Hi everyone. Welcome back. At this point in our course, we are well on our way to one of the key themes of the class, which is the topic of channel benefits. Channel benefits are the answer to the question of how do customers want to buy. This is key ingredient in the channel strategists quest for explosive channel value. Recall that in our last session we said that explosive value rises from a set of benefits that customers seek and then the building or the structure of the channel to meet those benefits. Let's start with a simple example of Coca Cola. I'm sure you've seen plenty of Coke examples over the course of your time here, but I bet you haven't seen this one. For those of you who drink Coke, and I'm sure none of you would ever drink Pepsi, I want you to think about where you consume your Coke. Now when I ask this in class, some people say only at home. I keep Coke as a treat, or I serve it at gatherings at my house. I buy my Coke in six packs or two liters or 12 packs at the grocery store or at Costco. Others would say that they buy it at Costco because that's the best price for it. One of my best friend is addicted to diet Coke and this is her strategy. Others would say, "Well, I like to have a Coke in the afternoon at my office because it helps me stay awake." Maybe you get it from a vending machine, and some would say, "Well, I only drink Coke with a lime and rum." There is no other way to make it drinkable. People like the McDonald's target customer love to have a Coke with their burgers, and they claim that Coke tastes best that way, and they're right. Coke has a shelf life and the stuff that is flowing from McDonald machines turns over so often that it is the freshest form of Coke. There are some who say, "Well, I only drink Coke socially, in group settings, or if it comes from a soda fountain or it's served over ice, because that's the way that a Coke should taste." But what I want you to notice is that all of these time and places basically reflect how we want to consume Coke. Now, a great channel strategist like Coke recognizes the many places and times, the manner in which people want or need to consume their product. This is why Coke is sold in so many of these different channel formats. Now notice something here, what is happening to the price of Coke per ounce in each of these settings. It's cheapest when you buy Coke in quantity, but it's more expensive from a vending machine or from a QT. Why? Because you're paying for the convenience of purchasing a single serving instead of 20 cans at a time. You're paying to avoid a carrying cost and refrigerating the inventory. When you purchase Coke at a hip restaurant or with your best chao buddy, you're probably paying even higher rates to have it served with the burger or in a she-she(phon) setting. How you buy the product, not just what you buy matters. All of these different route to markets have exactly the same product, but this very simple fact creates an important basis for segmentation. In marketing you know that everything starts with segments. We recognize that there are groups of people with different preferences, and if we can meet the differences in these preferences, then we'll discover a willingness to pay for them. Segmentation is always job 1, so this leads us to a key, key insight that I don't want you to miss. The key is to understand both the what, that is how customers want to buy, as well as the nature of demand that exists among consumers, and importantly, the variation in that demand or how it differs from one group to another. This is essentially what should underlie your channel design. What's the cost of missing this? I will say that many managers who have not been trained in channel design will miss this, in other words, they get the miss sale. Now let's take this idea of how consumers want to buy a step further. A few years ago, I moved into a new house and I decided that the great room needed a sectional. I searched high and low and I finally found the one I want, as you can see here. Now the naive marketer and manager would see this as simply an extraction of money from the wallet. They might focus on the design and the product, the color, the sizing; since I'm sort of vertically challenge, I can't own a deep couch, and that's basically what a basic marketing 101 class will get you; is focus on the product and the design and its attributes. But the reality is that I'm not just buying a piece of furniture, I have a destination in mind, and it looks something more like this. I need to be able to sit in that couch and I need to see, yes is it too soft or is it too hard, or is it just right? If I'm going to spend thousands of dollars about this, then I also need to know that this is the best couch available for me. I also need to know that there aren't other colors or configurations that would be better suited for me. Maybe I need someone to advise me and to educate me. I need to be reassured that the couch I picked does not only perfect for the destination I have in mind, that if I change my mind once it gets in my house, they'll return and take it back. If you can do this with shoes, why not couches, and in fact, this is how mattresses are often sold. Most retailers will give you 90-100 days to try out the mattress. But as we've said before, possession is nine tenths of the law, and once you have something, there's a lot of inertia that keeps you from returning it. Now, what