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[Instructor] Hi there,
welcome to the video lecture

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on the third P

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of the four P marketing
mix, which is place.

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So in this section, first of
all, we're gonna talk about

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channels and chains and basically,

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how do your goods get to the consumer?

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Do you use direct markets
or do you use indirect?

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And it's much like we already
talked about, B2B, B2C.

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Next we'll think about,
where do you buy inputs?

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All businesses, organization buy

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or at least need certain inputs.

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And we'll talk about the
drivers between the decision of,

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do you make it yourself,

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or do you buy it from somebody else?

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And then finally, because I'm imagining

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that a lot of you have
service-based businesses,

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we will talk about place in that context.

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So the first thing that
we're gonna talk about

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is how your good or service
gets to the customer.

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So we're gonna be thinking
about market channels,

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which is the organizations and individuals

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that get your product
or service to customers.

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You can think about it as the pipeline,

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how does it get there from
your door to their door?

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There are two main types,
direct and indirect.

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And these, we've already
touched a bit on the B2B,

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business to business, and B2C,

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business to consumer models.

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And basically, these are much the same.

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So direct, you're selling
right to the consumer.

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Whereas indirect, you are selling to,

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or at least working with other businesses.

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The first one that we're gonna think about

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is direct markets, which is where you sell

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your product or service
directly to the end customer.

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And in food, you're
probably familiar with this,

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something like a farmer's
market or farm stand

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where you're buying it
right from the farmer.

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And in many cases, you may
wish to start with this.

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And the reasons being that

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you have a lot of control.

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So you have complete control

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in what is said about your product,

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how it's presented, how it's packaged,

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where it goes on the shelf.

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All those things you have
complete control over.

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Next, it gives you contact
with your customers.

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So you can talk to them
and hear from them,

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what do you like?

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What do you not like?
What's working, what's not?

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Which allows you to improve

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both the product and its delivery.

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And again, it can be
a learning experience.

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So actually being there,

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interacting with the the customers,

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lets you learn about your product

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and what consumers like
and don't like about it.

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The features of direct markets

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is that you retain ownership
all the way through.

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So until it gets into
the hands, you own it.

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It's up to you to collect payment.

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It's up to you to provide
any customer service,

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explain how it works, do any refunds,

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anything like that, that is all on you.

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So in a way, that may be a downside.

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That even though you have control,

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you also have all the responsibility

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and all the tasks of
marketing fall on you,

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that you have to do it yourself.

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Your business has to
do all of these tasks.

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So again, here are lots of examples.

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Being a food and ag guy,

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these are the ones that
most readily come to mind.

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So farmer's market, CSA
shares, farm stands, U-pick.

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So all these are ways in
which farmers sell food

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directly to consumers, and
don't use any intermediary.

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In contrast, indirect markets
do use intermediaries.

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So here are a whole bunch of examples.

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So the first two, agents and brokers,

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don't actually take
possession of the good.

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They just make a deal, and
it's up to you to deliver it.

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But then folks like
dealers to distributors,

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wholesalers and retailers,
they do actually take

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physical custody of the good.

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And they eventually

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either sell it to or
sell it to somebody else

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who then sells to the end consumer.

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So in every case here,

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there's an intermediary
that is playing some role

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to help the good get
to the final customer.

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So we're gonna talk about
this in the discussion.

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So there's sort of,
again, for farm produce,

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there is a continuum here

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for first in direct markets

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where the consumer buys straight from you.

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There's direct to accounts
where you take it right to,

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usually, some sort of
food service operation,

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like a restaurant or a hospital

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or a school or maybe
directly to a retailer.

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There are food hubs, which are specialty

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local food distributors
that have a specific mission

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of supporting local farms

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and making local food more accessible.

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So in many cases, so they'll buy from many

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different farmers and then
sell to many different buyers.

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And then there is a
distributor who buys and sells,

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again, from many farms,
but really don't have

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a specific mission about
local food and local farms.

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And they basically sell
it almost anywhere,

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so it might end up in the
region or out of the region.

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And we're gonna explore
this in our discussion about

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sort of the pros and cons
and volumes and prices,

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and all kinds of, the
features that each of these

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marketing channels provide.

