2-1

Marketing Channel Strategy

Chapter 2
End-User Analysis: Segmenting and Targeting

Marketing Channel Strategy © 2015 by Pearson Education

 Agenda
2-2

 Understanding the Importance of

Segmentation
 End-User Segmentation Criteria:
Service Outputs
 Segmenting End-Users by Service
Output
 Targeting End-User Segments

Marketing Channel Strategy © 2015 by Pearson Education

 Importance of End-Users
2-3

 Developing a marketing channel strategy must

start with the end-users
 It is the end-user who holds the “power of the
purse”
 We need to know the nature of end-users’
demands
 The most useful insights for channel design are
not about what end-users want to consume but
rather how they want to buy and use the
products or services being purchased

Marketing Channel Strategy © 2015 by Pearson Education

 Importance of Segmentation
2-4

 End-users have varying preferences and

demands for service outputs
 Grouping end-users by their service output
demands help us define potential target market
segments and then design specific marketing
channel solutions for each segment

Service Output: The elements that describe

how the product or service can be bought

Marketing Channel Strategy © 2015 by Pearson Education

 Example of CDW Segmentation
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 Corporate buyers can choose between buying PCs

directly from the manufacturer or through a
corporate supplier, such as CDW (Computer
Discount Warehouse)
 CDW recognized that it is not just a PC being
purchased but rather the products and the ancillary
valued services accompanying them
 Service outputs offered through the CDW channel
create a product + service output bundle
 A key provider of advice and expertise to buyers
 Speed of delivery
 Different customer services options
 Broad assortment and variety
Marketing Channel Strategy © 2015 by Pearson Education
 Example of CDW Segmentation
(Cont.)
2-6

 Faced a strong challenge from Dell Computer,

offering 0 percent financing for the first time,
together with free shipping and rebate programs
 For the buyer that values quick delivery,
assortment, and CDW’s targeted customer
service, they will choose CDW
 CDW’s strategy of focusing on a particular
subset of all computer buyers and providing
valued service outputs to them has made it a
preferred intermediary channel partner to key
manufacturers
Marketing Channel Strategy © 2015 by Pearson Education
 Agenda
2-7

 Understanding the Importance of Segmentation

 End-User Segmentation Criteria: Service
Outputs
 Segmenting End-Users by Service Output
 Targeting End-User Segments

Marketing Channel Strategy © 2015 by Pearson Education

 Criteria: Service Outputs
2-8

 All else being equal (e.g., price, physical product

attributes), end-users prefer a marketing
channel that provides more service outputs
 Six categories:
 Bulk breaking
 Spatial convenience
 Waiting or delivery time
 Product variety
 Customer service
 Information sharing

Marketing Channel Strategy © 2015 by Pearson Education

 Bulk Breaking
2-9

 End-user’s ability to buy a desired (possibly

small) number of units
 Buying in small lots reduces the need for end-
users to carry unnecessary inventory
 The more bulk breaking the channel does, the
smaller the lots size end-users can buy, and the
higher is the channel’s service output level
 Leads the end-user to be more willing to pay a
higher price that covers the costs to the channel
of providing small lot sizes

Marketing Channel Strategy © 2015 by Pearson Education

 Example of Bulk Breaking
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 When renting a vacation house, the family likely

prefers a small bottle of laundry detergent
 Willing to pay a considerably higher price per
ounce for the convenience of buying and using
a smaller bottle of detergent when on vacation
 The more an end-user consumes, the more
utility he or she attains
 Vice goods such as cookies or soda, firms can
profit more from selling smaller packages when
the general consumer finds a small portion more
acceptable
Marketing Channel Strategy © 2015 by Pearson Education
 Spatial Convenience
2-11

 Provided by market decentralization in

wholesale and/or retail outlets
 Increases consumers’ satisfaction by reducing
transportation requirements and search costs
 Examples: Community shopping centers,
neighborhood supermarkets, convenience
stores, vending machines, and gas stations
 The business PC buyer appreciates that CDW
delivers PCs directly to the place of business, as
well as coming to pick up computers that need
service
Marketing Channel Strategy © 2015 by Pearson Education
 Waiting Time
2-12

 Time that the end-user must wait between ordering

and receiving the goods or post-sale service
 The longer end-users are willing to wait, the more
compensation (i.e., lower prices) they receive,
whereas quick delivery is associated with a higher
price paid
 The intensity of demand for quick delivery varies for
the purchase of original equipment (for which it may
be lower) versus the purchase of post-sales service
(for which it is frequently very high)

Marketing Channel Strategy © 2015 by Pearson Education

 Example of Intensity of Demand for
Quick Delivery
2-13

 A hospital purchases an expensive ultrasound

machine
 Unlikely to be willing to pay a higher price for
quick delivery of the machine itself
 However, if the ultrasound machine breaks
down, the demand for quick repair service may
be very intense
 Willing to pay a price premium for a service
contract that promises speedy service

Marketing Channel Strategy © 2015 by Pearson Education

 Combining Bulk Breaking, Spatial
Convenience, and Delivery Time
2-14

 In the Mexican market, major beer manufacturers sell

through grocery stores, liquor stores, and hypermarkets,
as well as through restaurants
 An additional channel: very small local distributors—
apartment residents who buy a small keg of beer and
resell it by the bottle to neighborhood buyers who cannot
afford a six pack
 The other standard retail channels cannot meet the
intense service output demands of these lower-end
consumers

