Bulk Breaking Bulk breaking refers to the end PDF

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Something about marketing strategy, it help u know about the Service output and maybe u can understand how we use the service output in your cource...

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Bulk Breaking Bulk breaking refers to the end-user’s ability to buy a desired (possibly small) number of units, even if the product or service originally was produced in large, batch-production lot sizes. When the channel system allows end-users to buy in small lots, purchases more easily support consumption, reducing the need for end-users to carry unnecessary inventory. However, if end-users must purchase larger lots (i.e., benefit less from bulk breaking), some disparity emerges between purchasing and consumption patterns, burdening end-users with product handling and storage costs. The more bulk breaking the channel does, the smaller the lot size end-users can buy, and the higher is the channel’s service output level, which likely 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. The common practice of charging lower per-unit prices for larger package sizes in frequently purchased consumer packaged goods categories at grocery stores is a well-known example of this phenomenon. Consider how a family might buy laundry detergent at home versus when renting a vacation house. At home, the family likely buys the large, economy size of detergent, perhaps at a supermarket or hypermarket, because it is easy to store in the laundry room at home, and eventually the family will use up that large bottle of detergent. The large bottle is comparatively inexpensive per fluid ounce. But when on vacation for a week at a rental cottage, the family likely prefers a small bottle of detergent—despite its much higher price per fluid ounce— because they do not want to end the week with a large amount left over (which they will probably have to leave at the cottage). Most vacationers are not at all surprised, or even reluctant, to pay a considerably higher price per ounce for the convenience of buying and using a smaller bottle of detergent when on vacation. Indeed, it even is more common for unit prices for such products to be much higher in resort town supermarkets than in supermarkets or hypermarkets serving permanent residents.4 M02_PALM7080_08_SE_C02.indd 37 09/10/13 4:37 PM 38 Part II • Designing Channel Strategies With these examples, we assume that the more an end-user consumes, the more utility he or she attains. However, not all goods are “good.” Consumers assess the pros and cons of each item they purchase; in the case of vice goods such as cookies or soda, they may want to purchase limited portions to help them stay healthy. Thus, firms can profit more from selling smaller packages when the general consumer finds a small portion more acceptable.

Spatial Convenience Spatial convenience provided by market decentralization in wholesale and/or retail outlets increases consumers’ satisfaction by reducing transportation requirements and search costs. Community shopping centers, neighborhood supermarkets, convenience stores, vending machines, and gas stations are but a few examples of the varied channel forms designed to satisfy consumers’ demands for spatial convenience. Business buyers value spatial convenience too: 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. Waiting Time Waiting time is the time that the end-user must wait between ordering and receiving the goods or postsales service. The longer the waiting time, the more inconvenient it is for the enduser, who must plan or predict consumption levels far in advance. Usually, 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. This trade-off is evident in CDW’s positioning for its small and medium business buyers. In response to queries about the threat of lower-priced computers from Dell Computer, the CEO of CDW responded, “We are seldom below Dell’s price, but we get it to you faster”—shipping in 1 day versus in the 10–12 days Dell required.6 The intensity of demand for quick delivery varies for the purchase of original equipment (for which it may be lower) versus the purchase of postsales service (for which it is frequently very high). Consider a hospital purchasing an expensive ultrasound machine. Its original machine purchase is easy to plan, and the hospital is 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, and the hospital may be willing to pay a price premium for a service contract that promises speedy service. In such cases, a sophisticated channel manager must price the product versus postsales service purchases very differently, to reflect the different concatenation and intensity of demand for these service outputs. Similarly, airline ticket prices change as the departure date approaches, to account for both the number of seats remaining and the lower-price sensitivity of business travelers who need to reach a specific destination and do not want to wait.7 Another example combines demands for bulk breaking, spatial convenience, and delivery time. In the beer market in Mexico, understanding market demands requires an understanding of the market’s and consumers’ environmental characteristics and constraints. A market with limited infrastructural development usually is characterized M02_PALM7080_08_SE_C02.indd 38 09/10/13 4:37 PM Chapter 2 • End-User Analysis: Segmenting and Targeting 39 by consumers with high demands for service outputs, such as spatial convenience (i.e., consumers cannot travel easily to remote retail locations), minimal waiting time for goods, and extensive bulk breaking (consumers lack sufficient disposable income to keep “backup stocks” of goods in their homes in case of retail stock-outs). In the Mexican market, major beer manufacturers sell through grocery stores, liquor stores, and hypermarkets, as well as through restaurants. As an additional channel though, they sell beer through 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 endusers also usually provide their own (washed, used) beer bottles for the “local” distributor to fill. The manufacturer values this channel, because the other standard retail channels cannot meet the intense service output demands of these lower-end consumers.

