Service Output Gap

Title Page

Title of the Paper:

Marketing Channel Gaps: Efficiency Gap, Supply-Side Gap and Demand-Side Gap

Author:

S. M. Ikhtiar Alam

Professor

 Institute of Business Administration

Jahangirnagar University, Savar, Dhaka 1342, Bangladesh

E-mail: smikhtiaralam@yahoo.com

Telephone: (88) 01716 273343, 88-02-7791045-51

Fax: 88-02-7791052

Marketing Channel Gaps: Efficiency Gap, Supply-Side Gap and Demand-Side Gap

ABSTRACT

Various members of a marketing channel add values to a product. These added values are needed to make the product available to end-users for consumption. These values are called “Service Outputs”. Three types of gaps may be present in a marketing channel. These three gaps are efficiency gap, supply-side gap, and demand -side gap. These three gaps together constitute “Marketing Channel Gaps”. The efficiency gap deals with the claims of various channel members for their contributions to various service outputs. The efficiency gap is identified and measured with the “Efficiency Template”. “The Marketing Channel Efficiency Template” is a tool that analyzes channel cost’s share among various service outputs and then compares the claims of different channel participants compared to their respective contributions to each of the service outputs. The analysis helps to identify who is being underpaid and who is being overpaid, if any. Accordingly, necessary adjustments can be made to minimize channel cost and optimize the cost allocations among different channel members including the end-users. On the other hand, supply-side gap and demand-side gap are measured on the basis of differences between supplies of and demand for various service outputs. The present paper proposes a complete “Marketing Channel Gap Model on the basis of objectively measured relative importance of different service outputs with a set of hypothetical data.

Keywords: Marketing Channel Gaps, Service Output Gaps, Efficiency Template.

INTRODUCTION

A marketing channel is defined as a set of interdependent organizations involved in the process of making a product available for consumption by end-users. The manufacturer or producer produces a product (physical good or intangible service). But the product must reach the end-users for its consumption. In case of services, consumption and production take place at the same time. But in case of physical goods, distribution through intermediaries or directly to end-users is a must. In this process of making a product available for consumption by end-users, retailers, wholesalers, distributors, dealers, end-users, as well as the producer do perform certain tasks that add values to the product. In addition to these primary participants (contractual members) of a marketing channel, there are some secondary participants who are not directly involved in the process of distribution, but add values to the product as “facilitating participants” of the marketing channel. The secondary channel members are also called “specialized channel participants (SCPs)”, since they perform some special works as support service providers and functional service providers. The SCPs are transportation agencies, warehouse firms, advertising agencies, financial institutions, insurance companies, and other participants who perform different negotiatory functions. Arrangers, order fulfillers, assemblers & customizers, etc. are also important specialized service providers (Bowersox and Cooper, 2001, pp. 56-80). The primary and secondary channel participants add values to a product. The values they add are called  “Service Outputs” (Bucklin, 1966 and 1972, pp. 18-31;  Etgar, 1974, pp. 95-97; Coughlan, et. al., 2006, pp. 19-20, 43-59).

In literature 18 types of service outputs can be identified (Bowersox and Cooper, 2001, pp. 56-80; Coughlan, et. al., 2006, pp. 40-77; Rosenbloom, 2004, pp. 32-34). These 18 types of service outputs are as follows: (1) Warehouse Functions (storage and maintenance); (2) Bulk-Breaking (quantity-breaking or size-breaking); (3) Spatial Convenience (transportation or physical movement of the product); (4) Product Information (regarding features, ingredients, etc. of the product; information services also include communication services to link channel members); (5) Tagging (price, expiry date, and date of manufacturing, etc. Now-a-days warehouses, retailers, and/or distributors perform this function); (6) Sorting and Grading (sorting according to quality, weight, size, price, design, etc.); (7) Product Returns (reverse logistics); (8) Promotions (formal and informal audience contact tools including advertisement and various viral buzzes); (9) Risking (the risk in case of product failure, unsold inventory left with the retailers due to unexpected events, etc.); (10) Financing (credit facilities to any participant including the end-users, such as funding for inventory, accounts receivables, customer credit financing, etc.); (11) Arranging (creating special situations and incentive to facilitate product movement or sale in other than primary business operation methods, such as trade fair); (12) Assembly and Customization (modifying product to customer’s specifications, or putting finished parts together for the end-users); (13) Merchandising (working at point of sale to increase appeal of product assortment); (14) Fulfillment (taking customers’ orders and provide specialized product shipment as a value-added service, such as the functions of e-bags); (15) Packaging and re-packaging (in some cases, repackaging after bulk-breaking and sorting is required; this service output is also required for special shipment, or for damaged packages; some producers may choose to outsource the packaging activity); (16) Customer Support is an important service output or distribution task involving product setup, adjustment, repairs, or technical assistance (Rosenbloom, 2004, p. 44); (17) Customer Service is an important service output or distribution task that includes delivery, maintenance, and warranty works  (Rosenbloom, 2004, p. 44) (according to Coughlan et. al. (2006, p. 51), “customer service refers to all aspects of easing the shopping and purchase process for end-users…”) (18) Sequencing is also an important service output in case of special way to arrange products for shipment (Bowersox and Cooper, 2001, pp. 56-80).  However, “assortment and variety” is a special category of service output that is for the retailers who sell many different types of products. This category is not applicable for a particular product.