1. PowerPoint Slides to Accompany Marketing Channels, 7th Edition
Anne T. Coughlan, Northwestern University
Erin Anderson, INSEAD
Louis W. Stern, Northwestern University
Adel I. El-Ansary, University of North Florida

2. Chapter 1 Marketing Channels: Structure and Functions

3. Selling Through One Wholesaler Selling Through Two Wholesalers
 FIGURE 1-1: CONTACT COSTS TO REACH THE MARKET WITH AND WITHOUT INTERMEDIARIES
Selling Directly
Manufacturers
Retailers
40 Contact Lines
Selling Through One Wholesaler
Manufacturers
Wholesaler
Retailers
14 Contact Lines
Selling Through Two Wholesalers
Manufacturers
Wholesalers
Retailers
28 Contact Lines

4. FIGURE 1.2: MARKETING FLOWS IN CHANNELS
Physical Physical Physical
Possession Possession Possession Ownership Ownership Ownership
Promotion Promotion Promotion
Negotiation Negotiation Negotiation Consumers
Producers Wholesalers Retailers Industrial
Financing Financing Financing and
Household
Risking Risking Risking
Ordering Ordering Ordering
Payment Payment Payment
Commercial Channel Subsystem

5. Channel Design Process:
 FIGURE 1-3: FRAMEWORK FOR CHANNEL DESIGN AND IMPLEMENTATION
Channel Design Process:
SEGMENTATION:
Recognize and respond to target customers’
service output demands
Decisions About
Efficient Channel Response:
CHANNEL STRUCTURE:
What kinds of intermediaries are in my channel?
Who are they?
How many of them?
SPLITTING THE WORKLOAD:
With what responsibilities?
DEGREE OF COMMITMENT:
Distribution alliance?
Vertical integration/ownership?
GAP ANALYSIS:
What do I have to change?
Channel Implementation Process:
CHANNEL POWER:
Identify sources for all channel members
CHANNEL CONFLICT:
Identify actual and potential sources
MANAGE/DEFUSE CONFLICT:
Use power sources strategically, subject to legal constraints
GOAL:
Channel Coordination
INSIGHTS FOR SPECIFIC CHANNEL INSTITUTIONS:
Retailing, Wholesaling and Logistics, Franchising

6. TABLE 1-1: SERVICE OUTPUT DEMAND DIFFERENCES
(an example of segmentation in the book-buying market)
Browser buying best-sellers to take on vacation
Student buying textbooks for fall semester at college
Descriptor
Service Output Demand Level
Bulk-breaking
“I’m looking for some ‘good read’ paperbacks to enjoy.”
Medium
“I only need one copy of my Marketing textbook!”
High
Spatial convenience
“I have lots of errands to run before leaving town, so I’ll be going past several bookstores.”
“I don’t have a car, so I can’t travel far to buy.”
Waiting and delivery time
“I’m not worried about getting the books now… I can even pick up a few when I’m out of town if need be.”
Low
“I just got to campus, but classes are starting tomorrow and I’ll need my books by then.”
Assortment and variety
“I want the best choice available, so that I can pick what looks good.”
“I’m just buying what’s on my course reading list.”
Customer service
“I like to stop for a coffee when book browsing.”
“I can find books myself, and don’t need any special help.”
Information provision
“I value the opinions of a well-read bookstore employee; I can’t always tell a good book from a bad one before I buy.”
“My professors have already decided what I’ll read this semester.”

7. FIGURE 1-4: ORGANIZATION OF THE TEXT
Channel Design
Process:
SEGMENTATION: Chapter 2 
Decisions About
Efficient Channel Response:
CHANNEL STRUCTURE:
Chapter 4
SPLITTING THE WORKLOAD:
Chapter 3
DEGREE OF COMMITMENT:
Chapters 8, 9
GAP ANALYSIS:
Chapter 5
Channel Implementation
CHANNEL CONFLICT:
Chapter 7
MANAGE/DEFUSE CONFLICT:
Chapters 6, 7, 8, 9, 10
GOAL:
Channel Coordination
CHANNEL POWER:
Chapter 6
INSIGHTS FOR SPECIFIC CHANNEL INSTITUTIONS:
Chapters 11, 12, 13

