Slide Decks CPD

Channels and Pricing
PGPM 2020-21 – Term 6 [April-May 2021]

Introduction
Session April 16 - 2021

Course Schedule
Session No-1 April 16, Fri, 12 noon to 1.30 pm
Session Title Channel system’s key drivers: Chapter 1
Session No-2 April 17, Sat, 10.15 to 11.45 am
Session Title Channel Outputs: Chapter 2
CaseTitle Report 1: A Tale of Two Distributors
Session No-3 April 17, Sat, 12 noon to 1.30 pm
Session Title Channel Outputs & Functions: Chapters 2, 3
Additional Reading “Consistent Assortment” Res paper
Session No-4 April 20, Tues, 2.30 – 4.00 pm
Session Title Segmentation: Chapter 5
CaseTitle Report 2: Tamul Plates W20303
Session No-5 April 21, Wed, 10.15 to 11.45 am
Session Title Retailing: Chapter 6
Session No-6 April 21, Wed, 12 noon to 1.30 pm
Session Title e-commerce and new channels: Chapter 9
Case Report 3: ITC-eChoupal HBS 9 604 016
MID TERM EXAM April 22, Thursday, 11 am to 12 noon
Session No-7 April 26, Mon, 2.30 to 4.00 pm

Session Title Franchising: Chapter 8
CaseTitle Report 4: PH Thailand: Ivey 903A24
Session No-8 April 26, Mon, 4.30 to 6.00 pm
Session Title Channel power, conflict: Chapters 10, 11
Additional Reading “Guaranteed Profit Margin” paper
Session No-9 April 28, Wed, 12 noon to 1.30 pm
Session Title Omni-channel, Conclusion: Chapter 9
Additional Reading “Impact of consumer internet…” paper
CaseTitle Report 5: Brand W: W 18432
Pricing Strategies
Session No-10 April 28, Wed, 2.30 to 4.00 pm

Session Title Introduction, Cost factor in Pricing
Session No-11 May 3, Mon, 2.30 to 4.00 pm
Session Title Value driven pricing
CaseTitle Report 6: John Deere 750: HBS 9 577 112
Session No-12 May 4, Tues, 2.30 to 4.00 pm
Session Title Channels and pricing
CaseTitle Report 7: Best Buy MH0038
Session No-13 May 5, Wed, 8.00 to 10.00 am
Session Title Conclusion
End term Exam May 9, Sunday, 11 am to 1 pm
GRADING
Teamwork
Case reports: (Teamwork) 40% of the grade.
Writ reports on 3 out of 7 cases but all cases will figure in the exams.
Peer Evaluation: Your grade will be lower if your team members evaluate you
poorly on contribution to the teamwork.
Individual
• Mid Term Exam: 20%

• End-term Exam: 40%
TEXT BOOK
“Marketing Channel Strategy,” by Palmatier, Stern and El-Ansary, a Pearson

publication, 8th edition.
TOP 10 RICHEST COMPANIES BY CAPITALIZATION (pre-Covid year)
Apple (close to $ 1 trillion)
Amazon ($ 860 billion)
Microsoft ($ 833 billion)
Alphabet ($ 765 billion)
Tencent Holdings ($ 496 billion)
Facebook ($ 445 billion)
Berkshire Hathaway ($ 517 billion) TOP RICHEST Families
Alibaba ($ 370 billion) Sam Walton Family ($ 160 billion)
J P Morgan Koch Brothers ($ 120 billion)
Bank of American Mars family (candy: $ 80 billion)
…
TOP 10 RICHEST COMPANIES BY REVENUE

Walmart – $485.9 billion revenue in 2017
State Grid Corporation of China – $315.2 billion revenue in 2017
Sinopec Group – $267.5 billion revenue in 2017
China National Petroleum Corporation – $262.6 billion revenue in 2017
Toyota Motor – $254.7 billion revenue in 2017
Volkswagen – $240.3 billion revenue in 2017
Royal Dutch Shell – $240 billion revenue in 2017
Berkshire Hathway – $223.7 billion revenue in 2017
Apple Inc. – $215.6 billion revenue in 2017
Exxon Mobil – $205 billion revenue in 2017
A Primitive Layout
Mfr &
Consumer
Mfr &
Mfr & Consumer
Consumer
Mfr & Mfr &

Consumer Consumer
Each is a manufacturer of one thing and consumer of many things

Too many transactions = 5c2
http://www.referenceforbusiness.com/small/A-Bo/Bartering.html#b
Criminal gangs (God Father), corruption practices, “helping” among students,
perks as part of compensation
Less-Primitive and more prevalent
Producers
Consumer
Self-organized,
market Place.
Producers
Consumer
Number of transactions greatly reduced. [5c2 ➔ 4]

A typical vegetable selling street in India
where mostly farmers put up their produce for sale.
A typical vegetable selling street in China
A typical “farmers market” in a US city
Mostly once a week.
Less-Primitive and more prevalent
Producers
Consumer
Self-organized,
market Place.
Producers
No middle man Consumer
Number of transactions greatly reduced. [5c2 ➔ 4]
Each category has its own market place (one for food items, another for utensils, etc.)
➔ Many could afford to be simply consumers in a given market place
but each directly deals with manufacturers one-on-one
➔ Barter giving way to Currency as medium of exchange.
Flea markets: http://en.wikipedia.org/wiki/Flea_market) http://singaporesearchsite.com/2009/09/flea-

market-in-singapore/.
Dealer / broker
[C2C Transactions facilitated by middle-man]
Individual
Dealer / Individual
Broker
One individual to another through a broker ➔ traditional or online.
Broker doesn’t take title to goods,

works on commission,
has access to some info. on the property (quality of house, reliability of seller’s clean
title to property, info whether the property is free of encumbrance, warranty if any, etc.)
and better market-level information (going price, trend, legalities, supply-demand
situation, etc.)
Transaction elements: Information (property-specific, market-level), Trust,

Convenience (Search Cost reduction) and Legalities (through a lawyer).
Dealer / broker
[B2B Transactions facilitated by middle-man]
Business Business
Dealer / unit
unit
Broker
Brokers in road-transportation markets brings together individual shipper (of goods)

and transporter (individual truck owner); importer-exporter working thru a middle man,
typically a bank.
Broker doesn’t take title to goods, works on commission, has access to better info. on
the market-level information (going price, trend, legalities, supply-demand situation,
etc.)
Transaction elements: Quick Information (Search Cost reduction), Trust.

Aggregator / Distributor
[2-sided platform B2C]
Individual Consumers
Barrier?
Market makers,
Trust providers, Aggregator/ 1. Malls, LinkedIn, job sites,
Logistics Distributor 2. Amazon, Alibaba, Flipkart
Providers for 3. Groupon, Uber/ola, Unanu
e-dealers 4. Google search-ad
(goods, cash)
Businesses, SMEs, smaller retailers
(w/o market reach/power), spare capacity
(randomly coming up in some cases)
Channel members’ dual role
Middle-men Taking Title to Goods And Assuming Risk too
Manufacturers selling to Retailers
40 Contact lines
filled by
Logistics
providers
Info. On
What,
Why [Pull]
Retailers (facilitator & barrier) When, how
where, what
(Push)
Consumers
More intermediaries ➔
More problems or More benefits?
Manufacturers
Logistics Providers
Wholesaler : Reduces # of transactions
(Distributor) from 40 to 14!
Logistics Providers
Retailers
Consumers
Drastically reduces Transaction Costs [search, set-up, negotiation, logistic (inventory, safety
stock), payment and other costs involved in the transaction]
Would the wholesaler siphon off more than s/he saves for the channel?
Channel Gap Elements

Manufacturer
Place, Time, Form.

Trust (compensates info. asymmetry).
Possession/Ownership, Payment.
Returns, After-sales Service.
Consumer
(or another manufacturer in B2B/Industrial)
Manufacturer
CHANNEL ISSUES:
Spread info. on supply availability on when, SEEK:
where, how, etc., and at what price. Economies of Scale
Predict demand (when, where, how, etc.) (same place, same product,
Identify segments same brand, large quantity)
VERY BROAD PLATFORM
CHANNEL ISSUES: SEEK:

Place [Location is still very important] Info. on multiple brands
Time [ordering (routine, emergency), Info. on varieties
Delivery – Stocking – Consumption) End-customer or
Economies of scope
Form (quantity, variety/choice, ready-to-eat) Channel member
(utility from assembling
- less inventory AND less stock-out different products)
Trust (firm-level & market-level info)
- needs a good purchase manager!
Possession [localized help, warranty],
Payment [Credit, mode of payment]
Returns, After-sales Service
Inherent randomness in need arousal
Heterogeneous on all elements ➔ Segments
Place (Location, Location, Location!)
• Neighborhood grocery stores in Asia ➔ Less need for planning ➔ Affects big
grocery chains and online stores?
• Nearby location (for purchasing, returns, servicing) gives mental comfort to

customers
• B2B [ex: AESCO, Auto-ancillary units near auto-manufacturing sites (Detroit, Chennai)]
reduces logistics costs, inventory level and safety buffer, solves customer problems
quickly] ➔ Longer contracts (asset specificity)
• B2C [all durable goods]; See next slide on Tata: Increases purchase probability
• Delivering at desired location brings convenience and enhances purchase

probability
• B2C: Enterprise-rent-a-car (see 2nd slide from here), Yamato door-to-door Parcel Delivery Services,
FI, Vending machines, home delivery of pizza [big success], insurance policy?, Best Buy tun-around
strategy, Of course avoids Covid issues
• B2B: Global Delivery Model of Software companies (Infosys), Suppliers delivering direct to Wal-
Mart retail stores
Need a change in mindset and a new org structure and processes

TATA Motors – Passenger Cars
The company wants to triple its sales outlets to

nearly 1,500 in three years. It is also investing in a
doorstep service in areas where outlets may not be
viable.
… “A presence on the ground

gives confidence to a customer — if anything goes
wrong with the vehicle, there is somebody to
resolve the issue,” says Mayank President, Tata
Motors Passenger Vehicle Business.
“Quite a few foreign car makers failed to make a

mark, because they shied away from investing in
sales and distribution,” he adds.
file:///Users/nus/Downloads/Tata%20Motors%20plans%20a%20deal%20in%20every%20nook%20and%20corner.pdf
Business Standard, Aug 8, 2015 article
Place (Location, Location, Location!)
• Search engines on web: top-located sites get max clicks; 2nd page etc.
have no takers
• Digital products (ex: software, data, files, e-cash, email, I-tune, e-books,
apps, video-games) delivered wherever you are (thanks to internet, wi-fi,
bluetooth, etc.) at whatever devise you have (laptop, desktop,
smartphone) in whatever OS.
• Global reach ➔ enhances market potential greatly ➔ Purchase driven needs/uses!
But, filling place gap, especially Last Mile Connectivity, is costly!