Marketing Channel Strategy © 2015 by Pearson Education

 Product Variety and Assortment
2-15

 Variety : generically different classes of goods

that constitute the product offering, namely, the
breadth of product lines
 Assortment: the depth of product brands or
models offered within each generic product
category
 Kohl’s or Wal-Mart: limited assortments, but
wide variety
 It is critical which assortment of goods is offered
to each target consumer

Marketing Channel Strategy © 2015 by Pearson Education

 Example of Assortment and Quick
Delivery in Hot Topic
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 Targets teen girls

 Roll out a new line (e.g., t-shirts with a popular
band’s logo) in just eight weeks
 Speed is critical when the right assortment is
fueled by fads, which flame and fade very
quickly
 The combination of the right assortment and
quick delivery is a winning service output
combination for Hot Topic

Marketing Channel Strategy © 2015 by Pearson Education

 Customer Service
2-17

 All aspects of easing the shopping and purchase

process for end-users as they interact with
commercial suppliers (for business-to-business
purchases) or retailers (for business-to-consumer
purchases).
 Excellent customer service can translate directly
into sales and profit
 DirecTV ranks at the top of its industry in customer
satisfaction and enjoys a high average monthly
revenues from its customers, as well as a very low
churn rate (i.e., the rate of turnover of end-users
buying its service)

Marketing Channel Strategy © 2015 by Pearson Education

 Example of Customer Service in
Cabela’s
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 The type of customer service offered also must be

sensitive to the targeted end-user
 Cabela’s recognizes a key feature of its mostly male
target market: men hate to shop
 Cabela’s makes its stores showcases of nature scenes,
waterfalls, and stuffed animals
 To appeal to other members of the family, it also offers a
relatively broad assortment that draws in women and
children

Marketing Channel Strategy © 2015 by Pearson Education

 Information Sharing
2-19

 Education provided to end-users about product

attributes or usage capabilities, as well as pre-
and post-purchase services
 Such information sharing has been classified as
solutions retailing
 Examples:
 Home Depot offers do-it-yourself classes
 A collaboration between Microsoft and HP offered a
series of educational programs at various retailers

Marketing Channel Strategy © 2015 by Pearson Education

 Agenda
2-20

 Understanding the Importance of Segmentation

 End-User Segmentation Criteria: Service
Outputs
 Segmenting End-Users by Service Output
 Targeting End-User Segments

Marketing Channel Strategy © 2015 by Pearson Education

 Segmenting End-Users by Service
Output
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 Segmenting the market into groups of end-users who

differ not in the product(s) they want to buy, but in how
they want to buy
 Example:
 A (usually small) segment of buyers who are both very service-
sensitive and very price-insensitive
 Albert Karoll, a custom tailor, targets buyer segment who has a
very high demand for spatial convenience
 Target customer is a man whose most scarce asset is time, and
who thus has extremely high service output demands with little
price sensitivity

Marketing Channel Strategy © 2015 by Pearson Education

 Three Steps to Segment End-Users
2-22

Generate a comprehensive
list of all the potential
service outputs desired by
each end-user
• are maximally similar within a
Using this list of possible group
service outputs, • are maximally different between
segmentation produces groups
• differ on dimensions that matter for
groups of buyers who: building a distribution system

Name each segment to

capture its identifying
characteristics

Marketing Channel Strategy © 2015 by Pearson Education

Example of Segment End-Users for
a New High-Technology Product
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 A trade-off between price and service outputs,

recognizing that a segment’s demand for
service outputs really reflects its willingness to
pay for them
 Marketing channels serving any of the specific
segments need to deliver more of some service
outputs than others
 It is unlikely that any one-channel strategy can
satisfy the needs of all segments

Marketing Channel Strategy © 2015 by Pearson Education

 Agenda
2-24

 Understanding the Importance of Segmentation

 End-User Segmentation Criteria: Service
Outputs
 Segmenting End-Users by Service Output
 Targeting End-User Segments

Marketing Channel Strategy © 2015 by Pearson Education

 Targeting Process
2-25

 Assess segment attractiveness

 Target a subset of the segments identified
 Customize the marketing channel system
solution used to sell to each targeted segment

Targeting a channel segment: choosing to

focus on a segment, with the goal of achieving
significant sales and profits from selling to it

Marketing Channel Strategy © 2015 by Pearson Education

 Targeting Multiple Channel
2-26
Segments
 Build different marketing channels for each segment
 Can be costly and hard-to-manage, channel
managers likely choose an “attractive” subset
 Corollary: Targeting means choosing which
segments not to target
 Information on the targeted segments then can be
used to design new marketing channels to meet
needs or to modify existing marketing channels to
better respond to demands for service outputs

Marketing Channel Strategy © 2015 by Pearson Education

 Example of a Service Output Demand
Analysis for a Particular Segment
2-27

 Fandango.com is a business formed by seven of

the ten largest movie exhibitors in the United States
 Allows moviegoers to go online and purchase a
ticket for a particular showing of a particular movie
at a particular movie theater in advance, for a small
fee per ticket
 A target segment of time-constrained moviegoers
 Lower waiting/delivery time
 Higher spatial convenience
 Broad assortment and variety
Marketing Channel Strategy © 2015 by Pearson Education
 Takeaways
2-28

 Definition of “service outputs”

 How to divide a market into channel
segments
 How to target channel segments to
optimize sales and profits
 Relationship between service output
demands and solutions to overall channel
design problems
Marketing Channel Strategy © 2015 by Pearson Education