8. Chapter 2 Segmentation for Marketing Channel Design: Service Outputs

9. TABLE 2-1: ESTIMATED NUMBER OF U. S
TABLE 2-1: ESTIMATED NUMBER OF U.S. CONSUMERS USING ONLINE BILL PAYMENT, VARIOUS YEARS
YEAR
# U.S. CONSUMERS PAYING AT LEAST 1 BILL ONLINE (millions, est.)
% OF U.S. POPULATION (est.)
1998
3.4
1.3% …
2001
20.4
7.3%
2002
25.5
9.1%
2003 35
12.5%
2004 65
23%
Notes:
1998: in 1998, just 2% of U.S. households used online bill payment, according to Tower Group (Bielski 2003). From U.S. Census data, in 1998, there were 100 million households in the U.S., with an average of 1.7 adults per household; thus, 2 million households or 3.4 million adults were using online bill payment in 1998.
2001: A Forrester Research report said that nearly 17 million U.S. households will pay bills online in 2002, up 41 percent from 2001 numbers (Higgins 2002). Thus, in 2001, 12 million U.S. households paid bills online. From U.S. Census data, there were 108 million households in the U.S., with an average of 2.58 adults per household; thus, there were 20.4 million adults using online bill payment in 2001.
2002: The same Forrester Research report said that nearly 17 million U.S. households will pay bills online in 2002 (Higgins 2002), while a Tower Group report said that 13.7% of U.S. households did pay bills online in 2002 (Bielski 2003). The table therefore reports the numbers from Bielski. There were 109 million households in the U.S. in 2002; thus, 15 million households paid bills online. Further, there were an average of 2.58 adults per household in the U.S. in 2002 (from U.S. Census data), yielding the estimate of 25.5 million adult online bill payers in 2002.
2003 and 2004: A Gartner study cites 65 million U.S. consumers paying at least some bills online, and reports this is almost twice as many as in 2003 (Park, Elgin et al. 2004). We therefore estimate that 35 million U.S. consumers paid bills online in 2003.

10. TABLE 2-2: ONLINE BILL PAYMENT: THE CONSUMER EXPERIENCE
OPTION:
Paper Bill Payment
Direct Biller Online Pay
Third-Party Online Bill Payer (e.g. bank, Quicken)
SET-UP PROCESS:
None
Consumer logs on to biller’s website;
Enters information about account, name, bank account fr/which payment will be made, etc.;
Picks a password, specific to this website, to gain access in future;
Activation usually occurs within 24 hours
Consumer logs on to third-party website;
Enters information about each account individually;
Picks a password, specific to this site but common across all bills paid at this site, to gain access in future
BILL PRESENT-MENT TO CONSUMER:
Consumer receives bill through U.S. mail in envelope containing summary of bill charges & due date, payment stub, & payment envelope
Either through U.S. mail (see paper bill) or electronic bill presentment through alert; both note payment due date
Arrival of electronic bill noted through alert;
Third party may/may not offer actual bill presentment
CONSUMER BILL REVIEW AND PAYMENT AUTHOR-IZATION:
Consumer reconciles bill with paper receipts; fills out payment stub; writes paper check; inserts check and stub in envelope; puts U.S. first-class stamp on envelope; mails payment
Consumer reconciles bill with receipts;
Visits biller website’s payment page;
Enters amount and date of payment;
[website indicates how fast payment will be made]
Consumer visits third party’s website to view bill (if no presentment by third party) and reconcile;
Enters amount and date of payment (may need up to 5 days to clear payment)
CONFIRMA-TION OF PAYMENT TO CONSUMER:
Only when next bill is received does consumer learn if previous payment was received in time (unless consumer telephones biller)
Typically, confirmation of payment receipt the day payment is recorded
Typically, confirmation that payment was made
COST TO CONSUMER:
Cost of first-class stamp;
No cost to learn system;
Cost of time to process bill & write check;
Cost of paper check;
Risk-adjusted cost of late payment (perceived very low)
No monthly fee for payment processing
No stamp;
Initial learning time, for each biller’s system;
Cost of time to check bill’s accuracy;
No check writing or cost;
Risk-adjusted cost of late payment (perceived low);
Initial learning time, once for whole system;
Risk-adjusted cost of late payments (moderate: up to 5 days to clear payment)
May be a monthly fee (e.g., Quicken: $9.95/month for up to 20 bills, plus $2.49 per 5 bills thereafter; but many banks now do not charge for service);
May be low cost to integrate with home financial records (e.g., Quicken financial software program)