McDelivery (see next 2 slides)
But technology & analytics on prediction of demand, coupled with
a good business model that can be scaled can help
McDelivery Example
• November 1994: First McDelivery experiment from 40 restaurants in

Manhattan, NYC
• The same year, Egypt introduced McDelivery
– Soon after, 30% of the sales were coming from delivery orders
• 2005: McDonald’s Singapore began their McDelivery service
• May 2009: Introduction of 24-hour delivery service in China
• So far, available in 19 countries:
– Argentina, Brazil, China, Egypt, Hong Kong, India, Indonesia, Japan,
Kuwait, Malaysia, Pakistan, Philippines, Qatar, Saudi Arabia,
Singapore, South Korea, Thailand, USA
• Why not Europe??
25
Key differences: Europe vs. Asia
EUROPE ASIA
Density
London – 5.300 per sq. km Singapore – 11.000 per sq. km
Paris – 3.800 per sq. km Mumbai – 33.900 per sq. km
Berlin – 3.500 per sq. km Manila - 15.400 per sq. km
Delivery Cost
Minimum labour cost
France - USD 1822 India (Dheli region) - USD 107
UK - USD 1520 Indonesia (Semi-skilled) - USD 112
Spain - USD 951 Singapore - (USD 612 - 1224)
Gas prices (95A) per liter
France - USD 2 India - USD 1,3
Germany - USD 2 Malaysia - USD 0,6
UK - USD 2,3 Singapore - USD 1,6
Overall expenses of utility and other maintanace services
Ref: 2012 MBA Batch Term-Project
26
Time
[Delay and uncertainty create anxiety, feel of loss of control]
• Reducing time-gap between Need Realization Time and Order Time

– Best Buy, Internet and Mobile Apps reduce this to almost zero ➔ “Warm body”!
• Reducing time-gap between Order Time and Delivery/Acquisition Time

– JIT, Screaming Circuits (see next 2 slides), AESCO, Tailors in HK ➔ Need a change
in mindset and a new org structure and processes
• Reducing time-gap between Need Realization time and Consumption Time

– Corner stores, vending machines in offices, online downloads like iTunes,
e-books (but…), ready-to-eat items, refrigerated pasta/pizza, 24-hour retailers,
CNN’s
HeadLine News channel (Pioneer of “any time, all the time” news)
➔ Needs an innovative mindset to keep trying new things
• Guaranteeing time (ex: Domino’s, Jiffy Lube, Changi, Indigo in India) reduces
uncertainty and anxiety ➔ Strategic shift leading to branding!
• Addressing Time gap and Space Gap: AESCO, American Wells in PCP
Healthcare in the US
Milwaukee Electronics Corporation:
Screaming Circuits
(Family firm of Jered, one of 2011 Channel course students)
55 year old Electronics Manufacturing company in North America

Growth has been slow, with larger customers moving to lower cost options (China).
No Marketing team or outlook
Segmentation as of 2011: Big Vs. Small Customers; Geographical Proximity
USPs believed to be:

Ability to source unique components
Ability to meet variation in demand quickly (or in standard time)

Customer Survey
Score of Importance
Parameter Blue Comp Harle Interr Nabc P&H Rock Vapot Wauk
DRS
Sea X y oll o Mining well herm esha
Company Reputation (References, financial
stability) 2 5 10 10 0 3 5 2 5 5
Favorable payment terms 10 5 5 5 0 3 0 4 10 2
Quality Systems that are best in class 10 5 10 15 7 18 10 20 17 15
Willing to carry inventory 15 8 0 15 10 0 10 11 8 5
Ability to source obsolete and difficult to find
components 5 3 20 0 5 0 25 20 12 20
For core products, can handle changes in
demand without a forecast 22 20 10 20 30 13 10 10 15 5
Standard lead time best in class (< 4
weeks)/Meeting OTD commitments 10 20 15 20 15 20 20 20 13 20
Electronic Design Capabilities 5 8 0 5 9 18 5 0 2 8
Highly responsive customer service 19 20 20 5 15 15 10 10 8 10
Long term strategic partner 2 6 10 5 9 10 5 3 10 10
Total Score 100 100 100 100 100 100 100 100 100 100

Form
• Increase efficiency:
– Manufacturer ➔ wholesaler(B2)/distributor(B2B) ex: AESCO ➔
Multiple retailers/OEMs is preferred to Manufacturer ➔ multiple
OEMs
Bulk breaking, cross-docking, regrouping with multiple
brands (reduces trucking costs and inv costs:
MinuteMaid), work closely with customers (OEM or
retailer) to avoid high inv and stock-out situations and be flexible
• Utility driven:
– Customers need Choice and Reliability/Support from every choice!
– Pre-assembled (auto, construction, electronics programmed
chips), Ready-to-consume drinks in ”tetrapak” mini-boxes ➔
Efficiency & convenience driven
– Instant coffee, Coffee filter-packs from Folgers, Coffee decoction in
tetra-pak, Nespresso Coffee-Cups; Ready-to-wear/eat (apparel,
cereal bar) ➔ Taste Vs. Convenience
– Shampoo, Detergent in Sachets and in multiple sizes ➔ Driven by
heterogeneity in purchasing power ➔ Increases market size
AESCO
Ownership / Possession
• Enabling transaction by making it …
• affordable (financing, hire-purchase [Vivek:

See next slide] and mortgages) … Tata Ace
• easy (GPay, credit cards, PayPal, M-banking,

wiring money, wallets),
• Instant transfer leading to quick action

(wiring money in place of checks or credit
cards, M-banking),
• safe (through banks, biometric, password
protected currency-less transaction, M-
banking in Kenya & Philippines, 3rd party
guarantee in international and commercial
exchanges) Majorly driven by FinTech
Vivek & Co. (Hire Purchase)
Vivek Limited, a public limited company, is a leading and respected

consumer electronics and home appliances retail chain in India.
Vivek popularized several brands by creating visibility and has the

distinction of being a market leader and trendsetter with continuous
support from the principal companies…
McKinsey raved about the Vivek’s brand as more trusted than the brands
it carries...
During the initial stages the consumer durables were considered luxury,
and so to make them reach the mass middle class families Viveks started
an in-house easy, monthly installment scheme. This also helped the
company increase its business and gain new customers.
Ref: http://www.indiamart.com/vivek-limited/#profile
After-sales Service
• Making sure that consumers
• Could buy without any uncertainty about product’s performance (money back
guarantee, warranty & extended warranty, insurance)
• are able to install/prepare and use the product fully and efficiently (product
manuals, online help, demonstrations, sales personnel, 24-hour service, FAQ
• could easily customize the products to their needs [VARs, AESCO]
• know what to do when the product breaks down or misbehaves (call center, 3rd
party service certification and training, back-up plan suggestions for customers)
• have minimum downtime when the product breaks down (24-hour service,
guaranteed repair time -IBM, Cat, B&D-, availability of spare parts, clear
instructions on what’s under warranty etc.)
• get regular updating on specs, modifications, etc. (Field Service Circulars,

Documentum)
Majorly expensive to maintain a very good and reliable after-sales service setup
Cost to a channel member (firm)
Cost to fill the gap
Extent to which gap is filled

1995-2000 DotComs possibly
operated here
Cost to a channel member (firm)

Cost to fill the gap
Post 2000:
Technology,
Ops Mgt, Novel
business model
Q1: Look at Total Channel Cost and ask who should do what.
Remember that someone has to do the function.
Q2: How each would be compensated?

Cost
Vs.
Utility
$ Utility to Customer
Cost to channel member (firm)

to fill the gap
Q3: Cost vs. Benefit Perceived trade-off?

Customer too can be a channel member
Cost
Vs.
Utility
IKEA
here $ Utility to Customer
Cost to channel member (firm)

to fill the gap
cost to Customer
to fill the gap
Customer too is a channel member!

Channel Flows

Manufacturer Platform
Flows
Physical Possession
- Inventory, logistics,
Bulk breaking, Returns
Ownership
- when title transfers
Channel Gap Negotiation
Knowledge / Skill
Elements Promotions
Financing flow
Place, Time, Form. Risk taking / Guarantee
Trust (due to info. asymmetry). After-sales service
Possession/Ownership, Payment. Payment
Consumer Platform
Service Outputs Demanded (SOD)
Channel Gap
Elements
Place, Time, Form. Flows
Trust (due to info. asymmetry).
Consumer Platform
Service Outputs Demanded (SOD)
Some Examples
Service Output Demanded Element(s) Flows/Functions
Stay on the same webpage Place Answer Dash [bring responses in]
Roadside repair Place, Time 3rd party service people [Tata Ace]
Home delivery of grocery Place, Time, Inventory, Logistics, Ops Mgt, OR,
Form Returns, Payment, Labor, Bulk
Economies of Breaking
Scope
Customization Place, Form, Inventory, Skilled labor, Logistics

Economies of [AESCO], Bulk breaking
Scope, Trust
Party-time need Place, Time, Inventory, Bulk-breaking, Analytics,

[Occasions based] Trust Marketing, [TAMUL Plates]
Special purchase Place, Time, Trust Inventory, Analytics, Skilled labor

[C2C, Best Buy]
Service Outputs Demanded (SOD) are sometimes subtle,

but they definitely vary across segments and are dynamic.
Flows Providers
Various
independent
firms (Channel
members including
manufacturer and
Channel Gap consumer)
perform functions
Elements to fill the gap:
Channel Functions
Place, Time, Form. or Flows
Trust (due to info. asymmetry).
Consumer Platform
Service Outputs Demanded (SOD) are sometimes subtle,
but they definitely vary across segments and are dynamic.
Some commonly observed Channel Flows
Varies across
Inventory,
products
Logistics LAST MILE
CONNECTIVITY
TRUST
Physical Physical Physical
Possession Possession Possession
Ownership Ownership Ownership
Promotion Promotion Promotion

(Push & Pull)
Producers Wholesalers Retailer Consumers
Negotiation (Distributors) Negotiation (box-type, Negotiation
(manufacturers
(box-type, VARs,
)
Financing VARs) Financing Chains) Financing
Risking (Insurance, Risking (Insurance, Risking (Insurance,

Guarantee) Guarantee) Guarantee)
Ordering Ordering
Ordering
Payment Payment
Payment
After-sales
After-sales service, After-sales Service,
Service, Spare Parts
Spare Parts Spare parts
Commercial Channel Subsystem
Trade promotions. Most important Price discounts.