Product Variety and Assortment When the breadth of the variety or the depth of the product assortment available to end-users is greater, so are the outputs of the marketing channel system, but also so are the overall distribution costs, because offering greater assortment and variety means carrying more inventory. Variety describes generically different classes of goods that constitute the product offering, namely, the breadth of product lines. The term assortment instead refers to the depth of product brands or models offered within each generic product category. Discount department stores, such as Kohl’s or Wal-Mart, have limited assortments of fast-moving, low-priced items across as wide variety of household goods, ready-to-wears, cosmetics, sporting goods, electric appliances, auto accessories, and so forth. A specialty store dealing primarily in home audiovisual electronic goods instead offers a very large line of receivers, speakers, and high-fidelity equipment, offering the deepest assortment of models, styles, sizes, prices, and so on. Not only is the extent of the product array important, but also critical is which assortment of goods is offered to each target consumer. JCPenney, the U.S. mid-scale department store, has sought to change its image from “your grandmother’s store”— and a relatively downscale one at that—to a trendy fashion boutique. It signed an exclusive distribution agreement with Michele Bohbot, the designer of the Bisou Bisou clothing line, previously only sold in boutiques and upscale department stores. It also hired David Hacker, a trend expert who looks for emerging fashion trends to attract the so-called Holy Grail of retail: 25- to 35-year-old women, who account for $15 billion in annual clothing revenue. This target market is a much younger, fashionforward shopper than JCPenney’s traditional, 46-year-old, female buyer. And indeed, at a Bisou Bisou fashion show in the Bronx, New York, JCPenney attracted almost 100 young women. One of them, laden with shopping bags, noted the difference: “I guess I’m going to have to start coming to JCPenney now. Wow!”8 The combination of the right assortment and quick delivery is a winning service output combination for Hot Topic too. This chain of more than 600 stores targets teen girls; its CEO and directors often go to concerts to find popular new trends that can be turned into new store merchandise.9 Hot Topic can roll out a new line (e.g., t-shirts with a popular band’s logo) in just eight weeks, whereas its competitor. The M02_PALM7080_08_SE_C02.indd 39 09/10/13 4:37 PM 40 Part II • Designing Channel Strategies Gap often needs up to nine months to bring new products to store shelves. This speed is critical when the right assortment is fueled by fads, which flame and fade very quickly. Customer Service Customer service refers to 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). The CDW sidebar outlines several types of customer service valued by the small to medium-sized business buyers, as encapsulated in the simple statement: “We’re the chief technical officer for many smaller firms.” Excellent customer service can translate directly into sales and profit. But a U.S. industry that has long been plagued by poor customer service is cable and other pay television services. In American Customer Satisfaction Index (ACSI) surveys, cable TV operators often earn some of the lowest customer satisfaction scores for any company or industry. Customer service is typically outsourced to third-party providers (another channel partner), which offer low pay and poor training to their employees. In contrast, DirecTV ranks at the top of its industry in customer satisfaction and enjoys a high average monthly revenue from its customers, as well as a very low churn rate (i.e., the rate of turnover of end-users buying its service)—even though it uses the same outsourced customer service companies as some of its competitors. How does it accomplish this? It stations an employee at each of its outsourced call centers, to gain more control; it pays the call centers more for customer service, which translates into better service provided; it provides better information to the customer service reps, through its overhauled information system; and it gives the customer service reps various nonmonetary forms of compensation, such as free satellite TV.10 The type of customer service offered also must be sensitive to the targeted end-user. Cabela’s, a small chain of stores catering to outdoorsy people, recognizes a key feature of its mostly male target market: These men hate to shop. To appeal to them, Cabela’s makes its stores showcases of nature scenes, waterfalls, and stuffed animals, then staffs each department liberally with well-trained sales staff who must pass tests to demonstrate their knowledge of the products. Outside its rural stores, it offers kennels (for dogs) and corrals (for horses), to cater to customers who visit in the middle of a hunting trip. Cabela’s augments this targeted customer service with a carefully determined product assortment. The depth of its assortment in most categories is six to ten times greater than that of competitors such as Wal-Mart, and it stocks high-end, not just low-priced, low-quality goods. To appeal to other members of the family, it also offers a relatively broad assortment that draws in women and children. Cabela’s understands that rural shoppers want more than Wal-Mart can provide, and that they care about service, fashion, and ambiance, not just price, such that it can routinely draw shoppers who travel hours to reach its store (i.e., who are willing to trade off spatial convenience for superior customer service and assortment).11 M02_PALM7080_08_SE_C02.indd 40 09/10/13 4:37 PM Chapter 2 • End-User Analysis: Segmenting and Targeting 41 Information Sharing Finally, information sharing refers to education provided to end-

