2-1
Marketing Channel Strategy
Chapter 2
End-User Analysis: Segmenting and Targeting
Marketing Channel Strategy © 2015 by Pearson Education
Importance of End-Users
2-2
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
2-3
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
2-4
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
2-5
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
2-6
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
2-7
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
2-8
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
2-9
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
2-10
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
2-11
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
2-12
Generate a comprehensive
list of all the potential
service outputs desired by
each end-user
• are maximally similar within a
Using this list of group
possible 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
Targeting Process
2-13
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
2-14
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
