments must be named to help facilitate internal communication and organizational alignment.
- Data shows that there is a clear trade off between price and service outputs wanted, but that price is not the only factor with different end-user groups wanting different amounts of service outputs. As such, there is no one-size-fits-all channeling strategy.
- Besides it being difficult to track offline interactions as opposed to online ones, these segments present challenges in that end-users in different segments prefer different channels, thus complicating the distribution process. Moreover, some do what is called, ‘research shopping’, where they utilize one channel for research and another to purchase product. One final note, although the beginning of this chapter clearly articulated the difference between customer and channel segmentation, these could effect one another. That is, a customer might only choose brands that use the channels they prefer, or a dedicated customer of one brand may use different channels should one fail in order to still purchase from the same brand.