But sometimes not passed thru, & diverted. Contractual element [formal Aisle display (fmcg).
➔ Grey market. and informal] Demonstration (durable) by sales poeple
Upsets supply chain These are less-formal (Tata Ace, AESCO) trained by manufacturer
operating efficiency and flexible or done by mfr in shop-in-shop format [Best Buy]
• Wholesalers sell to independent retailers in a city (and
nearby towns) and offer services like
• credit,
• alternatives,
• flexible delivery schedules,
• returns processing, and
• market information on brands’ turnover, etc.,
• Distributors reach out to many wholesalers and retailers in

order to
• distribute a given product/brand wide
• for a said margin agreed upon before with the
manufacturer
• but does not offer as many services as
wholesalers do, etc.
Neither indulges in marketing.

Which Channel Member Provides Which Flows?
Flow to be Examples of Intermediaries Who Performs Flow
Performed:
Physical Possession Contract warehouse; Shipping company (e.g. Federal Express, UPS, air
freight); Distributor; Retailers (including bricks and mortar, catalog, online);
Customer
Ownership Contract warehouse; Distributor; Retailers (including bricks and mortar,
catalog, online), Customer
Promotion Distributor; Independent sales representative; Broker; Retailers (including
bricks and mortar, catalog, online); Franchisees
Negotiation Distributor; Export Marketing Company; Independent sales representative;

Customer
Financing Distributor; Broker; Retailers (including bricks and mortar, catalog, online);
Credit card company; Banks; Franchisees; Customer
Risking Distributor; Retailers (including bricks and mortar, catalog, online); VAR,
Credit card company; Franchisees
Ordering Distributor; Independent sales representative; Retailers (including bricks and

mortar, catalog, online); Franchisees; Customer
Payment Distributor; Shipping company (e.g. Schneider); Retailers (including bricks

and mortar, catalog, online); Franchisees; Customer
After-Sales Service
Retailer / Dealer, Distributor, Certified 3rd party people, Customer
One-stop-shopping, Solution
Marketing Flow Cost Represented [Fixed and Variable]
Physical possession Storage and delivery costs –-onward and reverse-logistics--
Ownership Inventory carrying costs [including handling costs, and costs of loss,
returns, damages]
Promotion Personal selling, sales promotion, trade show costs, coupon handling
costs
Negotiation Time and legal costs, especially between channel members and in
B2B markets.
Financing Credit terms, terms and conditions of sale
Risking Price guarantees, returns allowances, warranties, insurance.
Ordering Order-processing costs
Payment Collections, bad debt costs
After-Sales Service Labor, Spare parts, Skills training, [Cost of Consultation, Cost of
identifying, gathering and coordinating info. of complementary
goods for Solution-selling and One-stop Shopping]
Channel Flow Cost: THE EFFICIENCY TEMPLATE
(Segment specific)
WEIGHTS FOR FLOWS: PROPORTIONAL FLOW PERFORMANCE OF
CHANNEL MEMBER:
COSTS* BENEFIT FINAL 1 2 3 4 TOTAL
POTENTIAL WEIGHT (end-user)
[See next *
slide] .. (High,
Medium, or
Low)
PHYSICAL 100
POSSESSION**
OWNERSHIP 100
PROMOTION 100
NEGOTIATION 100
FINANCING 100
RISKING 100
ORDERING 100
PAYMENT 100
TOTAL 100 N/A 100 N/A N/A N/A N/A N/A
NORMATIVE N/A N/A N/A 100
PROFIT
SHARE***
* Entries in column must add up to 100 points.
** Entries across row (sum of proportional flow performance of channel members 1 through 4) for each channel member must add up
to 100 points.
*** Normative profit share of channel member i is calculated as: (final weight, physical possession)*(channel member i's
proportional flow performance of physical possession) + … + (final weight, payment)*(channel member i's proportional flow
performance of payment). Entries across row (sum of normative profit shares for channel members 1 through 4) must add up to 100
points.
Ex: BUILDING MATERIALS COMPANY EFFICIENCY TEMPLATE
FOR CHANNEL SERVING SEGMENT THROUGH RETAILERS:
UNDISGUISED DATA
WEIGHTS FOR FLOWS: PROPORTIONAL FLOW PERFORMANCE OF
CHANNEL MEMBER: [Can be obtained from ranked
Data-of- who-provides-how-much also]
COSTS BENEFIT FINAL Mfgr. Retailer End-user TOTAL
POTENTIAL WEIGHT
(High, Medium,
or Low)
PHYSICAL 30 High 35 30 30 40 100

POSSESSIO
N
OWNERSHIP 12 Medium 15 30 40 30 100
PROMOTION 10 Low 8 20 80 0 100
NEGOTIATION 5 Low/Medium 4 20 60 20 100
FINANCING 25 Medium 29 30 30 40 100
RISKING 5 Low 2 30 50 20 100
ORDERING 6 Low 3 20 60 20 100
PAYMENT 7 Low 4 20 60 20 100
TOTAL 100 N/A 100 N/A N/A N/A N/A
NORMATIVE N/A N/A N/A 28% 39% 33% 100
PROFIT
SHARE
Product Availability
of physical goods
Physical availability
Digital availability
(on websites like Amazon.com)
Distribution is through distributors (formulators)
and dealers / retailers / machine shops
➔ No inventory OR inventory in
a few warehouses OR with mfr
➔ Inventory in every point
➔ Cost (locked up capital, risk of obsolescence,
➔ Info on availability: 100% reach
damage and loss)
into each “searching” customer
➔ Coverage limited to marketplaces / malls
➔ “Availability to Acquisition” takes
➔ Margin for each member
time
➔ Availability = Immediate acquisition BUT…
➔ Delivery cost is high, aggregated over
Availability = f (demand forecasting, Space)
all customers over time.
Ideal for mfrs with vast number of customers

OR mfrs with small number of Ideal for mfrs with small number of customers
customers located in a cluster, and bulky items spread wide (i.e. unpredictable demand)
➔ Traditional channel and easy-to-ship products ➔ Amazon’s AWS
A given manufacturer-brand’s availability
In a minimum In all
number of outlets: outlets
Chosen/selected [Intensive]
[Exclusive]
Manufacturer influence is high [see next slide] Free Riding [TAMUL?]

➔ Retailer “selling efforts” high ➔ Retailers “selling efforts” lowest
➔ Better conversion from foot-fall to sales ➔ Selling efforts IS price discounts
➔ Retailer less dependent on price ➔ All good retailers lose interest
discounts ➔ Margin high ➔ Sales go down [See 2nd slide]
Alignment of retailers positioning Mass market reached but conversion is
with brand’s positioning poor UNLESS brand is strong
Brand can ask for special treatment Brand has to pay money for any special
[new products, inventory, info. sharing, treatment in retail premises
joint planning of PUSH & PULL] Retailers use ‘bait & switch’ strategy
Exclusivity (for high-end brands)
➔ PULL efforts are needed to ➔ PULL efforts needed to compensate

convince consumers to fill some for lack of PUSH at retail side
channel gap (Place, Time) themselves.
Retailers can also be trained to do “marketing” but is very expensive.
Recall Soren Chemicals case
Courtesy: Text Book “Marketing Channel Strategy” by Palmatier, Stern and Ansari, 8th edition, page 169
Courtesy: Text Book “Marketing Channel Strategy” by Palmatier, Stern and Ansari, 8th edition, page 169
Retailing
Session 6 - April 21 - 2021

Retailing, as we know it, is vanishing!
Or, is it?
Announced store openings and closings
Excluding grocery stores and restaurants: USA
Ref: America’s ‘Retail Apocalypse’ Is Really Just Beginning

By Matt Townsend, Jenny Surane, Emma Orr and Christopher Cannon. November 8, 2017
https://www.bloomberg.com/graphics/2017-retail-debt/
Announced store openings and closings
Excluding grocery stores and restaurants: USA
Many stores are “leveraged

Over-supply: buyout” supported
Built in the 90s by extravagant PE funds.
Too much debt came home
to haunt post 2010
Brick & mortar
Retail chains
Competition (excluding Online retailing
grocery stores)
--- Post 2010
Poor business Poor mix of traditional

model ? channel’s benefits and
online efforts?
Pundits claim that grocery stores are next in line now!

