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Marketing Channel Strategy

Chapter 2
End-User Analysis: Segmenting and Targeting

Marketing Channel Strategy © 2015 by Pearson Education

 Importance of End-Users
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 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
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 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

 Criteria: Service Outputs
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 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
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 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
 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

 Waiting Time
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 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
 Product Variety and Assortment

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 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

 Customer Service

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 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

 Information Sharing

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 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

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

Name each segment to

capture its identifying
characteristics

Marketing Channel Strategy © 2015 by Pearson Education

 Targeting Process
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 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 Segments
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 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