1. Chapter 5 Gap Analysis Sources of Gaps Types of Gaps
Measures to Close Gaps

2. Goal: To build the channel that both
Ch. 5 Gap Analysis
Goal: To build the channel that both
meets service output demands and does so
at a minimum cost of performing the
Necessary Channel flows.
Gap Analysis Framework:
Sources of Gaps  Types of Gaps
 Closing Gaps

3. TIMELINE OF CHANGES IN THE AIRLINE TRAVEL CHANNEL
2/11/95:
American, Northwest follow
2/10/95:
Delta limits agent commissions to $50 on RT, $25 on one-way tickets for U.S. travel
2/16/95:
AMEX, Carlson Wagonlit announce fees for travel services
2/17/95:
Travel agents file antitrust lawsuit; U.S. Justice Dept. investigation launched
3/29/95:
Delta, Continental offer bonuses to travel agents exceeding sales goals
1996:
Airlines settle lawsuit, paying agents $86 million; commission caps remain in place.
Online ticketing (e-ticketing) begins.
2/13/95:
United, USAir follow
2/14/95:
Continental follows
2/15/95:
TWA follows
2/10/97:
SAS, KLM, Lufthansa cut domestic commissions to 5-7.5%
9/18/97:
United cuts commissions to 8%, retains $50/$25 caps
11/18/98:
American, Delta, United cap commissions on international flights at $100/$50
11/20/98:
Continental follows
10/8-12/99:
United cuts commissions to 5% with a maximum of
$50 for round-trip domestic ticket, $100 for round-trip international flight; American, Delta, Northwest, KLM match
9/26/97:
Northwest, Continental, USAir, Midwest Express, KLM, Lufthansa follow
9/23/97:
American, Delta follow

4. I. Sources of Gaps Environmental Bounds:
- Local legal constraints (ex: CDW)
- Local physical and retailing infrastructure (ex: Online Bill Payment)*
Managerial Bounds:
- Constraint due to lack of knowledge
- Constraint due to optimization at a higher level
CDW is not categorized as small business and cannot take advantage of governance procurement rule of favoring small businesses.
Book return policy: create cost bust important for customer satisfaction

5. FIGURE 5-2: ONLINE BILLING AND PAYMENT: GAP ANALYSIS
BOUNDS
GAPS
CLOSING THE GAPS
Environmental:
Technology infrastructure:
takes time to fully develop
initially endowed benefits more on billers than on payers
is not universally available
is characterized by high fixed set-up costs, but low marginal implementation costs and thus is not attractive unless significant scale is achieved
Demand-side:
Assortment/variety (one-stop bill payment site not available)
Waiting time too long (some e-bills took 5 days to pay)
Information provision poor (thus e-bill payment viewed as risky)
Supply-side:
Clear lowering of many channel flow costs
But consumer (as a channel member) bears more perceived risk, with no compensating price cut
Cost cuts initially much more available to biller than to payer (asymmetric cost efficiencies that hamper adoption)
Relax environmental bounds:
Build software applications to generate back-office benefits for B2B players
Presentment technology eventually developed to improve assortment/variety for consumer payers
Increase promotional efforts  generate information for consumers
Add new specialist channel members
New specialists develop new technology to provide integrated benefits to consumers and B2B payers

6. FIGURE 5-3: ONLINE BILLING AND PAYMENT: A VIRTUOUS CYCLE
Note: the B2B process exhibits a similar path, with the added inducement to payers of the development of technologies to integrate bill payment information with back-office (accounts payable, inventory management, and ordering) processes.

7. II. Types of Gaps SOD: Service Output Demanded
SOS: Service Output Supplied
Demand-Side Gaps: ex) Retail Music Sales
SOS < SOD
SOS > SOD
Which SO(s) ?
* CDW: cost of hiring and training salespeople and managing salesforce turnover in the face of 25% turnover rate
Supply-Side Gaps: ex) CDW’s Promotion Cost
Flow cost is too high
Which flow(s)?

8. TABLE 5-1: U.S. RETAIL MUSIC SALES, 1999-2003
Year
Sales in $billion
1999
$14.6
2000
$14.3
2001
$13.7
2002
$12.8
2003
$11.8

9. TABLE 5-2: AVERAGE RETAIL CD PRICES IN THE U.S.
Time Period
Average Price
2002 (Q1)
$13.90
2002 (Q2)
2002 (Q3)
$13.60
2002 (Q4)
2003 (Q1)
$13.80
2003 (Q2)
$13.70
2003 (Q3)
$13.50
2003 (Q4)
$13.55
2004 (Q1)
$13.25
In response to flagging sales, Vivendi Universal dropped price of Music
CDs from $16.98 to $12.98 in September 2003.

10. SERVICE OUTPUT DEMAND TEMPLATE
SERVICE OUTPUT DEMAND:
SEGMENT NAME/ DESCRIPTOR
BULK BREAKING
SPATIAL CONVENIENCE
DELIVERY/ WAITING TIME
ASSORTMENT/ VARIETY
Customer
Service 1. 2. 3. 4. 5.
INSTRUCTIONS: If quantitative marketing-research data are available to enter numerical ratings in each cell, this should be done. If not, an intuitive ranking can be imposed by noting for each segment whether demand for the given service output is high, medium, or low.