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Now I'm going to talk about,

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what are the drivers which determine

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what is the right
marketing channel for you?

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And you'll see that they have
to do with these four things,

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customers, product, the
environment in which they operate,

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and the nature of the business.

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So thinking back a few weeks

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when we thought about customers,
and we wanna think about,

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where and when do they want to buy?

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So how much is convenience,

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and being able to buy it at the place

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where they want important?

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So if they want to be able

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to access it right nearby, 24/7,

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it may be that you wanna
sell it through a store

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that is open at that time
so they could just get it.

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Whereas if it's something

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that they're willing to wait for,

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to meet you when you're open,

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or when your farmer's
market stand is open,

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or if they can order it online

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and have you deliver it,

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then the direct market might work better.

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In the same way, and I want
you to think about this.

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usually if you have a relatively fewer

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number of customers, direct might work.

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But if you have many, many, many of them,

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you may need to change to indirect markets

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and use an intermediary.

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And I'll let you think
about why that is so,

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and we'll discuss it in
our class discussion.

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The nature of the product also determines

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what kind of market that you will use.

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So this is a general rule of thumb,

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it doesn't always apply,

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but if you have a highly
differentiated product,

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odds are you're more likely
to use a direct market.

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So if it is like highly nuanced,
sophisticated, high value,

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sort of very unusual
alternative, craft, artisanal,

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at least direct markets may be an option.

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Whereas if you have

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a very commoditized item,

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like corn, you know, number two corn,

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or milk in a gallon plastic jug

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with a red lid,

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usually you will sell those indirectly.

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And again, we'll think about why that is.

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A few weeks ago, we talked
about the external environment

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and that is also a driver for
what kind of market channel

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you will use, what place.

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So certainly, that we have seen

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with the advent of technology

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and the internet, that
direct ordering and,

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you know, both buying
from the manufacturer,

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maybe things like Etsy,
where you're buying a craft

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or buying, you know,
some sort of commodity,

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like through Amazon, say,

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certainly has an impact.

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What are you able to do?

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And if you are doing,

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and do you have the right infrastructure?

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So you can think about, what
do you need to have in place

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if you are selling direct?

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And what do you need to have in place

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if you are selling indirect?

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So few examples, if you're selling direct,

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you know, a farmer's market,

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you're gonna need tables and
boxes and signs and shelter

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and things like that.

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If you sell indirect, you're gonna need

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pallets, and, you know, large boxes,

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large case size boxes to put things on,

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et cetera.

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If you sell like a craft,

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if you sell it direct,

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then you need to be able to,
you know, have a website,

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have someone that can do all that work.

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If you sell it indirect, again,

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through somebody like Etsy,

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they can do the brokering.

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So think about, do you
have the infrastructure

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and the equipment that you need?

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Which is a better fit for you?

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And speaking of what's
a better fit for you,

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what resources do you have?

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What are the human, the technological,

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the equipment and infrastructure,

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as well as the entrepreneur's time?

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Because pretty much throughout

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the life cycle of any business,

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the entrepreneur's time
is the scarcest resources.

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So to what extent does
it make sense for you to,

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you know, in the beginning
you may sell direct

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for all those reasons I said,

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but it may be that eventually
that your time is better spent

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working through a distributor.

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Where instead of sort
of waiting on the orders

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or waiting at the farmer's market,

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where you can just make
one call, sell a whole load

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to a distributor and save

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a lot of time.

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So where is your time best spent?

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What use of your time

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brings the greatest
return to your business?

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That's a decision and a question

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that you should be asking
yourself all throughout.

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So you wanna think about,

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as you're choosing a
strategy, what is effective?

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What will meet the customer's needs?

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Where do they wanna buy, and why?

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And how long will they wait?

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How hands on do you wanna be?

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Can the customer find you?

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What's the most efficient way?

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And so you really wanna think about,

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do I wanna do this all by myself?

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Or, do I wanna work with
some kind of a partner?

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And note that there are
a lot of costs here.

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There are many tasks, distribution,

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advertising, the actual
sales, customer service,

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who should do this?