users about product attributes or usage capabilities, as well as pre- and postpurchase services. The business PC buyer values presale information about what products to buy, in what combinations, with what peripheral computer devices attached, and with what service packages, as well as postsales information if and when components or systems fail. For some manufacturers and retailers, such information sharing has been classified as solutions retailing, which appears crucial in generating new and upgrade sales from end-users. Home Depot offers do-it-yourself classes in all sorts of home improvement areas; computer and software companies like Hewlett-Packard (HP) and Microsoft have followed suit, setting up “experience centers” in retail stores to enhance sales of complicated products whose benefits consumers may not understand, such as Media Center PCs, digital cameras that print on computers, personal digital assistants, and the like. A collaboration between Microsoft and HP offered a series of educational programs at various retailers, designed to increase sales of HP Media Center PCs. One section of the display, called “Create,” showed consumers how to use the Media Center PC as a digital photography center with Microsoft software. Other displays revealed how to use the PC for home office applications, as part of a home office network, and as a music center. The mini-classes were run by a third-party firm that staffed the retail store booths. Hewlett-Packard found that purchase intentions increased by as much as 15 percent among consumers who saw these product demonstrations, as well as evidence that the programs strengthened products’ brand image and brand equity. Such information dissemination is a costly proposition though; Microsoft and HP bear the costs, not the retailers themselves. They also view such efforts as crucial in the short run but redundant in the longer run, because the relevant information eventually diffuses into the broader consumer population.12 The trend is continuing as Microsoft adds its own retail stores to provide a two-way communication link between Microsoft and end-users. Note that price has not been listed as a service output. Price is what the customer pays to consume the bundle of product + service outputs; it is not a service that gets consumed itself. However, it is significant in the sense that end-users routinely make trade-offs among service outputs, product attributes, and price, weighing which product/service bundle (at a specific price) provides the greatest overall utility or satisfaction. Because of this trade-off, marketing researchers often investigate the relative importance of price, together with service outputs and physical product attributes, in statistical investigations (e.g., conjoint analysis, cluster analysis), consistent with our conceptual view of price as something different from a service output, just as a physical product attribute is not a service output yet still affects an end-user’s overall utility. The six service outputs we

have discussed here are wide ranging but still may not be exhaustive. That is, it is risky to adopt an inflexible definition of service outputs, because different product and geographic markets naturally may demand different service outputs....