11. TABLE 2-3: BUSINESS-TO-BUSINESS CHANNEL SEGMENTS FOR A NEW HIGH-TECHNOLOGY PRODUCT
Respondents allocated 100 points among the following supplier-provided service outputs according to their importance to their company:
= Additional Important Attributes
= Greatest Discriminating Attributes
Possible 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 16
Product Demonstrations & Trials 11 10 8 20
Proactive Advice & Consulting 9
Responsive Assistance During Decision Process 14
One-Stop Solution 1 18 3
Lowest Price 32
Installation and Training Support 15 12
Responsive Problem Solving After Sale 29
Ongoing Relationship with a Supplier
Total
100
% Respondents
16%
13%
61%
10%
Source: Reprinted with permission of Rick Wilson, Chicago Strategy Associates, 2000.

12. (New High Technology Product) - Install, Training & Service Group
FIGURE 2-1: IDEAL CHANNEL SYSTEM FOR BUSINESS-TO-BUSINESS SEGMENTS BUYING A NEW HIGH-TECHNOLOGY PRODUCT
Manufacturer
(New High Technology Product)
VARs
Associations,
Events,
Awareness
Efforts
Third-Party Supply
Out-source
Pre-Sales
Dealers
TeleSales/
TeleMktg
Sales
Internal Support
- Install, Training & Service Group
Post-Sales
Full-Service
Responsive
Support
References/
Credentials
Lowest
Total
Cost
Segment
Source: Reprinted with permission of Rick Wilson, Chicago Strategy Associates, 2000.

13. TABLE 2-4: SHIPPING CHARGES FOR $150 PURCHASE OF SHIRTS FROM LAND’S END
Buyer’s Location
Shipping Method
Shipping Charge
Time to Delivery
United States
Standard UPS
$11.95
3 to 5 business days
Mexico
Surface Mail
$20.00
8 to 12 weeks
Priority Air
$30.00
2 to 4 weeks
UPS
$50.00
1 to 2 weeks
Source: website.

14. FIGURE 2-2: ADVERTISING COPY FOR AN AD FOR BN.COM
FIGURE 2-2: ADVERTISING COPY FOR AN AD FOR BN.COM
Advertising Copy
Service Output Offered
“Really free shipping”: offers free shipping if 2 or more items are purchased. “We make it easy and simple.”
Customer service
“Fast & easy returns”: end-user can return unwanted books to a bricks-and-mortar Barnes & Noble bookstore. “Just try and return something to a store that isn’t there.”
Quick delivery (for returns), spatial convenience; note implicit comparison with amazon.com, the pure-play online bookseller
“Books not bait”: promises no additional sales pitches to buy non-book products.
Assortment/variety: just books (targeting the book lover). Again, note implicit comparison with amazon.com.
“Same day delivery in Manhattan”: delivery by 7:00 p.m. on any item(s) ordered by 11:00 a.m. that day. “No other online bookseller offers that.”
Quick delivery: the offer is possible because of Barnes & Noble’s warehouses in New Jersey, near Manhattan. Note direct comparison with other online booksellers (notably, amazon.com)
“The gift card that gives more”: can be used either online or in the bricks-and-mortar bookstores, nationwide.
Spatial convenience, assortment/variety: when buying a gift for a friend, this provides virtually limitless assortment, and does so anywhere the recipient lives in the United States.
“bn.com – 1,000,000 titles; amazon.com – 375,000 titles”
Assortment/variety: direct comparison with amazon.com, offering a broader assortment of titles to the consumer
Source: advertisement for bn.com in Wall Street Journal, November 20, 2002, p. A11.

15. TABLE 2-5: THE SERVICE OUTPUT DEMANDS (SOD) TEMPLATE
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.

16. Chapter 3 Supply Side Channel Analysis: Channel Flows and Efficiency Analysis

17. FIGURE 3-1: MARKETING FLOWS IN CHANNELS
Physical Physical Physical
Possession Possession Possession Ownership Ownership Ownership
Promotion Promotion Promotion
Negotiation Negotiation Negotiation Consumers
Producers Wholesalers Retailers Industrial
Financing Financing Financing and
Household
Risking Risking Risking
Ordering Ordering Ordering
Payment Payment Payment
Commercial Channel Subsystem
FIGURE 3-1: MARKETING FLOWS IN CHANNELS
The arrows above show flows of activity in the channel (e.g. physical possession flows from producers to wholesalers to retailers to consumers). Each flow carries a cost. Some examples of costs of various flows are given below:
Marketing Flow
Cost Represented
Physical possession
Storage and delivery costs
Ownership
Inventory carrying costs
Promotion
Personal selling, advertising, sales promotion, publicity, public relations costs, trade show costs
Negotiation
Time and legal costs
Financing
Credit terms, terms and conditions of sale
Risking
Price guarantees, returns allowances, warranties, insurance, repair, and after-sale service costs
Ordering
Order-processing costs
Payment
Collections, bad debt costs