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Who will pay? Who do you wanna pay?

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Do you wanna pay yourself or,

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you know, not pay anybody
else, but spend the time?

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Or do you want to save the time

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and pay somebody else to do this?

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So think about, who can
provide these services

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at the greatest value, at the
most efficient cost to you?

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And what use of your time
brings the greatest return

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to your business or organization?

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So we'll talk in class about,
when is it time to change?

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Many businesses, again, start direct

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for all the reasons I said,

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but then just find that
the volume of business

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and just the use

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of the entrepreneur's time

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sometimes calls for changing and beginning

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to work through an intermediary.

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One thing I hear a lot

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in my research with food businesses

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is that they self-deliver,

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self-distribute at first.

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So, you know, you begin

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sort of selling to individual stores,

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or maybe if you're a craft brewer,

260
00:17:12,210 --> 00:17:15,150
selling kegs or cans

261
00:17:15,150 --> 00:17:19,200
to local stores, local bars.

262
00:17:19,200 --> 00:17:22,890
But then eventually, you know,
again, you have enough volume

263
00:17:22,890 --> 00:17:27,210
that you're ready to not do
all that work you yourself

264
00:17:27,210 --> 00:17:32,100
and work with somebody
who does that very well,

265
00:17:32,100 --> 00:17:34,920
who already has relationships

266
00:17:34,920 --> 00:17:39,843
to lots of other
restaurants, bars, or stores.

267
00:17:40,680 --> 00:17:45,680
And there's that point
where you change from,

268
00:17:45,840 --> 00:17:48,037
they're sort of doing you a favor,

269
00:17:48,037 --> 00:17:51,960
"Please carry my product,"

270
00:17:51,960 --> 00:17:55,717
to "I'm bringing you business."

271
00:17:55,717 --> 00:17:59,880
"There's lots of, lots of
stores or bars or restaurants

272
00:17:59,880 --> 00:18:03,483
that you already work
with who want my product."

273
00:18:04,957 --> 00:18:09,240
"I already have a customer base,

274
00:18:09,240 --> 00:18:12,570
they want to buy it,
you already sell to 'em,

275
00:18:12,570 --> 00:18:15,720
it makes sense for you to start

276
00:18:15,720 --> 00:18:20,720
to carry my product."

277
00:18:21,000 --> 00:18:23,820
And in that way, you're bringing

278
00:18:23,820 --> 00:18:28,820
some leverage to the relationship.

279
00:18:29,190 --> 00:18:30,990
Going from, "Do me a favor,"

280
00:18:30,990 --> 00:18:33,900
sort of groveling, "Please sell my thing,"

281
00:18:33,900 --> 00:18:36,937
to "This works for you too."

282
00:18:36,937 --> 00:18:41,160
"This is a clear benefit,
I can do it myself,

283
00:18:41,160 --> 00:18:45,897
but it's much more efficient
if we work together."

284
00:18:51,900 --> 00:18:54,510
So now we're going to talk about,

285
00:18:54,510 --> 00:18:57,540
how do you get the inputs that you need?

286
00:18:57,540 --> 00:19:00,750
How do you get the materials

287
00:19:00,750 --> 00:19:05,133
and the services that your business needs?

288
00:19:06,060 --> 00:19:11,060
So all businesses, I would
say, need inputs of some kind.

289
00:19:12,600 --> 00:19:16,890
They buy things from
somewhere or, in some cases,

290
00:19:16,890 --> 00:19:20,490
they make it themselves
and they do some sort

291
00:19:20,490 --> 00:19:25,177
of transformation of
it, and then they sell

292
00:19:26,280 --> 00:19:31,280
this transformed product.

293
00:19:31,830 --> 00:19:36,750
So this photo that you see here

294
00:19:36,750 --> 00:19:40,200
is a man named Ronald Coase

295
00:19:40,200 --> 00:19:45,150
who was a Nobel Prize winning economist,

296
00:19:45,150 --> 00:19:48,600
and one of his landmark work

297
00:19:48,600 --> 00:19:51,930
is on transaction costs.