Retail Match-up
ex: Dutch flower market
Ex. of Supply factors in market:

Branded Vs. non-branded Vs. Store brand
Manufacturers/wholesalers Brands across quality tier / cost structure
Regulated Vs. unregulated, Variety
Spare capacity but unpredictable
Excess capacity ➔ Trade deals
Supply side factors Many suppliers ➔ Good prices
Flexible manufacturing, quick design, …
Acquisitions, Location &
Store/web layout, Operations, Logistics, IT,
Smart Retailers Reading the market & Fast responsiveness,
Data analysis, sales-force training
Consumers differ on “why”, “what”
Demand side factors Quality Vs. Value Vs. Price seeking
Seek branded Vs. non-branded, C2C
[Marketing + SODs] Seek fashion Vs. comfort, wom,…
SODs (place, form, time,..),
Numerous individual
Numerous i consumers unpredictable
Shopping freq, search/shopping costs
Service (customer-product match)
Economies of scope
Analyzing Strategically Feasibility of a Retail Match-up
ex: Dutch flower market
Flower auction by
flower producers
What you get varies Wholesaler

from one day to next
but cost of acquisition is low: c2
You can seek consistent
assortment of flowers but
SUPPLY SIDE cost of acquisition is high: c1
DEMAND SIDE
People may like a good price but some of them may want to buy a specific flower type.
Knowing that certain retailer carries a consistent assortment, consumers need
not second guess what would be available with that retailer.
Choices for specific flower buyer segment:

1. Go to C2C retailer: Get the flower required and pay a higher price
2. Go to non-C2C retailer: Get the flower required at a low price (Probability = Pr)
OR, if the flower is not there, go to C2C retailer to buy it at a high price.
Choices for other segment: Choose the retailer based on habit, proximity and price.
A simple, powerful demand Model:
Consumers live on a market represented by a street here.
Retailers can put up their shops at the corner of the street.
Should both choose C2C? ➔ Both retailers source flowers from Wholesaler
Should both choose price-based attraction? ➔ Both would go to Auction
Should one choose C2C and let the other go for price-based attraction?
Demand parameters: Size of specific-flower-seeking segment

If a retailer sources from auction, prob a consumer will find specific type
Retailer who buys at Auction enjoys cost advantage: c1-c2
R1 R
2
p1 X 1-X p2
Price John
Price
to choose lives here
Cost to go to R1 Cost to go to R2 to choose
Ask which retailer would John choose, if he seeks specific flower?
Ask which retailer would John choose, if he does not seek specific flower?
Impact of Difference in Cost of Procurement –
At Wholesaler (c1) Vs. At Auction house (c2)
Retail Match-up
ex: Zara, the Instant Fashion
Brands across quality tier / cost structure
Regulated Vs. unregulated, Variety
Supply Many suppliers ➔ Good prices Zara owns
Manufacturer/ side factors Flexible manufacturing, quick design,
Integrated group of designers [no heroes], …
Smart retailer
retailer
Reading the market & Fast responsiveness,

Seek branded Vs. non-branded, C2C
[Marketing + SODs] Seek current fashion Vs. comfort, wom.
SODs (place, form, time,), unpredictable
NumerousNumerous
individual
i consumers Shopping freq, search/shopping costs
Service (customer-product match)
Economies of scope
https://en.wikipedia.org/wiki/Zara_(retailer)
Retail Match-up
ex: Big traditional retail formats (Non-digital goods)
Big Retail Formats
Grocery chains, Focused retail chains Hyper Mart/ WalMart

Department Stores Discount Stores
-One stop shopping -focus on category -One stop shopping
(grocery goods / durables) (electronics, beds, toys, (of everything!) at
furniture, books, organic foods) Every-Day-Low-Price [Dem, Ret]
-Quality [Sup, Dem] [Dem, Sup]
-Variety [Sup, Ret, Dem] -High service level [Ret, Dem] Low cost sourcing [Sup] [see next
-Service (tech help, -Consistent & slide]
ambiance, car-park, store state-of-art assortment Shallow assortment [Ret], No service
hours) [Dem, Ret] [Sup, Dem] Cross-docking, Store-location [Ret]
-Consistency in assortment -Price matching / Powerful cash management [Ret],
[Dem, Sup] High-low pricing High logistics efficiency [Ret]
-Within city locations extended warranty [Ret, Dem] Bargaining power over suppliers [Ret]
[Ret, Dem] -Within city locations [Ret, Dem]
-Average margin & inv. -High turnover [Ret] Low service [Ret]
turnover [Ret] -Strong sourcing [Sup] Low consistency, Lot of private /
-High/Low pricing -Close working relationship with store labels [Dem, Ret]
Promotions [Ret, Dem] suppliers [Sup] Off-city locations (generally) [Ret, Dem]
Dem: Demand (both Marketing and SOD driven),
Sup: Supply side factors that enable the retail format
Ret: Retailer functions (Operation-factors)
Retail Match-up
Non-digital goods
Brands across quality tier / cost structure
Manufacturers/wholesalers Regulated Vs. unregulated, Variety
Many suppliers ➔ Good prices
Supply side factors Flexible manufacturing, design houses, …

Smart Retailers Reading the market & Fast responsiveness,
Seek branded Vs. non-branded,
[Marketing + SODs] Seek fashion Vs. comfort, wom, C2C…
SODs: place, form, time, Need arousal
Numerous individual
Numerous i consumers unpredictable, Shopping freq,
Search/shopping costs, Service
(customer-product match), Economies of
Retail Business Proposition:
scope, …
Pick one or two supply-side factors and MATCHING demand-side factors.
Set the required Retail Operations (i.e. Channel Functions) to make the match.
Offer a proposal to the beneficiary to justify a good price!
Use technology and information analysis to make the match-making process efficient, scalable. How many
Check the competitive landscape (intra-format is more important than inter-format), Match-ups?
and ensure Profitability, and long-run stability.
“Why, What” [Mktg-Dem]
Retail Map 1 High assortment depth,
consistency
Non-digital goods in a given category Specialty Stores
(Phone, apparel, camera)
Category
Killers
Toys,books,
Discount
electronics,furniture)
Specialists
(Pay for Less)
Cost Containment [Ret] High Price [Mktg-Dem]

Look for h [Ret] Department Service dimensions [SOD-Dem]
Poor service [Ret] Stores, Personal care [SOD-Dem]
Low procurement cost [Sup] High procurement cost [Sup]
Deep Supermarkets but good merchandising [Ret]
Discounters
[Aldi]
Mass
Merchandisers
[One or two]
Hyper-
markets High
assortment width
across categories
Targets a wider market [Mktg-Dem]
Retailer’s Generic Goals
1. ATTRACT:
Location, Location, Location [be where customers go, proximity, top-sites in web-search]
Habit-based shopping [comfort zone, stickiness on web] = f(shopping frequency,
ambiance)
Adv. / Promotions (New product launches, New Year sale, price-featured adv.) and
additional freebies (cooking class, wall-painting, wooden floor laying, google-map,
GPS-tracking, gmail etc.) so as to be always present in the customer’s top-of-the-mind
➔ Build a fort around the customer! ➔ Quick recall and en-slavement
Loyalty programs, rewards: Effective in hiking Switching Costs!
Positioning on Pricing: EDLP, Hi/Low, Double Couponing policy, Price matching.
2. RETAIN / REPEAT VISIT [Make her hang-in there with no guilt feeling]
Store layout, Merchandizing, Assortment width and depth (size, design, color/ smell etc.,
brand-name), Ambiance, in-house SODs (Convenience including easy purchase decision,
quick check-out and easy returns-process, technical/sales help, eateries and kids-care,
etc.). Online: webpage layout, easier browsing, informative & interactive, delivery
commitment, …
3. Make her SPEND

Merchandizing, Layout [dairy products in grocery stores, IKEA], pricing & In-store
unadvertised promotions, strong sales force, price matching policies, paying facility/safety
guarantee (in online)
Retailers typically look for “Sales & Profits / Assets”

Assets: Floor space, Sales people, Inventory
Session April 26, 2021
Absorption of Flows by others
Franchising
Channel Conflicts
Outsource a channel flow? Out-source
the flow (ex: pay DHL for this
Cost of providing the Flow (ex: inventory) Flow as and when it happens)
Vertically
integrate
the flow
Annual rental cost of the

warehouse (or, if you own
warehouse this is annual Cost
of capital locked), salary, etc.
that are irreversible in a given
year
Units handled in a year
Amazon and other online retailers have built distribution centers

Companies hire “clouds” instead of buying IT machines: Impact of channel?
Vertical absorption of flows
• Start filling the Channel Gap yourself by assuming fully one or more of the
Marketing flows, or buying the members who provide those flows.
• Seek efficiency on time dimension [ex: auto-financing by auto-mfrs, Doctors
owning test-labs]
• Seek effectiveness [ex: Gino in Industrial segment, high-end fashion goods
marketers (zara integrating backward to own designers, and forward to own
retailers)]
• Seek control and raise entry barriers [ex: coffee retailers buying coffee plantations
and OJ makers buying orange groves (backward), carbonated drink manufacturers
buying bottling plants (forward), insurance companies owning hospitals (lateral)]
• Build bargaining power [store label by retailer (backward), factory outlet by
manufacturers (forward)]
• When the “marketing strategies are hard to execute across various intermediaries
[ex: marketing of a less-priority item like TAMUL plates] ➔ When a channel
member does not help with a new product, temporarily absorb the flows
• A business proposition based on “Asset” Specificity [The other member is
exclusive to your products and no-one else in the market can do it for you]
– Assets: Knowledge (jewelry), relationships (Japanese auto companies), brand equity
(private label), built-in capacity in warehousing and other material-handling
equipment (bottling plants, other unique products such as explosives/nuclear/oil and
other power materials, current dilemma of some 3PLs)
Decision making road map: Vertical Absorption of Flows
Presume outsourcing is more attractive
Start than vertical integration
here GO!
NO
Is potential SOD/ business major or substantial? Outsourcing

YE preferable
S
Will Examine how function will develop Will

performance substantial
ambiguity company-
be high? NO NO specific
investments
accrue?
Outsourcing remains
attractive
YES
YES
Volatile, uncertain environment
(accelerates effect of company-specific
investments)
Vertical Integration,
increasingly attractive
Middle Ground
(Neither free-form nor hard integration)
• Members remain independent as in free-form, but the channel needs are

identified and administered
– by a steering committee, or by a key player (Category Management,
CRM –Customer Relationship Management--, SCM –Supply Chain
Management--, Manufacturers Reps, etc.)
• and channel flows are enforced
– through incentives (Administered Systems) or
– through contracts (Co-operative organizations such as Self-Help
Groups in developing countries, coop banks)
• Members float a non-profit organization constituted by them; members are

contractually obligated to buy a substantial part through it; helps in common
issues:
co-operative advertising, accounting, personnel recruiting and training,
management consulting, new technology feasibility studies and subsequent
adoption, “info. sharing”, organizing trade shows, ...
Middle Ground
(Neither free-form nor hard integration)
Administered Vertical Systems:

Channel flows to meet Channel needs are enforced through;
incentives (trade deals),
loyalty programs (preferred dealer, MFN),
management consulting (category management, forecasting),
data sharing,
unconditional technical support,
strong warranty programs,
personnel training programs, etc.
Manufacturer / Franchisor
Control / Initial Fees and/or

Influence Monitor
% of Sales Revenue
- Royalty
Outlet design
Location - Advertisement fee
Brand Image - Service fee, etc.
Service
Product “recipe” Retailer /
Investment Franchisee
Marketing (demand Ultimate responsibility
creation, tackling for the business success
competition, etc.)
Non-competitive
clauses Revenue
Customer
Manufacturer / Franchisor
Help in ... Initial Fees and/or