18. TABLE 3-1: CDW’S PARTICIPATION IN VARIOUS CHANNEL FLOWS
CDW’s Investment in Flow
Physical possession
(a) CDW has a 400,000 sq. ft. warehouse.
(b) CDW ships 99 percent of orders the day they are received.
(c) For CDW’s gov’t buyers, CDW has instituted an “asset tagging” system that lets buyer track what product is going where; product is scanned into both buyer and CDW databases, for later ease in tracking products (e.g. for service calls)
(d) CDW buys product in large volumes from mfgrs., taking in approximately eight trailer-loads of product from various suppliers every day. Loads are received in bulk, with few added services.
Promotion
(a) CDW devotes a salesperson to every account (even small, new ones!), so that an end-user can talk to a real person about technology needs, system configurations, post-sale service, etc.
(b) Salespeople go through 6½ weeks of basic training, then 6 months of on-the-job coaching, then a year of monthly training sessions.
(c) New hires are assigned to small-business accounts to get more opportunities to close sales.
(d) Salespeople contact clients not through in-person sales calls (too expensive), but through phone/ .
(e) CDW has longer-tenured salespeople than its competitors.
Negotiation
(a) CDW-G started a small-business consortium in 2003 to help small firms compete more effectively for federal IT contracts. What CDW-G gives the small biz partner: lower prices on computers than they could otherwise get; business leads; and access to CDW’s help desk and product tools; CDW also handles shipping and billing, reducing the small biz partner’s channel flow burden. What the small biz partner provides: access to contracts CDW could not otherwise get.
Financing
(a) CDW collects receivables in just 32 days;
CDW turns its inventories 2x per month;
CDW has no debt.
Risking
(a) “We’re a kind of chief technical officer for many smaller firms”:
(b) In April 2004, CDW was authorized as a Cisco Systems Premier (CSP) partner, in serving the commercial customer market.

19. TABLE 3-2: PRODUCT RETURNS: A LARGE-SCALE PROBLEM
The value of returned goods is close to $ billion annually in the U.S.
Web returns alone had value between $1.8 and $2.5 billion in 2002
Estimates are that the cost of processing those Web returns is twice as high as the merchandise value itself!
U.S. companies are estimated to spend $35 billion to more than $40 billion per year on reverse logistics
The average company takes days to move a returned product back into the market
The estimated number of packages returned in 2004 is 500 million
Furthermore, returns are very significant in many industries. In a survey of over 300 reverse logistics managers in 1998, researchers found the following ranges for return percentages:
TABLE 3-3: PRODUCT RETURNS: PERCENTAGE RANGES
Industry
Return % Ranges
Magazine Publishing
50%
Catalog Retailers
18-35%
Book Publishers
20-30%
Greeting Cards
CD-ROMs
18-25%
Computer Manufacturers
10-20%
Book Distributors
Mass Merchandisers
4-15%
Electronic Distributors
10-12%
Printers
4-8%
Auto Industry (Parts)
4-6%
Consumer Electronics
4-5%
Mail Order Computer Manufacturers
2-5%
Household Chemicals
2-3%

20. TABLE 3-4: DIFFERENCES BETWEEN FORWARD AND REVERSE LOGISTICS
Factor
Difference Between Forward and Reverse Logistics
Volume forecasting
More difficult for returns than for original sales of new product
Transportation
Forward: ship in bulk (many of one SKU), with economies of scale. Reverse: ship many disparate SKUs in one pallet, no economies of scale.
Product quality
Forward: uniform product quality. Reverse: variable product quality, requiring costly evaluation of every returned unit.
Product packaging
Forward: uniform packaging. Reverse: packaging varies with some like-new, some damaged – no economies of scale in handling.
Ultimate destination
Forward: clear destination – to retailer or industrial distributor. Reverse: many options for ultimate disposition of product, necessitating separate decisions.
Accounting cost transparency
Forward: high. Reverse: low, because activities are not consistently tracked on a unified basis.