298
00:19:51,930 --> 00:19:54,430
And we'll talk a little bit about

299
00:19:57,150 --> 00:20:01,110
transaction costs and, specifically,

300
00:20:01,110 --> 00:20:06,097
he applied it to what he
called the theory of the firm

301
00:20:07,440 --> 00:20:11,370
and the make or buy decision.

302
00:20:11,370 --> 00:20:15,840
So a firm needs some kind of input.

303
00:20:15,840 --> 00:20:20,490
So I am a professor, say,

304
00:20:20,490 --> 00:20:24,123
there are certain inputs that I need.

305
00:20:25,020 --> 00:20:29,220
Do I make them myself or do I buy them?

306
00:20:29,220 --> 00:20:32,460
So an example is a laptop.

307
00:20:32,460 --> 00:20:37,460
Right now I am talking to
a laptop, it is recording.

308
00:20:37,860 --> 00:20:41,250
It really doesn't make sense for me

309
00:20:41,250 --> 00:20:45,990
to make my own laptop.

310
00:20:45,990 --> 00:20:49,380
I don't really how to do it,

311
00:20:49,380 --> 00:20:51,240
there's a lot of 'em available,

312
00:20:51,240 --> 00:20:53,733
I can just buy it and use it.

313
00:20:54,570 --> 00:20:57,540
On the other hand, it
doesn't make sense for me

314
00:20:57,540 --> 00:21:01,533
to pay someone to teach the class for me.

315
00:21:02,850 --> 00:21:07,470
I feel like I do that well,
it's something I enjoy.

316
00:21:07,470 --> 00:21:10,680
I don't wanna have to
pay somebody to do it.

317
00:21:10,680 --> 00:21:15,680
I wanna keep my whole paycheck for myself,

318
00:21:16,560 --> 00:21:20,043
so the instruction part I make.

319
00:21:21,300 --> 00:21:26,250
And Coase argued that this

320
00:21:26,250 --> 00:21:30,180
is determined by transaction costs.

321
00:21:30,180 --> 00:21:35,180
And he talked about how
this helps to determine

322
00:21:35,880 --> 00:21:39,150
that the make or buy decision

323
00:21:39,150 --> 00:21:43,558
is determined by transaction costs,

324
00:21:43,558 --> 00:21:45,900
and that the make or buy decision

325
00:21:45,900 --> 00:21:49,230
helps to outline the boundary of the firm.

326
00:21:49,230 --> 00:21:51,930
What do I do? What do I not do?

327
00:21:51,930 --> 00:21:56,190
So for me, the boundary of my firm is,

328
00:21:56,190 --> 00:22:00,930
I deliver the material,

329
00:22:00,930 --> 00:22:04,620
I develop it and deliver it myself,

330
00:22:04,620 --> 00:22:07,320
but I don't make computers.

331
00:22:07,320 --> 00:22:11,103
And hopefully, this will make
more sense as we move forward.

332
00:22:12,120 --> 00:22:15,360
So anyway, Coase talks about

333
00:22:15,360 --> 00:22:19,920
that there are three kinds
of transaction costs.

334
00:22:19,920 --> 00:22:24,920
Transaction cost is the
cost of doing business,

335
00:22:25,979 --> 00:22:28,803
the cost of sellers and buyers

336
00:22:31,230 --> 00:22:34,980
finding each other and reaching

337
00:22:34,980 --> 00:22:37,770
an agreement that works for both.

338
00:22:37,770 --> 00:22:41,490
So from the buyer's
standpoint, I have three types.

339
00:22:41,490 --> 00:22:45,720
First is search, so who has this thing?

340
00:22:45,720 --> 00:22:47,130
Who has it for sale?

341
00:22:47,130 --> 00:22:51,660
Who's out there that has
the thing that I want?

342
00:22:51,660 --> 00:22:55,020
So in the case of a laptop,

343
00:22:55,020 --> 00:22:58,710
there's Apple, there's Dell,
there's lots of 'em out there.

344
00:22:58,710 --> 00:23:01,413
Next is, how much do I pay?

345
00:23:05,070 --> 00:23:08,083
You know, there's a clear market

346
00:23:08,083 --> 00:23:10,307
for laptops, I can go online,

347
00:23:13,770 --> 00:23:18,453
I can go to a store, it has a
fairly well-established price.