else do I need to get me to this picture? I need accessories. This is why rooms to go is so successful. It's easy for me to visualize my end destination, and even if you only came in to buy a lamp or a table that rooms to go you can easily walk out with a couch and a side table to boot. Finally, you've got to make it easy for the customer. Do I look like the size of person that can handle schlepping a sectional into my house? Your answer should be no. Don't just deliver it to my door and packet for me and then take the trash away, and better yet, do it tomorrow because chances are by the time I've gotten around to visiting your store and choosing your product, I am getting close to when I need it. Finally, returns. This is the reason why many people still prefer to shop in stores. If something goes wrong with the product, there's a salesperson to go to and there's a well-established venue for dealing with it. None is paying they send it away, and who knows whenever or anybody will ever act on it, later along give you your money back. If you don't take anything away from today's session, if you sleep through the rest of it, you need to take away this one key thing. All of the things I have listed above are what we were referred to as channel benefits. Channel benefits determine how I want to buy as a consumer. Once you know what the channel benefits are that any customer wants, then you can build that channel structure the best meets that need. Customers don't just buy products, they're buying a bundle that involves a product, but also some service. This summer, I was walking through the Camden marketplace in London right about lunch time, and here are some of the vendors that I saw. The smells were amazing. The people, they were friendly, and I just wish that my stomach was about four times the size that it is, so I could have had everything I wanted. Now, is this consumption experience really just about lunch eating to live? No, it's living to eat and that's something that I value and it's also something that I am willing to pay more for. So I can promise you that the price per ounce of paella served like this from this guy or the homemade pasta with a custom sauces from this couple right here will definitely cost more than if I had bought the same thing in a restaurant or if I had bought the ingredients and assembled it myself in a grocery store. We all know, and we all understand that what I'm really paying for here is the atmosphere, the characters, the bizarre and the convenience of having food when I'm hungry, not having to carry it around and to keep it hot, and that's okay. Much of the research in channels management finds that there are six benefits that are the most common forms of benefits the customers look for. These six include convenient package sizes, variety, assortment; short wait, in other words quick delivery, purchase convenience, making it easy for me to give you my money, customer service, information provision or education. Now obviously, this is not an exhaustive lists and the benefits are very specific to a product or an industry. But these are broad buckets that can work and they generalize to many situations. This represents a starting point, it is not an end point. When you listen identify channel benefits, you need to be as very specific as possible about what those channel benefits are in the particular context that you're looking at. I once had a team of students try to shoehorn this list into a case context, where it just didn't really make any sense. Unfortunately for them, that case was judged by an outside executive and he just laughed at them. Poor execution, but this is how we learn. I would rather you make your mistakes here in my class than in the workplace. Let's return to my sectional example, and now let's look at that list again with a channels benefit viewpoint, and here is what we see. My need to touch and feel reflects a need for information. I'm a scientist, I need data. I need data about my alternatives and the opportunity costs that I might be incurring, but I'm also a human and capable of making mistakes. So as a human, I value someone telling me that I have made a great choice, even if this advisor has the ultimate agenda of taking my money. This can be thought of as service and sometimes it also includes education, being able to purchase the accessories at the same time, and getting me to my final destination more quickly goes to this idea of purchase convenience. There's nothing worse than a vendor who makes it difficult or miserable for you to give them your money. Companies would act like they're doing you a favor by showing up to work that day instead of just solving your problem. Finally, the need for someone to deliver the product to my door. What if I owned a smart car? If I can't get 12 rolls of paper towels home from Cosco, then how am I going to get a sectional home? This goes to the short wait, quick delivery benefit. Now before we go on further, there's an important point that I don't want you to miss. In all of these examples today, you always need to remember that a customer's desired channel benefit always translates into a higher willingness to pay. Put differently, you can and you should be pricing higher whenever you're delivering valued channel benefits. Customers expect us like I did in the Camden markets, and because they are often value, the benefit was valued, they are often more willing to do so.