21. FIGURE 3-2: POSSIBLE PATHWAYS FOR RETURNED PRODUCT
Key: solid lines denote product to be salvaged for subsequent revenue. Dotted lines denote non-revenue-producing product flows.

22. FIGURE 3-3: THE EFFICIENCY TEMPLATE
WEIGHTS FOR FLOWS:
PROPORTIONAL FLOW PERFORMANCE OF
CHANNEL MEMBER:
COSTS*
BENEFIT POTENTIAL (High, Medium, or Low)
FINAL WEIGHT* 1 2 3 4
(end-user)
TOTAL
PHYSICAL POSSESSION**
100
OWNERSHIP
PROMOTION
NEGOTIATION
FINANCING
RISKING
ORDERING
PAYMENT
N/A
NORMATIVE PROFIT SHARE***
* Entries in column must add up to 100 points.
** Entries across row (sum of proportional flow performance of channel members 1 through 4) for each channel member must add up to 100 points.
*** Normative profit share of channel member i is calculated as: (final weight, physical possession)*(channel member i's proportional flow performance of physical possession) + … + (final weight, payment)*(channel member i's proportional flow performance of payment). Entries across row (sum of normative profit shares for channel members 1 through 4) must add up to 100 points.

23. FIGURE 3-4: THE BULLWHIP EFFECT
Consumption
Customer
Retailers
Wholesalers
Manufacturers
Suppliers
Source: Based on the lecture notes of Enver Yücesan at INSEAD.

24. TABLE 3.APP3A-1 BUILDING MATERIALS COMPANY EFFICIENCY TEMPLATE FOR CHANNEL SERVING END-USERS THROUGH RETAILIERS: UNDISGUISED DATA
WEIGHTS FOR FLOWS:
PROPORTIONAL FLOW PERFORMANCE OF
CHANNEL MEMBER:
COSTS
BENEFIT POTENTIAL (High, Medium, or Low)
FINAL WEIGHT
Mfgr.
Retailer
End-user
TOTAL
PHYSICAL POSSESSION 30
High 35 40
100
OWNERSHIP 12
Medium 15
PROMOTION 10
Low 8 20 80
NEGOTIATION 5
Low/Medium 4 60
FINANCING 25 29
RISKING 2 50
ORDERING 6 3
PAYMENT 7
N/A
NORMATIVE PROFIT SHARE
28%
39%
33%

25. TABLE 3.APP3A-2 BUILDING MATERIALS COMPANY EFFICIENCY TEMPLATE FOR CHANNEL SERVING END-USERS THROUGH RETAILERS: RANK-ORDER DATA
WEIGHTS FOR FLOWS:
PROPORTIONAL FLOW PERFORMANCE OF
CHANNEL MEMBER:
COSTS
BENEFIT POTENTIAL (High, Medium, or Low)
FINAL WEIGHT
Mfgr.
Retailer
End-user
TOTAL
PHYSICAL POSSESSION 30
High 35 2
100
OWNERSHIP 12
Medium 15
PROMOTION 10
Low 8 1 3
NEGOTIATION 5
Low/Medium 4
FINANCING 25 29
RISKING
ORDERING 6
PAYMENT 7
N/A
NORMATIVE PROFIT SHARE ?

26. TABLE 3.APP3A-3 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:
COSTS
BENEFIT POTENTIAL (High, Medium, or Low)
FINAL WEIGHT
Mfgr.
Retailer
End-user
TOTAL
PHYSICAL POSSESSION 30
High 35 33
100
OWNERSHIP 12
Medium 15
PROMOTION 10
Low 8 25 75
NEGOTIATION 5
Low/Medium 4 50
FINANCING 29
RISKING 2 40 20
ORDERING 6 3
PAYMENT 7
N/A
NORMATIVE PROFIT SHARE
32%
38%
29%

27. Chapter 4 Supply-Side Channel Analysis: Channel Structure and Intensity Learning Objectives

28. FIGURE 4- 1: SAMPLE REPRESENTATIONS OF THE COVERAGE/MARKET SHARE RELATIONSHIP FOR FAST MOVING CONSUMER GOODS
Based on Reibstein, David J., and Paul W. Farris (1995), "Market Share and Distribution: A Generalization, A Speculation, and Some Implications," Marketing Science, 14 (3), G190-G202.