348
00:23:19,350 --> 00:23:22,440
And finally, how do I ensure

349
00:23:22,440 --> 00:23:25,830
that what I want is what I am getting?

350
00:23:25,830 --> 00:23:30,830
So in this case, you know, again,

351
00:23:30,990 --> 00:23:35,070
a laptop has fairly clear specifications

352
00:23:35,070 --> 00:23:40,070
and it should perform in
ways that I hope it does.

353
00:23:42,210 --> 00:23:46,530
So in the case of me finding someone

354
00:23:46,530 --> 00:23:51,060
to deliver it, this is a
much more unusual thing.

355
00:23:51,060 --> 00:23:54,840
So first, I would have to find somebody

356
00:23:54,840 --> 00:23:59,490
who has enough expertise.

357
00:23:59,490 --> 00:24:02,080
I would have to figure out

358
00:24:03,480 --> 00:24:06,360
how much I would have to pay this person.

359
00:24:06,360 --> 00:24:10,710
And last, I would have to
monitor him and make sure

360
00:24:10,710 --> 00:24:15,710
that he is delivering the material

361
00:24:15,720 --> 00:24:18,300
in a way that works

362
00:24:18,300 --> 00:24:21,333
and is effective and that, you know,

363
00:24:22,530 --> 00:24:27,530
gives students the
value that they deserve.

364
00:24:29,040 --> 00:24:33,600
So what I'm arguing here
and what Coase argued

365
00:24:33,600 --> 00:24:38,043
is the more differentiated a product is,

366
00:24:39,270 --> 00:24:42,000
the higher the transaction costs,

367
00:24:42,000 --> 00:24:45,360
and the more common it is, the lower.

368
00:24:45,360 --> 00:24:48,720
So let's think about a true commodity,

369
00:24:48,720 --> 00:24:52,770
such as that gallon of white milk

370
00:24:52,770 --> 00:24:56,460
with the red cap in the plastic jug.

371
00:24:56,460 --> 00:24:58,290
So search, who has it?

372
00:24:58,290 --> 00:25:01,170
Lots of stores have it,
grocery stores have it,

373
00:25:01,170 --> 00:25:02,580
gas stations have it,

374
00:25:02,580 --> 00:25:05,703
convenience stores has
it, broadly available.

375
00:25:06,600 --> 00:25:09,330
What do I pay?

376
00:25:09,330 --> 00:25:12,930
Well, there's a very
well-established price.

377
00:25:12,930 --> 00:25:14,700
Going from store to store,

378
00:25:14,700 --> 00:25:18,360
the price for that gallon
of milk is probably

379
00:25:18,360 --> 00:25:20,640
gonna be pretty close.

380
00:25:20,640 --> 00:25:24,570
And how do I know I'm getting it?

381
00:25:24,570 --> 00:25:28,080
Well, because it's so homogeneous,

382
00:25:28,080 --> 00:25:30,420
it's a one-size-fits-all,

383
00:25:30,420 --> 00:25:34,860
basically every one is the same.

384
00:25:34,860 --> 00:25:37,800
There's not a lot of information there.

385
00:25:37,800 --> 00:25:42,800
And if I want this gallon

386
00:25:42,990 --> 00:25:46,710
of white milk, really
they're all the same,

387
00:25:46,710 --> 00:25:51,330
and I really don't have
to go to a lot of bother

388
00:25:51,330 --> 00:25:56,223
to make sure that it's
exactly what I want.

389
00:25:57,180 --> 00:25:59,640
And the last point on this slide

390
00:25:59,640 --> 00:26:03,180
is that there are three
options, spot markets,

391
00:26:03,180 --> 00:26:06,810
vertical integration, and
strategic partnerships.

392
00:26:06,810 --> 00:26:08,793
And I am going to talk about each one.

393
00:26:12,600 --> 00:26:17,010
The first kind of market,

394
00:26:17,010 --> 00:26:20,910
or the first option, is spot markets.

