Well, welcome back. By now you've had a chance to think through some examples of demand side misalignment. And we have said that a misalignment results in either an under or over supply of channel benefits relative to what the customer wants. So, how do we resolve this? Well, do you remember Zappo's and the story of how they went to market and ultimately developed 6PM.com? Their response to customers who did not require fast shipping and returns was to offer different levels of service for Zappo target customers versus 6PM.com. Zappo's customers received quick customer support with live people, while 6PM.com received only support via email. There was less variety on 6PM.com and customers did not have free returns. So, by changing the channel benefit offering, Zappo's was able to satisfy the buying needs of two very different segments. Another strategy to resolve demand misalignments is to change the target segment. Remember, in our discussion of channel benefit valuations, we cited several examples of firms who recognize that customers may differ in their valuation of channel benefits. Find the customers whose valuations you are able to profitably serve or find the purchase occasion that you can satisfy for them. And of course, you can do any combination of these options together or in a sequence. There might also be other ways to solve the misalignment, this list here reflects the most common approaches, but it is definitely not exhaustive. A supply side misalignment is almost always the problem of paying too much for functions. Remember Cemex, in that case, consumers had to pay so much just to get a room added to their house. Prices were so high that most people never really accomplished the room, or if they did so, it was in a manner that just wasn't very effective or aesthetically pleasing. Now, there are various solutions to this problem. The first is to change the functional allocation across channel members. Maybe some channel members can and should be doing more of the work, or maybe some, like bad dealers, should be doing less. Another option is to enable the technologies needed to bring down costs. This is what Cemex did when it gave its dealer network VMI or vendor managed inventory systems in product tracking capabilities. Another option is to bring in or eliminate some channel members. Remember the flow analysis that we did in a spreadsheet, we said that you can always change out the columns, each reflected a different channel member. But you cannot change out or eliminate the rows, each row stood for a necessary function. Your degrees of freedom are mostly around channel membership. Now, these are the most common ways to resolve the supply side misalignment, but again, they are not exhaustive. You can also implement several of these options simultaneously or sequentially, depending on your need and context. Another aspect to consider are the various constraints on your ability to resolve any misalignment. Now, one of the most common is legal constraints. If cannabis CBD is not legal in the state, you can't open up a retail store. If you think about how many cities have kept Uber out, they simply made it legal for anyone who does not have a taxi license to sell rides to customers. Sometimes the constraint is physical. Remember how we talked about the trends towards smaller restaurant footprints? These smaller restaurants might have less product variety and less room for socializing, which constrained to very important and common benefits that customers might want from a restaurant experience. Food and vegetable distribution in India is constrained by the simple fact that the country doesn't have a lot of refrigeration, whether it be commercial or residential. Sometimes the constraints come from within the firm. For example, myopic leadership will constrain the firm's ability to innovate. Strategic choices may imply that if you pursue one target segment, then other lucrative ones might not be pursued because of the cost and expense of pursuing two very different segments. All of these factors and more will tighten the scope of what you can do in the degree to which you are able to fully deploy best channel practices. Now let's think about this differently. If we take a step back, we can think of all the misalignment possibilities in the following way. On the demand side, the firm can either be under serving or over serving customers, or they can get it just right, it's like Goldilocks and the three bears. On the supply side, channel costs can be too high or just right. Now, this creates an array of two by three or six possible outcomes. Note that only one of these scenarios is completely aligned. Another way to think about this is that five out of six times your channel will be misaligned. Those are not great odds, it implies that it's easier and more likely that your channel strategy will go wrong than it will go right. Well, this is kind of a gloomy prospect, the only silver lining is that it can lead us to ask some key questions. One of the first things we can ask is, where are the redundancies? Are there likely to be any repetitive activities? Which of them could be eliminated to result in the lowest cost for the entire system without compromising the delivery of value channel benefits? Could good transportation make it possible to eliminate some inventory holding areas in the channel system without slowing down delivery time? Where is reorganization needed? Is there a way to eliminate, redefine, reallocate or combine certain tasks in order to minimize the steps in a sale or reduce its cycle time? Can customer information be centralized so that all channel members can find it in one comprehensive system? Where can we cut or modify costs? Is it possible to automate certain activities in a way that reduces the unit cost of getting products to market? Even if this increases fixed costs, are there opportunities to modify information systems to reduce the costs of prospecting, order entry, or quote generation activities? In some, it's important to be aware that one can have misalignment on the supply side without a demand misalignment or vice versa. Misalignment can apply to all players on both the supply and the demand sides. So, this analysis should therefore take account of each channel benefit on the demand side, each channel flow on the supply side and each segment per channel in a separate analysis. This leads us to the key insight that the way that channel value is created rests on the resolution of differences between the channel benefits demanded and the function supplied. It's not enough to address just the demand or the supply side, both of these aspects need to be aligned. Now, if you agree with me on this point, let's now start to apply it with a more complex example.