% of Sales Revenue
- Royalty
Raw material - Advertisement
supplies,
- Service, etc.
Machines,
Training,
Health insurance, Retailer /
Locating investors,
Franchisee Ultimate responsibility
Product recipe,
Marketing and for the business success
Operations
management, and Revenue
Book keeping
Customer
Types of “franchising”
Gas
Station
Auto Fast The

Product
Licensing Complete
Alone and [a “diluted” form of
Food
auto-parts Franchising;
Business
(Authorized dealers Starbucks has many
licensed stores in the US, (Franchisor /
Dealerships)
[brand name for both]
but many franchised stores Franchisee)
in Europe]
A good website: http://www.evancarmichael.com/Forums/viewtopic.php?p=10245

Franchising Advantages
• Consistency across areas/time/products ensured (same taste of
pizza from Pizza Hut anywhere)
– an essential ingredient of marketing; consumer confidence and
patronage is up; efficiency in monitoring achieved
– Vs. vertical integrated form: franchisee has residual rights on profits More
incentive to be efficient and effective
– Vs. Totally independent owner: franchiser has more incentive to help co-
ordination of marketing flows, shared market info.
• For a new business, fast and efficient (i.e. less costly) growth is ensured →
McDonalds, StarBucks
• Best combination of the ‘global’ product / business strategy and the local
market knowledge ➔ Glocalization
• Cannibalization across retailers for the given product is reduced → Pizza Hut
Franchising - Problems
• Monitoring is expensive, suggestions are detested by many (see next page)

• Problems of localization Vs. standardization
• Sharing of marketing flows is not always clear cut
– revenues are important for franchiser while profits are important for
franchisee
• Free riding among franchisees (advertising by one may increase sales in
others) less incentive to promote the product
• When new franchises are started near the existing ones, area rights are
fought for:
– more franchisees in a given area is good for franchiser, but not for franchisees
(think of the beauty of Avon’s structure)
– more franchisees may increase the pie by fighting off competition and
increasing the primary demand, but how to share the pie?
– a good model is needed for an objective analysis
Jiffy Lube [After sales service dimension]
Jiffy Lube® pioneered the fast oil change industry in the United States in 1979 by establishing the
first drive-through service bay, providing customers with fast and professional maintenance
service for their vehicles…
The company, partly owned by Shell (?), was ranked first on National Oil and Lube News 2011
“First drive-through” and still holds # 1 position after 20 years ➔

Strong pioneer advantage characteristic of “channel gap filling” companies? Other ex: e-bay,
Uber, Dominos, Amazon AWS, iTunes (downloading part).
Jiffy Lube was ranked number 15 in Entrepreneur Magazine’s 2012 Franchise 500 and number
73 on Franchise Times 2011 Top 200 Franchise Chains by Worldwide Sales.
In 2003, Jiffy Lube was the focus of a KNBC investigative report that alleged that Jiffy Lube was
charging customers for services not performed. During the investigation, five out of nine Jiffy
Lube locations charged undercover reporters for work that was not performed.
After the investigation aired, Jiffy Lube performed training program, installed cameras in their
stores to allow customers to observe repairs.
In May 2013, NBC (Los Angeles) television investigation reported not only of fraudulent
practices detected again at the majority of investigated Southern California Jiffy Lube stores but
that the current fraud was worse than that found in the original investigation.
Franchising - Problems
• More time spent in discussions and ‘fights’ when times are bad or
when ego of the players surface, or due to market dynamics
– market dynamics
• new technology (1-800 number, internet),
• changes in franchisor’s business as in PH-Tricon case,
• smart competitor moves (Home delivery, online),
• demographic and life style changes
• takes time to implement changes in ‘flows’ to exploit new
opportunities
• Company owned stores (dual distribution)
– to be used for supporting (ex: trying new ideas, maintaining price levels, slow-
moving brands) but ‘leveraged’ against franchisees sometimes
• Federal laws, and obviously state laws, support franchisees
– historically franchisees were exploited
– many franchisees are small or family businesses
– “control” is always looked down and is a suspect
Channel Conflicts
Channel Power
Spotify Free for basic music
Music streaming app Monthly fee for premium use
Make money on ad
(Android-playstore, Internet)
Music P
Payment Very small commission
Use app store to download app and Gateway for finance intermediary
play music, and pay for premier service
Music P, periodic subscription fee

paid by premier customers
Customers listening to
music streams
Spotify’s complaint, filed on Monday (11 March, 2019) to the European Union’s
antitrust arm, alleges that Apple in recent years has abused its control over
which apps appear in its App Store with the aim of limiting competition with its
streaming service Apple Music
Free for basic music
Spotify Monthly fee for premium use
Music streaming app (iOS) Make money on ad
Music 0.7 P
Apple Apple gets 30% of P
Apple app store to download app and Gateway UNTIL 2016
play music, and pay for premier service
Music P, periodic subscription fee

paid by premier customers
music streams
Spotify’s complaint, filed on Monday (11 March, 2019) to the European Union’s
antitrust arm, alleges that Apple in recent years has abused its control over
which apps appear in its App Store with the aim of limiting competition with its
streaming service Apple Music
Monthly fee for premium use
Make money on ad
Spotify Spotify’s own
Music streaming app (iOS) Website for payment
Music
Apple app store to download app and

play music, and pay for premier service P, periodic
subscription fee
Music paid by premium
customers.
Apple payment
Customers listening to Gateway
music streams Bypassed:
From 2017
Monthly fee for premium use
Make money on ad
Spotify Spotify’s own
Music streaming app (iOS) Website for payment
App relegated to
Distant shelf!
Apple app store to download app and Paying and free
play music, and pay for premier service customers
dropping off;
Less subscription
Less Music Fee, less adv
revenue
music streams
Spotify’s complaint, filed late Monday (11 March, 2019) to the European Union’s antitrust arm, alleges
that Apple in recent years has abused its control over which apps appear in its App Store with the aim of
limiting competition with its streaming service Apple Music… Spotify claims Apple made it difficult for rival
subscription services to market themselves to users without using Apple’s payment system… Spotify said
its app doesn’t face the same restrictions in the Play store operated by Alphabet.
Apple Power base: Apps need iOS to operate efficiently.

Listening to music on Spotify website not as user-friendly as listening on app.
Spotify bypassed Punishment received by
Apple gateway Spotify in iOS powered app
but ….
Spotify = aggregated over all apps-OS
271 million
[124 m paid]
https://www.t4.ai/industry/music-streaming-market-share
Channel Conflicts: Some examples
• MacDowell (manufacturer) Vs. San Fabian (Distributor)

➔ Canadian mfr, Philippines market, ~15-20 years’ exclusivity, stumped growth
➔ Mfr threatens to go intensive in distribution
• Tricon --PH, KFC, Taco-- (franchisor) Vs. PPCL (franchisee)

➔ 20 years partnership ➔ Tricon asks PPCL to drop off chicken brands
competing with KFC, or drop the franchisee
• ABB starting e-commerce claiming that channel members are not “marketing” ABB
• Gino Vs Jingua
• Carrefour Vs Douwe Egberts
• Apple Vs Spotify (other vendors such as book publishers)
• Esys Vs. SanDisk Vs Samsung
• Musk Vs. Car dealers

The complex interdependency
• Every channel member contributes, partially or in full, to one or more of the

flows but each is a separate entity, having its own business objective (growth,
profit maximization, margin, risk-level). BUT, each service output is worth
somewhat less when other outputs are not provided 100 % effectively and
timely.
• Competition can come from other channel formats threatening the business of
every channel member in the current channel [e-commerce, Domino’s delivery]
• Dynamics due to new technology (ex: AI), social and demographic changes,
globalization, increasing end-customer demands, competitors [Domino’s Vs. PH]
➔ Dynamic forces affect the interdependency
• Customer segments [Marketing-strategy based Vs. Channel-based]
Need for one member to be the channel champion

for long term strategic direction
Power
Derived from owning a resource

• Physical (physical presence) - ex: PPCL, Apple, Carrefour
• information /knowledge /expertise (scanner data, panel
data, analytical modeling abilities) – ex: Retailers, Social
Media companies
• brand name as reputation (ex: trustworthy) – ex: PH,
Douwe Egberts
• brand name as the “authority” – ex: MacDowells, Synthes
– that is a ‘critical’ part of a marketing flow
– that no other channel member owns
– that can not be obtained from outside or replaced with (or adjusted by) anything else without
spending considerable time and money (ex: brand image, logistical set up)
– that can be used outside the system with almost same returns
Power Wielding
• Reward based Power (carrot)

– Perceived rewarding potential of A drives B to do something
not in line with his agenda (random trade deals, slotting
allowances, sales force compensation)
– Reward compensates B’s skill and his efforts, both of which are
unobservable by A
– Reward is a function of the service output achieved and the
cost of providing that flow, and opportunity cost.
N.b. Book mentions 5 types, but having 2 major types is clearer.