395
00:26:20,910 --> 00:26:23,400
Spot markets are all the way

396
00:26:23,400 --> 00:26:28,020
at the buy and of the continuum.

397
00:26:28,020 --> 00:26:31,950
So this is best for inputs

398
00:26:31,950 --> 00:26:35,520
that are sort of at the commodity end,

399
00:26:35,520 --> 00:26:37,890
that are broadly available.

400
00:26:37,890 --> 00:26:40,380
They're routinely bought and sold,

401
00:26:40,380 --> 00:26:45,380
they tend to be very homogeneous
and routine in quality.

402
00:26:45,510 --> 00:26:49,410
There are many vendors,
there are many options.

403
00:26:49,410 --> 00:26:54,000
And in many cases, the buyer should just

404
00:26:54,000 --> 00:26:56,430
select one that works for them,

405
00:26:56,430 --> 00:26:59,170
in many case, the lowest

406
00:27:01,290 --> 00:27:05,343
priced one or maybe the
most convenient one.

407
00:27:06,180 --> 00:27:09,803
So again, if you are buying

408
00:27:11,520 --> 00:27:15,630
a gallon of milk, it
doesn't make sense for you

409
00:27:15,630 --> 00:27:19,260
to make the milk yourself,
to have a dairy farm,

410
00:27:19,260 --> 00:27:22,380
and to do all that work yourself,

411
00:27:22,380 --> 00:27:25,170
it makes much more sense to buy it.

412
00:27:25,170 --> 00:27:30,170
As a professor, it makes more
sense for me to buy a laptop.

413
00:27:30,570 --> 00:27:32,940
I don't know how to make them,

414
00:27:32,940 --> 00:27:35,100
there are many of 'em available.

415
00:27:35,100 --> 00:27:39,003
I can go online, I could go to a store,

416
00:27:39,840 --> 00:27:43,323
and I just go and pick the
one that's best for me.

417
00:27:44,340 --> 00:27:48,420
So inputs that are broadly available,

418
00:27:48,420 --> 00:27:51,360
that are routinely bought and sold,

419
00:27:51,360 --> 00:27:54,210
those are the ones that you would use

420
00:27:54,210 --> 00:27:56,643
a spot market and buy them.

421
00:27:57,633 --> 00:27:58,500
And these tend to be fairly

422
00:27:58,500 --> 00:28:02,793
arms length and anonymous relationships.

423
00:28:05,463 --> 00:28:08,070
I might go buy the milk,

424
00:28:08,070 --> 00:28:12,810
the gallon of milk,
from Hannafords one day

425
00:28:12,810 --> 00:28:15,840
because I'm doing some grocery shopping,

426
00:28:15,840 --> 00:28:18,420
but it might be that I just need to,

427
00:28:18,420 --> 00:28:22,110
I'm already at the drugstore

428
00:28:22,110 --> 00:28:24,720
to pick up a prescription

429
00:28:24,720 --> 00:28:29,220
and I remember that I need milk too.

430
00:28:29,220 --> 00:28:33,060
So I really don't, you know,

431
00:28:33,060 --> 00:28:38,060
I don't work with the
same person all the time.

432
00:28:38,760 --> 00:28:42,060
I don't tell them how to make that milk,

433
00:28:42,060 --> 00:28:45,570
I don't know what farm that it comes from.

434
00:28:45,570 --> 00:28:47,760
There's just like lots of it available,

435
00:28:47,760 --> 00:28:51,603
I just go and pick the one
that works best for me.

436
00:28:52,950 --> 00:28:55,920
And I'm gonna say a bit more,

437
00:28:55,920 --> 00:29:00,090
I'm gonna give you a more concrete example

438
00:29:00,090 --> 00:29:03,753
for a specific business for each of these.

439
00:29:07,410 --> 00:29:11,370
At the other end is the make.

440
00:29:11,370 --> 00:29:16,020
So this is when something
is highly specialized,

441
00:29:16,020 --> 00:29:17,550
it's one of a kind.

442
00:29:17,550 --> 00:29:22,350
I'm really fussy about
what it has to look like,

443
00:29:22,350 --> 00:29:25,770
that it really has to be suited

444
00:29:25,770 --> 00:29:29,043
to my particular circumstances.