11. FIGURE 5-6: TYPES OF GAPS

12. III. Closing Gaps Closing Demand-Side Gaps:
- Offer tiered service levels
- Expand/contract provision of service outputs; ex) Microsoft Media Center PC with HP* (store-within-store)
- Change/Fine-tune segment(s) targeted: ex) Specialty grocers’ response to Trader Joe’s
Closing Supply-Side Gaps:
- Change flow responsibilities of current members
- Invest in new low-cost distribution technologies*
- Bring in new channel members

13. FIGURE 5-8: DEMAND-SIDE GAP ANALYSIS TEMPLATE
SERVICE OUTPUT LEVEL DEMANDED (SOD) VERSUS SERVICE OUTPUT LEVEL SUPPLIED (SOS)
SEGMENT NAME/ DESCRIPTOR
BULK BREAKING
SPATIAL CONVENIENCE
DELIVERY/ WAITING TIME
ASSORTMENT/ VARIETY
CUSTOMER SERVICE
INFORMATION PROVISION
MAJOR CHANNEL FOR THIS SEGMENT 1. 2. 3. 4. 5.
Notes and directions for using this template:
Enter names and/or descriptions for each segment.
Enter whether SOS>SOD, SOS<SOD, or SOS=SOD for each service output and each segment. Add footnotes to explain entries if necessary. If known and relevant, footnote can record any supply-side gaps that lead to each demand-side gap.
Record major channel used by each segment, i.e., how does this segment of buyers choose to buy?

14. FIGURE 5-10: DEMAND-SIDE GAP ANALYSIS TEMPLATE: CDW EXAMPLE
SERVICE OUTPUT LEVEL DEMANDED (SOD: L/M/H) VERSUS
SERVICE OUTPUT LEVEL SUPPLIED BY CDW (SOS)
SEGMENT NAME/ DESCRIPTOR
BULK BREAKING
SPATIAL CONVENIENCE
DELIVERY/ WAITING TIME
ASST/ VARIETY
CUSTOMER SERVICE
INFORMATION PROVISION
MAJOR CHANNEL FOR THIS SEGMENT
1. Small business buyer
H (SOS=SOD)
Original equipment: M
(SOS=SOD)
Post-sale service: H (SOS=SOD)
(SOS>SOD)
M (SOS>SOD)
H (both pre-sale and post-sale)
Value-added reseller like CDW, or retailer
2. Large business buyer
L (SOS>SOD)
Original equipment: H (SOS=SOD)
Post-sale service: L (SOS>SOD)
Original equipment: M (SOS>SOD)
M/H (SOS=SOD)
Manufacturer direct, or large reseller like CDW
3. Gov’t/ education
Original equipment: H
Post-sale service: M (SOS>SOD)
M/H
Manufacturer direct, or reseller; 23 percent from small business (VARs)

15. FIGURE 5-9: SUPPLY-SIDE GAP ANALYSIS TEMPLATE (to be used in conjunction with Demand-Side Gap Analysis Template, Figure 5-8)
CHANNEL
[targeting which segment(s)?]
CHANNEL MEMBERS AND FLOWS THEY PERFORM
ENVIRONMENTAL/ MANAGERIAL BOUNDS
SUPPLY-SIDE GAPS
[affecting which flow(s)?]
PLANNED TECHNIQUES FOR CLOSING GAPS
DO/DID ACTIONS CREATE OTHER GAPS? 1. 2. 3. 4. 5.
Notes:
Record routes to market in the channel system. List should include all channels recorded in Figure 5-4 above. Note the segment or segments targeted through each channel.
Summarize channel members and key flows they perform (ideally, link this to the Efficiency Template analysis in Chapter 3).
Note any environmental or managerial bounds facing this channel.
Note all supply-side gaps in this channel, by flow or flows affected.
If known, record techniques currently in use or planned for use to close gaps (or note that no action is planned, and why).
Analyze whether proposed/actual actions have created or will create other gaps.

16. Ch. 3 Building and Editing the Channel Value Chain I: The Key Principles
Table 3-2: PC Channel Shipment Share in the U.S.
2001
2003
2005
Direct inbound
Direct outbound
Internet Direct
Dealer/VAR/SI
Retail
Others
23%
18% 8%
28%
19% 5%
13%
22%
20% 4%
17%
25%
12%
21%
Total Units
46.07Million
52.70Million
64.14Million

17. FIGURE 5-11: SUPPLY-SIDE GAP ANALYSIS TEMPLATE: CDW EXAMPLE (to be used in conjunction with Demand-Side Gap Analysis Template, Figure 5-10)
CHANNEL
[targeting which segment(s)?]
CHANNEL MEMBERS AND FLOWS THEY PERFORM*
ENVIRONMENTAL (E) / MANAGERIAL (M) BOUNDS
SUPPLY-SIDE GAPS
[affecting which flow(s)?]
PLANNED TECHNIQUES FOR CLOSING GAPS
DO/DID ACTIONS CREATE OTHER GAPS?
1. CDW direct to buyer ( small business buyer)
Manufacturer;
CDW;
Sm. Bus. Buyer
(M): no screening of recruits for expected longevity with firm
Promotion [sales force training/turnover]
Better screening of new recruits No
Buying from CDW closes gaps for customer in Risking
2. CDW direct to buyer ( large business buyer, government)
CDW, CDW-G;
Lg. Bus. Buyer or Government Buyer
(E): government requires 23 percent of purchases from small vendors
Negotiation [cannot close 23% of deals with government]
Better screening of new recruits;
Rely on consortium channel structure (below)
3. CDW + small business VAR consortium member ( government)
CDW-G;
Small VAR;
consortium partner
Government Buyer
(E): government requires 23 percent of purchases from small vendors;
(M): VAR’s small business size
Promotion [sales force training/turnover];
(Negotiation: only a gap for a small VAR not in the CDW alliance)
Negotiation gap above is closed through consortium with small VARs
Note: all channel members perform all flows to some extent. Key channel flows of interest are promotion, negotiation, and risking.