29. FIGURE 4- 2: : SELECTIVE COVERAGE--THE MANUFACTURER’S CONSIDERATIONS

30. FIGURE 4- 3: CATEGORY SELECTIVITY: THE DOWNSTREAM CHANNEL MEMBER’S CONSIDERATIONS

31. Chapter 5 Gap Analysis

32. FIGURE 5-1: THE GAP ANALYSIS FRAMEWORK
SOURCES OF GAPS
Environmental Bounds:
Local legal constraints
Local physical, retailing infrastructure
Managerial Bounds:
Constraint due to lack of knowledge
Constraint due to optimization at a higher level
TYPES OF GAPS
Demand-Side Gaps:
SOS < SOD
SOS > SOD
Which service outputs?
Supply-Side Gaps:
Flow cost is too high
Which flow(s)?
CLOSING GAPS
Offer tiered service levels
Expand/contract provision of service outputs
Change segment(s) targeted
Change flow responsibilities of current channel members
Invest in new low-cost distribution technologies
Bring in new channel members

33. FIGURE 5-2: ONLINE BILLING AND PAYMENT: GAP ANALYSIS
BOUNDS
GAPS
CLOSING THE GAPS
Environmental:
Technology infrastructure:
takes time to fully develop
initially endowed benefits more on billers than on payers
is not universally available
is characterized by high fixed set-up costs, but low marginal implementation costs and thus is not attractive unless significant scale is achieved
Demand-side:
Assortment/variety (one-stop bill payment site not available)
Waiting time too long (some e-bills took 5 days to pay)
Information provision poor (thus e-bill payment viewed as risky)
Supply-side:
Clear lowering of many channel flow costs
But consumer (as a channel member) bears more perceived risk, with no compensating price cut
Cost cuts initially much more available to biller than to payer (asymmetric cost efficiencies that hamper adoption)
Relax environmental bounds:
Build software applications to generate back-office benefits for B2B players
Presentment technology eventually developed to improve assortment/variety for consumer payers
Increase promotional efforts  generate information for consumers
Add new specialist channel members
New specialists develop new technology to provide integrated benefits to consumers and B2B payers

34. FIGURE 5-3: ONLINE BILLING AND PAYMENT: A VIRTUOUS CYCLE
Note: the B2B process exhibits a similar path, with the added inducement to payers of the development of technologies to integrate bill payment information with back-office (accounts payable, inventory management, and ordering) processes.

35. FIGURE 5-4: APPLYING THE GAP ANALYSIS FRAMEWORK TO REVERSE LOGISTICS
Sources of Gaps:
Environmental Bounds:
Managerial Bounds:
Infrastructure for managing returns is not as well developed as for forward logistics.
Many manufacturers lack information about scope of problem and how much money they are losing by not managing it better. 
Types of Gaps:
Demand-Side Gaps:
Supply-Side Gaps:
Customer service: end-users may be dissatisfied when charged a restocking fee, as many are not widely publicized.
Quick delivery: end-users fail to get their desired product quickly when they have to return it for exchange or refund.
Physical possession, ownership, and financing: returned product held in the system for days before returning to the market for resale adds to all of these costs.
Promotion: when returned product is sent to a liquidator, it is likely to end up in a channel competitive to the new-goods market, creating brand confusion and promotional inefficiency.
Risking: uncertainty on both the supply (demand forecasting) and demand (what product is right for me?) sides
Payment: returns trigger multiple new payment flows, to end-user (who returns product), to retailer (who gets money back from original invoice paid to manufacturer), and to third-party disposal or logistics firms.
Closing Gaps:
Efforts to minimize returns improve on quick delivery.
Effective third-party logistics specialists not only handle returned product faster, but also repackage and re-kit it to sell through non-competing new channels.

36. FIGURE 5-5: PATH FOLLOWED BY A COPY OF “THE PERRICONE PROMISE”
1,4
2,7
3,6 5
KEY:
1,4: Lebanon, Indiana
2,7: Marina del Rey, California
3,6: Jamesburg, New Jersey
5: Bridgewater, Massachusetts
TOTAL DISTANCE: 9,600 MILES

37. TABLE 5-1: U.S. RETAIL MUSIC SALES, 1999-2003
Year
Sales in $billion
1999
$14.6
2000
$14.3
2001
$13.7
2002
$12.8
2003
$11.8