445
00:29:30,090 --> 00:29:33,933
And so since it is highly specialized,

446
00:29:35,703 --> 00:29:40,470
there's not going to be
a whole lot of suppliers.

447
00:29:40,470 --> 00:29:45,470
So it might be that I only want milk

448
00:29:46,470 --> 00:29:51,180
that is organic, free range cows

449
00:29:51,180 --> 00:29:55,833
fed a really special kind of hay.

450
00:29:56,820 --> 00:30:01,820
Whoever milks that the cows
has to sing to the cows,

451
00:30:02,010 --> 00:30:05,610
it must be in a blue barn,
dot, dot, dot, dot, dot,

452
00:30:05,610 --> 00:30:09,870
lots and lots and lots of
attributes, lots of information,

453
00:30:09,870 --> 00:30:14,580
really highly differentiated.

454
00:30:14,580 --> 00:30:17,520
And it might be, at an extreme end,

455
00:30:17,520 --> 00:30:21,490
that this thing that I want is so obscure

456
00:30:22,710 --> 00:30:26,010
that I have to make it myself.

457
00:30:26,010 --> 00:30:31,010
So it might be that if I needed a laptop

458
00:30:31,800 --> 00:30:34,470
that was incredibly, you know,

459
00:30:34,470 --> 00:30:37,053
that is completely unique.

460
00:30:38,153 --> 00:30:40,920
It has this bundle of
attributes done in this way,

461
00:30:40,920 --> 00:30:44,370
made in this way, that nobody makes it.

462
00:30:44,370 --> 00:30:47,280
There's not a single firm on earth

463
00:30:47,280 --> 00:30:51,690
that makes the specific
kind of laptop that I need,

464
00:30:51,690 --> 00:30:55,083
it might be that I just
have to make it myself.

465
00:30:57,030 --> 00:30:58,930
In the same way

466
00:30:59,854 --> 00:31:03,270
that if you want to build

467
00:31:03,270 --> 00:31:07,710
a loft bed for your
apartment or your dorm room,

468
00:31:07,710 --> 00:31:10,590
it might be that there's
a bunch of 'em available

469
00:31:10,590 --> 00:31:14,220
and you can just go buy
one, sort of buy a kit.

470
00:31:14,220 --> 00:31:17,370
But it might be that you
want it to be really special,

471
00:31:17,370 --> 00:31:19,050
that there's something about it,

472
00:31:19,050 --> 00:31:22,320
that it's just not commonly available.

473
00:31:22,320 --> 00:31:27,320
A specific kind of wood, a
specific size, a specific design,

474
00:31:27,600 --> 00:31:29,643
something that it does,

475
00:31:30,600 --> 00:31:34,770
it has a coffee maker

476
00:31:34,770 --> 00:31:38,790
attached onto it, something
obscure like that.

477
00:31:38,790 --> 00:31:42,690
That it may be that it's so obscure,

478
00:31:42,690 --> 00:31:45,603
so unique, nobody makes this,

479
00:31:47,787 --> 00:31:50,160
and you're gonna have to
just make it yourself.

480
00:31:50,160 --> 00:31:52,800
It's not available for sale.

481
00:31:52,800 --> 00:31:56,910
And in this case, this first bullet here

482
00:31:56,910 --> 00:31:59,670
that you are making it for yourself,

483
00:31:59,670 --> 00:32:02,580
so you have complete control

484
00:32:02,580 --> 00:32:05,343
over what the end product looks like.

485
00:32:12,809 --> 00:32:16,210
The third example is
strategic partnerships,

486
00:32:17,520 --> 00:32:22,320
and this is in between make or buy.

487
00:32:22,320 --> 00:32:27,150
So, this creates hopefully

488
00:32:27,150 --> 00:32:30,810
win-win partnerships among firms.

489
00:32:30,810 --> 00:32:34,650
So these are best when this sort

490
00:32:34,650 --> 00:32:39,480
of vertical, hierarchical
arrangements are outside

491
00:32:39,480 --> 00:32:43,890
of your core competency.