Power Wielding
• Coercive Power (Stick)

– because of expected “punishment” from A, B would do something
not in line with his agenda (ex: GPM, dual-channel, Jingua’s threat)
– to be used very sparingly because of ‘loss aversion’ tendency of
people it reduces trust level and leads to eventual severing off, and
could be illegal
• use coercive power to control
unethical / illegal activities
• But sometimes is needed to show that
power actually exists
– EABL example in the book where they won a court battle with a run-
away distributor that put fear in other distributors so they toe the line
Trust and Commitment
• If wielded often, the power

– will lose its impact and be counter-productive
– will force others to go for counter-power resulting eventually in a
disaster for all
• Use power to build trust and commitment
– takes time and careful effort
– reduces uncertainty, increases effectiveness, decreases
opportunistic behavior
– commitment is a signal of willingness to co-ordinate (to be
credible and deliverable)
• Use data and marketing models to measure the impact of various flows
and thus the “power over consumer choice”
Conflicts Erode Relationships
CONFLICT _
Level of tension, frustration, ECONOMIC SATISFACTION
disagreement in a relationship of focal firm: positive affective
experienced by focal firm response to financial rewards
derived from relationship or
_ economic gratification
_
TRUST
Focal Firm’s belief in
counterpart’s honesty + NON-ECONOMIC SATISFACTION
and benevolence of focal firm: positive affective
+
response to psycho-social aspects
of relationship, or gratification
COMMITMENT from non-financial sector
Focal Firm’s desire to continue
relationship and to sacrifice
to build and maintain it
Based on Geyskens, Steenkamp, and Kumar (1999)

Types of Conflicts
High Cooperativeness
Collaboration, (see
Accommodation next slide)
Coordination or
problem-solving
Compromise
Low High Assertiveness
Assertiveness
Competition or
Assertiveness:
Avoidance Aggression (I lose one
Being concerned
eye, you lose two!)
about one’s own
Low Cooperativeness bnefits.
Cooperativeness: Being
Based on Thomas (1976) concerned about the
other party’s benefits as
well
Co-ordination Strategy: Need for a Channel Captain
• Bring each member’s objectives in line with the overall objective

– define the overall objective in terms of the service outputs desired,
now and later during the product life cycle [MD Vs. SF]
– decide on the channel-organization structure, as a whole and for each
flow (in-house or out-sourced) [Geno Vs Jingua]
– understand and explain the reasons but plan for contingencies
[Domino’s Vs PH; PH Vs. PPCL]
• Institute policies / use “other” ways
– to align each member’s agenda with the overall objective is a must
and can be achieved by using detailed & stringent contracts, using
channel power, building trust and resolving conflicts early.
• In general …
– understand there are ‘comparative advantages’ (Ricardo Theory)
across channel members
– Co-operate to enlarge the pie and compete to share the enlarged pie
– look for both effectiveness and efficiency, probably with different
weights in different stages of the product life cycle etc.
Conflicts Resolution
• Conflicts are unavoidable; so understand their sources and address them
– Are they solvable and are the parties willing to solve? (look for
intensity and frequency of flares)
– If efforts-observing is the issue, be innovative in coming up with self-
enforcing mechanisms/policies or monitoring systems
– If it is a territorial issue, do research and build models to analyze in
detail the various options, with inputs from the members concerned
– If marketing is the issue, accept that channel members cannot do
marketing but can help manufacturers in that
– If market risk or uncertainty are the causes, do market research and
come up with innovative option-models to deal with them [e-
commerce]
– If investment is the issue, build models and analyze ROI of the
situation along with the members concerned
– Avoid miscommunication, clarify the differences in perception of the
flows/outputs, discuss with facts and not opinions, don’t make the
issues personal and an ego-issue but remain professional
– DO THESE SYSTEMATICALLY
First Session April 28 - 2021

Give GPM
Or
Retailer Go away Manufacturer 1
Accept GPM No GPM

Retailer Retailer
Removes
the brand.
Retailer makes profits Retailer makes profits ??
Manufacturer loses but … Manufacturer loses.
GPM: Guaranteed Profit Margin

Give GPM
Or
Accept GPM No GPM

Retailer Retailer
Removes
the brand.
Manufacturer loses but … Manufacturer loses

Mfr 1
Accept Reject
GPM GPM
Accept -2, -2
GPM NE
-3, 3
Mrf 2
Reject 3, -3 -4, -4
GPM
If Carrefour removes
both the top brands
from the shelves
Only equilibrium is top-left cell because for both “Accepting” is the dominant strategy.
Thus, in Nash Equilibrium, both lose.

Mfr 1
Accept Reject
GPM GPM
Accept -2, -2
GPM NE
-3,3
Mrf 2
Reject 3,-3 0, 0
GPM
Carrefour cannot
afford to survive
without them, and
so withdraws the
Mutually best would be the Bottom-Right corner.
threat and goes back
But, each Manufacturer is afraid that the other would accept GPM
and hence offers themselves. Thus, in Nash Equilibrium, both lose.
to business as usual.
“Zero” is base level
Solution: Nash Equilibrium
• Equilibrium: Outcome of the strategies the rational players

would resort to if given the option.
– Nash Equilibrium (the best course of

action you take given the best
course of action your competitor
takes, and vice versa; neither of you
would be better off by moving away
unilaterally from the NE strategies)
Give GPM
Or
Accept GPM No GPM

Retailer Retailer
Removes the brand.
Retailer makes profits Manufacturer 1

Manufacturer loses but …
Energizes other channels,
Keeps quiet Creates new channels ➔ CapEx

Manufacturer loses Manufacturer 1 makes profits ??

Mfr 1
Accept Rejected GPM,
GPM Created new channels
Accept -2, -2
GPM NE
-0.5,0
Mrf 2
Reject 3,-3 -0.25, -4
GPM
Top-Right is Nash Equilibrium ➔ Retailer loses

1.2 What are the physical/information flows in the old and new systems? In other words, how does it
work? (10 minutes)
Mandis Draw the following diagram on the board. The old supply chain was a sprawling, one-way
channel, and there was no choice. There was a sparse/ ineffective information flow.
Exhibit TN3 Old Supply Chain and Information Flow
Price discovery by Authorized price

word-of-mouth
Product Mandi Product

Farmer (CAs) ITC
By oxcart;
no travel
reimbursement Weight Measure
(Payment to farmers)
Other buyers
This Teaching Note is author ized for use only by TRICHY KRISHNAN, Indian School of Business (ISB) until A ug 2021. Copying or posting is an infr ingement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860.
Teaching Note—The ITC eChoupal Initiative 604-077
E-Choupal + Mandi
Exhibit TN4 New Supply Chain and Information Flow
Mandi
Soybeans (CAs) Authorized price
50%
Soybeans (travel expenses reimbursed) 50%
Farmer ITC
Oil, lamps, seed, etc.
Samyojak
Prices Market
Sanchalak Conditions
Internet
Weather Best Practices
2.0 What made this implementation successful? How was value created?
2.1 What principles did ITC use when conceiving/building eChoupal? (10 minutes)
There are at least eight principles as outlined in the analysis. List them on the board as
students come up with them. (Refer to Exhibit TN1)
2.2 What barriers – real and potential – did ITC face as it launched eChoupal? (10 minutes)
Channel Competition
Competition
Manufacturer Manufacturer
B
}
A
Co-operation
&
Competition
Retail Competition
Channel Channel
Intermediary Intermediary
End
consumers
Omni-channel
Consideration
Buying Stage and Channel Preference
Info collection
Repeat /
Decision Post purchase
and Action activities
Frambach, Roest and Krishnan in Journal of Interactive Marketing (2007)



Channel Flows served by a Physical person in high-involvement purchase
• Listing out all relevant attributes
• Proper ranking of attributes, and proper weightage on each alternative
• Bringing to light hidden devils to avoid ‘fear of unknown’
• How to synthesize all the info bits, done through repeated interaction
• Arrive at a decision rule [Max benefits, Min wrong outcomes, A balance?]
• Make a decision
• Instant bargaining possibility (on price Vs. features)
• TRUST
Pricing
Introduction, Cost
Second Session April 28 - 2021

Pricing
• Price & “Cost-to-produce, distribute and serve” are independent of each other.
https://www.youtube.com/watch?v=-sidhk0M4tY
• Should price be customer-centric in that it should match her “willingness to pay”?
• Is Price Cutting a desperate measure or strategic?

– Is price-cutting a useful marketing tool for gaining sales?
– Local manufacturers in the China market
• Is Low Price Strategy not a mainstream business?

– Japanese companies (cars, earth-movers, copiers) in the US, WalMart
• Is there really a Free Lunch in “2-sided platforms”:

– Groupon, Uber, Airbnb, Search engines [online]
– Newspaper and Malls [traditional markets]
Price
Cost
Cost Structure
Difference [across
•
industries]
Cost structure differ across industries
• Grocery store
• Automobile manufacturer
• Software (OS, MS-Office, cybersecurity, data analytics, ERP, etc.)
• Doctor's office
• University
• Airline
• Cellphone communication, cable TV
Cost Structure
Difference [across firms
• in an industry]
Sometimes it is possible for two companies in the same line of business
to produce the same type of product with different cost structures.
– One company might use a labor-intensive production method, resulting in high
variable costs, while another uses a capital-intensive method, resulting in high
fixed costs.
– One company take investments on a long-term basis and the other on a short-
term basis
• How might those differences in cost structures prompt the two

companies to price differently when facing the following situations:
– A recession causing a decline in industry demand
– Excess demand that could only be met by scheduling overtime
– An offer from a large retailer to buy merchandise at 20% less than the usual wholesale
price
but will accept merchandise without the company's brand name and resell it as a
"house brand."
Costs and Price change
• FACT: Only two kinds of costs are relevant for pricing established
goods in an established firm!?
1. INCREMENTAL: Costs associated with changes in sales (affected by

changes in pricing). Includes variable costs and some fixed costs.
2. AVOIDABLE: Costs that were planned but have not yet been incurred
(which can be stopped). Non-sunk costs. [Sunk: storage room rent; Non-
sunk: daily labor to move the goods in the storage room]
Identify Incremental
Variable Costs
• VARIABLE COSTS ARE GENERALLY INCREMENTAL / AVOIDABLE
• But be careful of averages! The incremental variable cost for a change in sales is often not equal to the average
variable cost
• Examples:
– Overtime vs. average cost production;

– Depreciated value vs. market value of an asset
– Costs from multiple sources using different
technologies (joint product vs. prime
sourcing);
– Average over different types of customers.
Identify Incremental
Fixed Costs
• Some fixed costs are also incremental for pricing
– They are the fixed costs incurred to implement

a change in pricing.
• Most fixed costs are not incremental
– Since they do not change with a change in

price or sales, they are not incremental. They
have no impact on the relative profitability of
alternative pricing strategies.
• Examples:
– Product Development Costs, Advertising

Discussion Question
• A sporting goods store purchases running shoes in September for Rs
2400 a pair and sells them during the next 8 months for Rs 4000 a pair. In
the peak summer (say 4 months), the demand for running shoes
dwindles. The store has two choices: it can sell out its remaining
inventory of 50 pairs by having a summer sale of Rs 2300 a pair, or it can
hold the shoes in inventory for 4 months (i.e. until the September) and
sell them for Rs 3200 a pair. (It could not get Rs 4000 because the
manufacturer will introduce a new model.)
• Should the store hold the inventory until next September or sell it at a
loss in the summer?
Discussion Question
Consider a Dosa Corner that has

become a favorite spot for
dinner for dosa lovers. The
average variable cost of dosa
was Rs 50 and is sold for Rs 100.
There is not much demand in the
breakfast time, and so the owner
thinks of offering idli, a typical What should be
breakfast item in south India. the price of 2-
Fortunately, Idli comes from idlis?
almost the same flour and the
only difference is in using steam
to cook. Also, idli needs good
side-dish to be tasty. The
incremental variable cost comes
to Rs 20 for making 2 idlis. There
is no major incremental fixed
cost.
Discussion Question
• In 2008, Subway introduced a tantalizing deal: For just $5, one could purchase any “footlong” (12-inch)
sandwich.
• The promotion was a smash hit with cash-strapped customers during the recession — and its jingle (“five-,
five-, five-dollar footlong…”) became the company’s calling card.
• Within a year, foot traffic skyrocketed across the franchise’s thousands of locations.
• Revenue from $5 footlongs alone topped $3.8B.
• It was, according to many industry analysts, one of the most successful promotions in the history of
American cuisine. …
Ref: https://mail.google.com/mail/u/0?ik=957cda971d&view=pt&search=all&permmsgid=msg-
f%3A1692940566935300509&simpl=msg-f%3A1692940566935300509
• “All of a sudden, customers
who’d pay $3 for a 6-inch were
paying $5 for a footlong,” said
Frankel. “Traffic went up, sales went
up, profits went up.”
But you don’t find them any longer.

