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Segmentation for MCD : Service

Outputs
Is dependent on the end-users
demands for a product/ service
Demand into not what they want to
consume but how end-users want to
buy and use the products/ services

Survey Results of grocery shoppers

11% found grocery shopping fun


83% thought it took too much of time
50% felt saving time is more important
than money
85% said they were looking at saving
time
93% were looking at making their lives
simpler

Peapod Shopping Steps


Shopping process step
Plan what to buy
Travel to grocery store
Walk aisles of store
Pick & choose items
Checkout process
Bag groceries
Transport groceries home
Unpack groceries

Who performs this step


GS
Peapod
Shopper Shopper
Shopper Peapod
Shopper Peapod
Shopper Peapod
Shopper Peapod
Shopper Peapod
Shopper Peapod
Shopper Shopper

Peapod Operations
Initially orders were taken on-line through a
proprietary software.
Peapod employees then shopped the aisles of actual
Jewel-Osco stores to fill each order & delivered at a
specified time
In October98 they started the WWW based access
system
The new software made gave an option of speedier
check out, nutrients & ingredients list, & a
cumulative list of what has been purchased during an
on-line shopping trip.
In December 1998 Peapod started their 1st dedicated
distribution center leading to a reduced delivery costs
to customers, efficient assortment of grocery, diary &
frozen products & to be replenished just in time basis
by suppliers

Peapod Operations
Perishable products are planned to be Crossdocked implying that they will sit in inventory
for a minimal amount of time
They have also introduced a new transportation
routing to lower costs of delivery
Delivery charges varies from $ 9.95 per order with
no monthly fees to $5 per order plus $4.95 flat
charges per month or unlimited deliveries for
$19.95 per month.

Peapod Operations
In August 98 they started pre selected bundles of
products to fit niche buying occasions like the
holiday season, new baby gifts, Christmas gifts
etc., with deliveries across the nation
They also tied up with Greatfoods.com to give
services of packaged foods
This gave them an opportunity to make a brand
name across the country even where they were not
present

Relevance of peapod operations to


shoppers

Research done by Chicago Strategy


Associates found three main segments of
grocery shoppers
Low priced & comparisons segment - 43%

Efficiency seekers segment - 39%


Branded products delivered segment - 18%

Relevance of peapod operations to


shoppers
Branded products segments placed a very high importance
on availability of specific brands & off these 44% were
high internet users which made them the target customers
for on-line shopping.
Also off these segments the branded products segments
placed high importance on home delivery & said that it
enhanced their shopping experience.
75% of the people in this segment were females & from
dual income families
Also 70% and more of families had an income of $60,000
annually

Relevance of peapod operations to


shoppers

Anderson consulting has through a study


found that 42% of Americans would like to
have the comfort of shopping from home
for commodities or staple items
Also that by the year 2005, 20% of retail
grocery volume is expected to be from online shopping

Louis P Bucklins frame work for marketing


channels

Other things being equal ( in particular


price, end users will prefer to deal with a
marketing channel that provides a higher
level of generic service outputs like:

Bulk breaking
Spatial convenience
Waiting or delivery time
Product variety

Bulk Breaking
Ability of the end user to buy in desired small
quantities though the original produced packaging
could be big.
Purchases move directly into consumption rather
than into inventory
Lesser product handling by the end user
Lesser storage space & costs
Increases the service output of the MC
Which could lead to an increased price for the end
user

Spatial convenience
Is the distance convenience of shopping to the end
user.
It increases customer sat because of the shorter
distances involved.
Exs are neighborhood supermarkets, convenience
stores, vending machines, gas stations etc.,
Companies like Grainger in the US offer spatial
convenience to business customers by offering
them their requirements by having branches at
distances of 20 minutes from most business
establishments

Waiting time or delivery time


Is defined as the time period that the end user must
wait between ordering & receiving goods/service.
Quick delivery is highly valued by industrial users
The longer the waiting period for a product/
service higher is the compensation (i.e., the lower
the prices) they receive.
The waiting period for a product/ service is
indicative of the value being place by consumers
for that product/service

Breadth of assortment
Wider the breadth of assortment or the
availability of product variety higher is the
service outputs of the channel
The higher the service output of the
channel, higher is the distribution costs
because of the inventory carrying costs
which is passed onto the end user.