38. TABLE 5-2: AVERAGE RETAIL CD PRICES IN THE U.S.
Time Period
Average Price
2002 (Q1)
$13.90
2002 (Q2)
2002 (Q3)
$13.60
2002 (Q4)
2003 (Q1)
$13.80
2003 (Q2)
$13.70
2003 (Q3)
$13.50
2003 (Q4)
$13.55
2004 (Q1)
$13.25
TABLE 5-3: SHARE OF ALBUMS SOLD BY CHANNEL, 2002
Channel
Share of Albums Sold
Music chain stores
51.0%
Mass merchants
33.8%
Independents
11.9%
Other
3.3%
Notes: million albums were sold in total in Mass merchant channel includes Best Buy, Kmart, Wal-Mart, Costco, and Target.

39. FIGURE 5-6: TYPES OF GAPS

40. FIGURE 5-7: CHANNEL COSTS AND THE PRINCIPLE OF POSTPONEMENT-SPECULATION
Source: Adapted from Louis P. Bucklin, A Theory of Distribution Channel Structure (Berkeley, CA: IBER Publications, University of California, 1966), pp

41. FIGURE 5-8: DEMAND-SIDE GAP ANALYSIS TEMPLATE
SERVICE OUTPUT LEVEL DEMANDED (SOD) VERSUS SERVICE OUTPUT LEVEL SUPPLIED (SOS)
SEGMENT NAME/ DESCRIPTOR
BULK BREAKING
SPATIAL CONVENIENCE
DELIVERY/ WAITING TIME
ASSORTMENT/ VARIETY
CUSTOMER SERVICE
INFORMATION PROVISION
MAJOR CHANNEL FOR THIS SEGMENT 1. 2. 3. 4. 5.
Notes and directions for using this template:
Enter names and/or descriptions for each segment.
Enter whether SOS>SOD, SOS<SOD, or SOS=SOD for each service output and each segment. Add footnotes to explain entries if necessary. If known and relevant, footnote can record any supply-side gaps that lead to each demand-side gap.
Record major channel used by each segment, i.e., how does this segment of buyers choose to buy?

42. FIGURE 5-9: SUPPLY-SIDE GAP ANALYSIS TEMPLATE (to be used in conjunction with Demand-Side Gap Analysis Template, Figure 5-8)
CHANNEL
[targeting which segment(s)?]
CHANNEL MEMBERS AND FLOWS THEY PERFORM
ENVIRONMENTAL/ MANAGERIAL BOUNDS
SUPPLY-SIDE GAPS
[affecting which flow(s)?]
PLANNED TECHNIQUES FOR CLOSING GAPS
DO/DID ACTIONS CREATE OTHER GAPS? 1. 2. 3. 4. 5.
Notes:
Record routes to market in the channel system. List should include all channels recorded in Figure 5-4 above. Note the segment or segments targeted through each channel.
Summarize channel members and key flows they perform (ideally, link this to the Efficiency Template analysis in Chapter 3).
Note any environmental or managerial bounds facing this channel.
Note all supply-side gaps in this channel, by flow or flows affected.
If known, record techniques currently in use or planned for use to close gaps (or note that no action is planned, and why).
Analyze whether proposed/actual actions have created or will create other gaps.

43. FIGURE 5-10: DEMAND-SIDE GAP ANALYSIS TEMPLATE: CDW EXAMPLE
SERVICE OUTPUT LEVEL DEMANDED (SOD: L/M/H) VERSUS
SERVICE OUTPUT LEVEL SUPPLIED BY CDW (SOS)
SEGMENT NAME/ DESCRIPTOR
BULK BREAKING
SPATIAL CONVENIENCE
DELIVERY/ WAITING TIME
ASST/ VARIETY
CUSTOMER SERVICE
INFORMATION PROVISION
MAJOR CHANNEL FOR THIS SEGMENT
1. Small business buyer
H (SOS=SOD)
Original equipment: M
(SOS=SOD)
Post-sale service: H (SOS=SOD)
(SOS>SOD)
M (SOS>SOD)
H (both pre-sale and post-sale)
Value-added reseller like CDW, or retailer
2. Large business buyer
L (SOS>SOD)
Original equipment: H (SOS=SOD)
Post-sale service: L (SOS>SOD)
Original equipment: M (SOS>SOD)
M/H (SOS=SOD)
Manufacturer direct, or large reseller like CDW
3. Gov’t/ education
Original equipment: H
Post-sale service: M (SOS>SOD)
M/H
Manufacturer direct, or reseller; 23 percent from small business (VARs)