What happened?
https://mail.google.com/mail/u/0?ik=957cda971d&view=pt&search=all&permmsgid=msg-
f%3A1692940566935300509&simpl=msg-f%3A1692940566935300509
• For franchisees, Subway is appealing in that it boasts the lowest relative entry cost of any major franchise:
The average total investment to launch one only runs $140k to $342k, compared to $1.3m to $2.2m for a
McDonald’s.
• In return, Subway makes money from taking an industry-leading 12.5% cut of its franchisees’ weekly gross
sales.
Fixed Vs variable cost issue
f%3A1692940566935300509&simpl=msg-f%3A1692940566935300509
f%3A1692940566935300509&simpl=msg-f%3A1692940566935300509
Identify Incremental Opportunity Costs
• Beware of opportunity costs.
– They are often incremental, even

when associated with otherwise
“fixed” assets.
• Examples:
– Alternative uses of capacity, funds, or

management time.
Cost ?
• Cost is important, but what cost to look for?
– Variable / incremental, average cost, opportunity cost?

– Should “sunk cost” be considered or not? [Irreversible expenses]
– Should investment in unsuccessful new products be charged on
the successful one?
– What about cost decreasing with volume?
– Many products in a product line share (manufacturing,
marketing, distribution, selling) costs, how to cost each product?
– Cost provides a rough floor
Pricing
Value Pricing
Session May 3 - 2021

Economic and Emotional value or utility
Meets needs ➔ Ex: B2B goods, Investment, MBA Degree, Insurance
Product premium
Consumption Leads to ➔ Happiness (coffee, movie, exotic places… with family/friends),
Excitement (theme park), Peace of mind (Insurance, Warranty, Music),
Image (luxury), Life saving (healthcare), Knowledge (learning, research)
Monetizing utility!! (Maximum challenging)
Max price willing to pay:

Reservation Price
Price
Cost
Pricing
Product
Consumption Reference
Price
Economic and
Negative Ex: IKEA, WalMart: Assembly by consumer,
Emotional utility ➔ differentiation High search cost & less help
Monetization? Value [Product/ service]
[Lowered levels of SODs]
Max price willing to pay =
Reservation Price
Positive
differentiation Ex: Surf, 5-star restaurants,
Value JD750, First class vs. economy class,
Product/Service StarBucks coffee
Price Reference
Price
Cost
Pricing Formed by
consumers
Product
or/and
Consumption Reference marketing
Price strategies
Economic and
Emotional utility ➔ -ve differentiation Influenced by:
Value Marketing strategies by you
Monetization? and your competitors,
prices of substitute and
complementary products,
Reservation Price supply & demand conditions
of macro-economy,
+ve product or service-based
differentiation
Value
[product/Service]
Price Reference
Price
Formed by
consumers
or/and
marketing
Cost strategies
New Product
Provides new utility Utility-saver [time, $, effort] (B2B, B2C) ➔ Differential is Economic
Improves Safety, Environment, health, Livelihood, etc. (B2C, B2C)
➔ Differential is Psychological [Perceptual map + Conjoint]
Improves throughput, quality/performance of end-product (mostly B2B)
➔ Differential is Economic
Created by technology. Created by expressed Needs and technology.

Need was latent or non-existent. Need was latent or non-existent.
Ex: Diapers, washing machines,
cumberland pads, FedEx,
Sanex Liquid soap, Tata-Ace
Eagle Bird
(Walkman, (3D movies, Ref Product is there but, generally, differential utility is high
Computers, items in in-flight on the psychological/emotional side for many customers
Microwave oven, Magazines; ex:
Bone fixation, Memory-pen)
Refrigerators,
Cameras, camcorders)
No Ref Product!
Reservation
price
Acceptable
price to the
consumer
Ref price
Marketing Efforts
in communicating the differential
utility
Pricing Formed by
consumers
Product
or/and
Price strategies
Economic and
of macro-economy,
differentiation
STP
Value
[product/Service] (Segmentation,
Price Targeting,
Reference Positioning)
Price
Formed by
consumers
or/and
marketing
strategies
Cost
Pricing Formed by
Product consumers
or/and
Price strategies
Economic and
Network Reservation Price complementary products,
Externalit supply & demand conditions
of macro-economy,
y +ve product or Service-based
sometimeOther users differentiation
STP
s Value
[product/Service] (Segmentation,
Exploit?
WOM Price Targeting,
Reference Positioning)
Sales Price
Formed by
EOS consumers
Forward looking? or/and
marketing
strategies
Cost
Further: Dynamic pricing, Multi-year perspective of profit maximization, Psychological aspects

Pricing Formed by
consumers
Product
or/and
Price strategies
Economic and
of macro-economy,
differentiation
Value
[product/Service]
Low prices: Driven by lower cost
Japanese products in the US [[efficient production Price Reference
less wastage due to high quality maintenance] Price
DMart, Costco, IKEA [Smart assortment] Formed by
WalMart [Smart Logistics] consumers
or/and
Uber, Oyo, etc. [Smart using of spare capacity] marketing
Cost strategies
Below-cost pricing (Jio, Swiggy, e-commerce promotions, e-magazines subscription):

Customer Acquisition Cost, Predatory pricing or Stupidity?
Funded by VCs?
Zero pricing ever [gmail, g-maps, social-media membership)
➔ Unique Business models [Money made thru Adv]
How to get ref product / price
• Understand what ref product you had used to develop the product in R&D
• Analyze the price of the product– window shopping, visiting online websites (B2C),
digital informants like https://www.digitaltrends.com/
• Define the target segment
• Buy panel data from companies like CMIE and Nielsen to calculate the “price actually paid”
by the target consumers in the panel data
• Do a “casual” looking survey among customers (B2B) or through students!

Adjusted Reference
Prices
Unit Price ($)
$-
1 10 100 1,000 10,000 100,000
Volume
Customer 1 Customer 4 Customer 7
Book: Table 2.3

Udaiyum Urad-dhal
• From: Unknown
• Product: common Urad-dhal (unsplit)
• Positioning: Nothing initially
• Design: nothing unique
• Price: middle of the range (~~Rs 60 / kg in 2000)
• Retail support: Very good thanks to “push” strategy
• Brand recognition, awareness on launch: Nothing
• Adv: Nothing initially
• Result: Huge success; Reason: WOM that it is best for making idli!
• Post-success event: Kept pushing the price up and up, to >30% of the top brand. ➔ less demand!
URAD-Dhal 1 kg pack (whole)
Prices in [Amazon.in] on 9th March
Vedaka (Amazon brand) Rs 145 Low price tier
TATA Sampann Rs 162

Mid price tier
Udhaiyum Rs 170
Aashirvad Organic Rs 250

High price tier
24 Mantra Organic Rs 260
https://sresta.24mantra.com/overview/about-us/
B2C products: Fit into the existing price range, in one of the tiers or just outside of either end
➔ The whole price range is Ref Price.
➔ Marketing Strategy makes the big difference

Pricing
Best Buy

Best Buy (Big Electronic Retailer) Case
1966: Founded as audio-specialty store in Minnesota (Sound of Music)
1979: Video, laser-disc equipment (Panasonic, Sony, Sharp, etc.)
1983: Name changed to Best Buy; adopted Super Store format and expanded
1992: $ 1 b sales. Top-10 High Performing Stocks in 1992-2000.
2004: Fortune Company of the Year

2000 - 2008…:Costly mistakes (MusicLand, Into China, Europe, Turkey, Mexico)
2008-09: Recession. Competitive Pressure (Walmart). ➔ Financial problems
2009-12: Recoiled into North American market; shrunk operations.

Increased online offerings…. ➔ stock price keeps going down
2009: Circuit City filed for bankruptcy in 2008 mortgage crisis

Radio-Shack, a corner store with high-end products went into bankruptcy
2000-12: Walmart opened online in 2000 to compete with Amazon. Acquired lot of
customers. When CC went down, moved aggressively into consumer electronics
both online and in-store, but the in-store expansion proved a failure.
Consumer Electronics:
Demand Side characteristics:

Discretionary purchase, Seasonal
Look forward to new gadgets but need help in evaluating
Look for good price
Supply Side characteristics:

Seasonal ➔ Focused competition among brands
Continual innovation ➔ design focus: ease of use, advanced technical features
Shorter product life cycle ➔ First mover takes it all, self-cannibalization
Physical Goods: Online & Offline usage

(Electronic goods, cosmetics, apparel, car, …)
Pre-purchase Purchase Post-Purchase
Info collection Risk assuming Returns

on search attributes, ➔ warranty
comparison, price info. ➔ online = ? Warranty claims
Seeing/touching/feeling/try-it-on Ease of transaction Maintenance routines

(color, design, context, texture, ➔ Price, credit card
fit, size, … Cash transaction problems
➔ Individual taste driven Price comparison
➔ tech assistance Repeat buy
Delivery
WOM/Blogs/User ratings ➔ offline: immediate Spread WOM
on use/experience attributes ➔ online: same day?
Buying attachments etc.
Product Attributes = Search + “touch & feel” + Use / Experience

Pre-purchase Purchase Post-Purchase
Info collection Risk assuming Returns

on search attributes, ➔ warranty
comparison, price info. ➔ online = ? Warranty claims
Seeing/touching/feeling/try-it-on Ease of transaction Maintenance routines