Trends in B2B buyer preferences


Outsourcing refers spinning off particular
corporate activities or functions to outside
providers.
The outside providers are generally specialists
with up-to-date technological know how& lower
costs due to economies of scale.
Some of the activities that are outsourced are
invoicing, shipping, financing, selling itself, etc.,

Trends in B2B buyer preferences


Downsizing refers to the reduction in
number of employees in a firm.
Hence the existing employees would have
to indulge in multi tasking & would not
have time to indulge in service output
functions they used to earlier.
This could again lead to outsourcing

Trends in B2B buyer preferences


Alphabet soup refer to the various initiatives
undertaken in the management of business
channels wherein there are acronyms of alphabets
to describe them like JIT, ECR, etc.,
These methodologies have increased an increase
in business buyers demands for quick delivery,
spatial convenience, bulk breaking & assortment
& variety.

Trends in consumer preferences


Poverty of time is well summarized in this
statement We are desperate for a few minutes of
rest. If we did not have help, we would fall down
Hence it becomes imperative for channel
managers to design channels to offer one stop
shopping experience.
Design more non store based channels for retailing
like having a catalog , on line shopping etc.,

Trends in consumer preferences


Increased knowledge about products &
availability Customers are well informed about
product characteristics, availability & pricing
This could be because of an increased mobility of
customers today in comparison to the past.
It thus becomes important for organizations to find
out the areas of awareness of customers & work
on them.
If customers are aware of product alternatives it
becomes imperative for companies to work on the
degree of competitiveness.

Trends in consumer preferences


Increased polarity of incomes
Increased number of self employed workers

Segmenting the markets by SODs


It is important to study understand all the relevant
SODs by different end-users by conducting
qualitative focus groups or one-on-one exploratory
interviews.
These interviews will generate unbiased list of all
the service outputs that apply to the particular
product & market in question
Research should be designed & conducted from
start to define channel segments that best describe
end-users service output demands & more on their
purchasing patterns.

Segmenting the markets by SODs


The focus is more on the purchasing pattern is
because end-users preferred shopping & buying
habits rarely correlate with their preference for
schemes offered by the management.
The channel segmentation process should be
designed to produce groups of buyers who are :
Who are maximally similar
Who are maximally different
Differ on dimensions that matter to building a
distribution system.

Meeting service output demands


One of the basic tenets of marketing is that the seller has to
identify & then meet the needs of its end-users.
Similarly it means in creating & running a marketing
channel systems the seller has to keep in mind the service
outputs demanded by targeted end-users, the creation &
maintenance of which could be time consuming &
expensive.
The question arises whether there are market conditions
under which a channel manager can profitably serve a
segment in the market without fully meeting the SODs
characterized by them. Ex Peapod

Meeting service output demands


The key factors determining whether & how quickly to
respond to knowledge about unmet service output demands
include the following
Cost : At times meeting the SODs of end-users could from
a supply perspective become so expensive that the enduser is unwilling to pay that price. Ex shipping
technologies
Competitiveness : Here the question that arises is whether
any existing competitors can beat the channels current
service output provision levels. Hence the added cost of
increasing the service outputs of this channel will not
increase the market share of the channel. However if
competitors increase their channel output service levels it
would become imperative for the existing channel to
incorporate necessary changes

Meeting service output demands


Ease of entry: Competition is not only from existing firms
,channels already existing or entrants to the industry but
from those channels that fail to deliver the service outputs
of the end users. This is because competition can leverage
technology to meet those service outputs ex Citibank
ATMs. Hence it is important while formulating a channel
to block entry of new competitors.
Other elements of excellence in marketing offering: The
marketing channel is one part of the overall marketing mix.
A truly superior product or a tremendously low price can
lead end users to buy through a channel that does not quite
meet their service output requirements. This just means
that the existence of an unmet service output demand
means there is a potential threat to the channel that offers
some but not all the elements of the marketing mix tailored
to the target end users demands.

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