44. FIGURE 5-11: SUPPLY-SIDE GAP ANALYSIS TEMPLATE: CDW EXAMPLE (to be used in conjunction with Demand-Side Gap Analysis Template, Figure 5-10)
CHANNEL
[targeting which segment(s)?]
CHANNEL MEMBERS AND FLOWS THEY PERFORM*
ENVIRONMENTAL (E) / MANAGERIAL (M) BOUNDS
SUPPLY-SIDE GAPS
[affecting which flow(s)?]
PLANNED TECHNIQUES FOR CLOSING GAPS
DO/DID ACTIONS CREATE OTHER GAPS?
1. CDW direct to buyer ( small business buyer)
Manufacturer;
CDW;
Sm. Bus. Buyer
(M): no screening of recruits for expected longevity with firm
Promotion [sales force training/turnover]
Better screening of new recruits No
Buying from CDW closes gaps for customer in Risking
2. CDW direct to buyer ( large business buyer, government)
CDW, CDW-G;
Lg. Bus. Buyer or Government Buyer
(E): government requires 23 percent of purchases from small vendors
Negotiation [cannot close 23% of deals with government]
Better screening of new recruits;
Rely on consortium channel structure (below)
3. CDW + small business VAR consortium member ( government)
CDW-G;
Small VAR;
consortium partner
Government Buyer
(E): government requires 23 percent of purchases from small vendors;
(M): VAR’s small business size
Promotion [sales force training/turnover];
(Negotiation: only a gap for a small VAR not in the CDW alliance)
Negotiation gap above is closed through consortium with small VARs
Note: all channel members perform all flows to some extent. Key channel flows of interest are promotion, negotiation, and risking.

45. Chapter 8 Strategic Alliances in Distribution

46. FIGURE 8-1: SYMPTOMS OF COMMITMENT IN MARKETING CHANNELS
A committed party to a relationship (a manufacturer, a distributor, or another channel member) views its arrangement as a long-term alliance. Some manifestations of this outlook show up in statements such as these, made by the committed party about its channel partner.
We expect to be doing business with them for a long time.
We defend them when others criticize them.
We spend enough time with their people to work out problems and misunderstandings.
We have a strong sense of loyalty to them.
We are willing to grow the relationship.
We are patient with their mistakes, even those that cause us trouble.
We are willing to make long-term investments in them, and to wait for the payoff to come.
We will dedicate whatever people and resources it takes to grow the business we do with them.
We are not continually looking for another organization as a business partner to replace or add to this one.
If another organization offered us something better, we would not drop this organization, and we would hesitate to take on the new organization.
Clearly, this is not normal operating procedure for two organizations. Commitment is more than having an ongoing cordial relationship. It involves confidence in the future, and a willingness to invest in the partner, at the expense of other opportunities, in order to maintain and grow the business relationship.

47. FIGURE 8-2: MOTIVES TO CREATE AND MAINTAIN STRATEGIC ALLIANCES
IN CHANNELS
Motives to Ally Strategically
The Upstream Channel Member
The Downstream Channel Member
Fundamentals
Motivate downstream channel members to represent them better
In current markets
With current products
In new markets
With new products
Avoid stockouts while keeping costs under control
Lower costs of all flows performed, such as lower inventory holding costs
Generate customer preference
Coordinating marketing efforts more tightly with downstream channel members
Get closer to customers and prospects
Enhance understanding of the market
Coordinating marketing efforts more tightly with upstream channel members
Serve the customer better
Convert prospects into customers
Net effect: higher volume and margins
Preserving choice and flexibility of channel partners
Guaranteeing market access in the face of consolidation in wholesaling
Keep routes to market open
Rebalance power between the producer and surviving channels
Assure a stable supply of desirable products, even as manufacturers consolidate
Selling current products
Opening to new markets
Strategic pre-emption
Erecting barriers to entry to other brands
Induce channels to refuse access
Induce channels to offer low levels of support to entrants
Differentiate themselves from other downstream channel members
Supplier’s preferred outlet
Value-added services, difficult to copy and of high value to their customers
Superordinate Goal
Enduring competitive advantage leading to profit
Reduce accounting and opportunity costs

48. FIGURE 8-3: THE CIRCLE OF COMMITMENT

49. FIGURE 8- 4: PHASES OF RELATIONSHIPS IN MARKETING CHANNELS