(color, design, context, texture, ➔ Price, credit card
fit, size, … Cash transaction problems
➔ Individual taste driven Price comparison
➔ tech assistance Repeat buy
Delivery
WOM/Blogs/User ratings ➔ offline: immediate Spread WOM
on use/experience attributes ➔ online: same day?
Buying attachments etc.
Offline, in Online, mainly

brick & mortar Showrooming to avail of
retail stores low price
2012-14: Joly became CEO of BB in 2012 Sep
Provide tech advice, and PRICE MATCHING
Seamless multi-channel shopping experience
Better websites, easier navigation, SEO, better product info., quicker delivery
Trained the sales rep in stores to a much higher level
Boosted store traffic thru establishing relationship with Canon, Google, Intel, Sony
Samsung, Apple, etc. (BB’s own salespeople, Shop in a Shop),
and making ship-from-store a big thing. Stocked all new products and introduced
EOS (Ex: mobile devices+connected homes+wearable tech+Security, etc.)
Included in assortment strong private labels to fight online competitors

Pricing
Pricing to Segments / individuals

Reservation Price Heterogeneity
• Heterogeneity in reservation price (total economic value) is with respect to:

• the reference product [vegetable purchase in Chennai Vs Trichy, Buying white
goods during Covid]
• inherent perceived need for the extra utility [MBA education, Health Insurance:
different family-sizes/age/pre-existing conditions]
• knowledge / information to understand and evaluate the extra utility the product
provides [JD750, Health Insurance]
• ability to search for info. and evaluate [importance of branding, wom in target
market]
• ability to switch to adopting it [sunk cost is considered important(!), network
externalities]
• their ability to pay for it
Reservation Price Heterogeneity: Health Insurance
High The most price Rational sales approach

conscious segment and right positioning
will do the job
Ability to
Evaluate and
“availability-of-
resources” [Pricing is a part of the
to do search overall marketing strategy]
= function of
Education level,
Urban/rural,
Depends on other
Internet savvy? Choice is rather signals such as
random and brand reputation
convenience based
Low
Low High
Perceived Need / Inclination to look for the

differential utility of the product = function of family size,
Preexisting conditions, age of some members?
Reservation Price Heterogeneity
Demand Function
Price
Elasticity Higher-level
No clear (more macro)
segments (sensitivity)
Actual of demand analysis
Price
Distinct
segments
Micro
analysis
Aggregate Demand
Segmented pricing /
Choosing target segments for focusing
Pricing to Accessible Segments
• Understand the true segmenting variable(s)
– Correlate as much possible with accessible variables’ combination
– Make sure by hit & trial (data analysis) tweak the accessible variables till correlation is good
• Make sure boundaries are clear between the segments
• Approach the segments with different products, in different channels, with different price and
promotion schemes.
– Differentiate them in ALL dimensions

and Be consistent (ex: Lexus Vs. Toyota)
If segments are not are not clearly defined
or readily accessible use filters (fences) to approach these segments
Pricing to Inaccessible segments: Type
• Business trip and Leisure1trip differ in
– planning (i.e., when they would

book the flight), need to rush back
before the week-end, flexibility
(time, break-journeys, cancellation
probability), who pays ➔ Other
examples: movie, (Gr)Coupon
• Volume discounting: who consume more are more price sensitive →
[discount on all units as in Family toothpaste, step-discounting as in freq flier]
• Service product’s consumption is consumption of its constituent parts [rides in
theme parks, minutes consumed in SaaS or cell phone] ➔ 2 or 3-part tariff
CapEx vs OpEx, 3-Part Tariff:
SaaS Pricing: Customer Perspective
Cost of leasing-in:
Increasing but could fluctuate
due to changes in use
Cost of owning
Maintenance
One-time cost
CapEx
[Need CFO
Approval] Critical point Can be accommodated
for customer by adding depreciation
SaaS price [3-part], cost to periodical maint. cost
[dept. approval enough!]
Year
Replacement
cycle
Customer preferring SaaS: Department vs. CFO, Less headaches, Can seek latest software advances, can snap out anytime,
No tying up of Funds (opportunity cost), no technical team to maintain the product, 24X7 help, reduced switching cost
ADOBE took 10 years to transform into SaaS. A pioneer!

SaaS Pricing: Supplier Perspective
Supplier
(Storage, Software)
Asset consolidation & EOS,
Product and Support team Better tech upgrading,
Maintenance, More skillful
Higher utilization
Rate, Lower breakdowns
➔ Lower Cost-to-serve
➔ Lower price
Demand comes up at
Different times, quantum
[Think of Uber but not as a platform]
…
Customers
3-Part Tariff
Fee in a
given period
Parts: 1, 2, 3 Fee paid this period
r = F + [Q - Qo] r
No per-use charge Qo Q (consumed)
Units consumed in the period: Storage

Space & Computing power, Utility, KMs run
(tourist taxi), library books, …
Qo v. high ➔ flat-fee
Qo = 0 ➔ 2-part tariff
F, Qo =0 ➔ pay-per-use
Pricing to Inaccessible segments: Type 4
price
Price, Cost
Manufacturing Cost
(distribution and
marketing costs are almost
same or commonly shared)
Performance / quality / technology upgrading features
Bait and Switch / “Pull them up”
In his guest talk, Ankur said that Adobe does not use this scheme because
Engineers find it very difficult to isolate features and do include/exclude a feature easily.
Does this mean that Type 3 obviates Type 4?
Dynamic pricing / Yield Pricing
Leisure Business
trip (lower trip (higher
reservation price) reservation price)
Prob.
of booking
30 15 Today
Days before departure

Dynamic pricing / Yield Pricing
Analysis from Previous
records w.r. to T-1 days before
Postpone
low margin
(Bucket) Seats L.T.
allotted for L.T.
and B.T
What actually Overbooking ?

happened in the last
bucket
T T-7 Date
days days ... of
before before journey
Bundling and Pricing
• Examples:
• PC+printer+…, hotel menus, product +warranty+..,
car+options, MS-Office Suite, cereal manufacturers
bundle various brands, pharmaceutical companies
bundle their own with generic versions, theaters bundle
concerts, industrial concerns bundle machines with
contract services, cell phone billing...
• usually, bundle price < sum price of parts
• parts in bundle need not be complementary
3 * Segment 2
1 * Segment 1
1 2 3 4
Reservation price
for Product A
Price on Seg. preferring Profits Surplus

Product A B A B to firm left
------------------------------------------------------
3 3 1 2 6 2
1 1 1,2 1,2 4 4
Bundle Seg. Preferring

Bundle
4 1,2 8 0
3 * Segment 2
2 * Segment 3
1 * Segment 1
1 2 3 4
Reservation price
for Product A
Price on Seg. preferring Profits surplus

Product A B A B total left
------------------------------------------------------
3 3 1,3 2 9 5
2 1 1,2,3 1,2,3 9 5
Price on Seg. Preferring

Bundle A Bundle B
4 Nil 1,2,3 Nil 12 2 Pure Bundling
5 Nil 2,3 Nil 10 4 Pure Bundling
Price on Seg. Preferring
A Bundle B A Bundle B
3 5 3 1 2,3 Nil 13 1 Mixed Bundling

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Channels and Pricing

PGPM 2020-21 – Term 6 [April-May 2021]

Session April 16 - 2021

Session No-7 April 26, Mon, 2.30 to 4.00 pm

Session No-10 April 28, Wed, 2.30 to 4.00 pm

Case reports: (Teamwork) 40% of the grade.

• Mid Term Exam: 20%

“Marketing Channel Strategy,” by Palmatier, Stern and El-Ansary, a Pearson

TOP 10 RICHEST COMPANIES BY REVENUE

Mfr & Mfr &

Each is a manufacturer of one thing and consumer of many things

Number of transactions greatly reduced. [5c2 ➔ 4]

Number of transactions greatly reduced. [5c2 ➔ 4]

Flea markets: http://en.wikipedia.org/wiki/Flea_market) http://singaporesearchsite.com/2009/09/flea-

One individual to another through a broker ➔ traditional or online.

Broker doesn’t take title to goods,

Transaction elements: Information (property-specific, market-level), Trust,

Brokers in road-transportation markets brings together individual shipper (of goods)

Transaction elements: Quick Information (Search Cost reduction), Trust.

Manufacturers selling to Retailers

Channel Gap Elements

Session April 17 - 2021

Place, Time, Form.

VERY BROAD PLATFORM

CHANNEL ISSUES: SEEK:

• Nearby location (for purchasing, returns, servicing) gives mental comfort to

• Delivering at desired location brings convenience and enhances purchase

Need a change in mindset and a new org structure and processes

The company wants to triple its sales outlets to

… “A presence on the ground

“Quite a few foreign car makers failed to make a

But, filling place gap, especially Last Mile Connectivity, is costly!

• November 1994: First McDelivery experiment from 40 restaurants in

Ref: 2012 MBA Batch Term-Project

• Reducing time-gap between Need Realization Time and Order Time

• Reducing time-gap between Order Time and Delivery/Acquisition Time

• Reducing time-gap between Need Realization time and Consumption Time

55 year old Electronics Manufacturing company in North America

No Marketing team or outlook

Segmentation as of 2011: Big Vs. Small Customers; Geographical Proximity

USPs believed to be:

Ref: 2011 MBA Batch Term-Project

Ref: 2011 MBA Batch Term-Project

• affordable (financing, hire-purchase [Vivek:

• easy (GPay, credit cards, PayPal, M-banking,

• Instant transfer leading to quick action

Vivek Limited, a public limited company, is a leading and respected

Vivek popularized several brands by creating visibility and has the

• could easily customize the products to their needs [VARs, AESCO]

• get regular updating on specs, modifications, etc. (Field Service Circulars,

Extent to which gap is filled

Cost to a channel member (firm)

Extent to which gap is filled

Q2: How each would be compensated?

Cost to channel member (firm)

Extent to which gap is filled

Q3: Cost vs. Benefit Perceived trade-off?

Cost to channel member (firm)

Extent to which gap is filled

Customer too is a channel member!

Session April 20 - 2021

Customization Place, Form, Inventory, Skilled labor, Logistics

Party-time need Place, Time, Inventory, Bulk-breaking, Analytics,

Special purchase Place, Time, Trust Inventory, Analytics, Skilled labor