492
00:32:43,890 --> 00:32:47,130
So it might be that, you know, again,

493
00:32:47,130 --> 00:32:50,640
I don't wanna have to have a
dairy farm for all my milk.

494
00:32:50,640 --> 00:32:53,223
I don't wanna have to make my own laptop.

495
00:32:54,240 --> 00:32:56,730
That's not what I do best,

496
00:32:56,730 --> 00:33:00,780
but nobody makes it exactly how I like it.

497
00:33:00,780 --> 00:33:03,990
So these sort of arm length suppliers

498
00:33:03,990 --> 00:33:08,400
aren't willing to invest in the equipment

499
00:33:08,400 --> 00:33:11,130
or share the information needed.

500
00:33:11,130 --> 00:33:14,610
So in the case

501
00:33:14,610 --> 00:33:18,663
of my blue barn singing to the cows milk,

502
00:33:19,620 --> 00:33:22,680
unless I can buy a whole lot of it,

503
00:33:22,680 --> 00:33:25,440
they're not gonna go to the bother

504
00:33:25,440 --> 00:33:28,650
to make this really obscure milk

505
00:33:28,650 --> 00:33:30,543
to suit just my needs.

506
00:33:31,710 --> 00:33:34,290
And in the same way,

507
00:33:34,290 --> 00:33:38,460
the laptop maker isn't gonna do it.

508
00:33:38,460 --> 00:33:43,460
So I have to find someone who
can do it sort of well enough,

509
00:33:44,730 --> 00:33:49,730
or to guarantee enough business

510
00:33:50,580 --> 00:33:54,990
in the long-term that
it's worthwhile for them

511
00:33:54,990 --> 00:33:59,553
to make the investment
and to meet my needs.

512
00:34:00,690 --> 00:34:03,760
So a good example of this

513
00:34:05,940 --> 00:34:07,440
is a food hub.

514
00:34:07,440 --> 00:34:11,370
So they act as a strategic partner

515
00:34:11,370 --> 00:34:14,643
between farmers and buyers.

516
00:34:18,420 --> 00:34:21,360
Especially for the buyer,

517
00:34:21,360 --> 00:34:24,780
they want fresh local produce

518
00:34:24,780 --> 00:34:28,950
and they don't wanna have to run a farm,

519
00:34:28,950 --> 00:34:31,140
so they don't wanna make it.

520
00:34:31,140 --> 00:34:36,140
But the kind of fresh local
produce may not be available

521
00:34:36,330 --> 00:34:40,380
from the broad-line
mainstream distributor,

522
00:34:40,380 --> 00:34:44,820
so they enter into a
partnership with the food hub

523
00:34:44,820 --> 00:34:47,970
that helps 'em in that
sort of in between space.

524
00:34:47,970 --> 00:34:50,430
And I'm gonna give another example too.

525
00:34:50,430 --> 00:34:54,030
Hopefully these are
marked by a fair sharing

526
00:34:54,030 --> 00:34:55,920
of risk and reward,

527
00:34:55,920 --> 00:35:00,810
and being a able to
keep the differentiation

528
00:35:00,810 --> 00:35:03,150
of the product moving forward.

529
00:35:03,150 --> 00:35:06,960
So one of the things that
food hubs do extremely well

530
00:35:06,960 --> 00:35:11,370
is identifying which farm
it comes from and saying,

531
00:35:11,370 --> 00:35:15,870
you know, "This is from Suzanne's farm

532
00:35:15,870 --> 00:35:19,237
and she is known for
having the best kale."

533
00:35:19,237 --> 00:35:21,510
"This kale is from her farm

534
00:35:21,510 --> 00:35:23,670
and these are all the things that she does

535
00:35:23,670 --> 00:35:25,797
to make her kale so amazing."

536
00:35:26,970 --> 00:35:28,740
And it works like that.

537
00:35:28,740 --> 00:35:32,940
So I'm gonna give you an example,

538
00:35:32,940 --> 00:35:35,310
which I hope will help

539
00:35:35,310 --> 00:35:40,310
to really highlight these three options

540
00:35:41,070 --> 00:35:42,960
and when they are used

541
00:35:42,960 --> 00:35:47,940
and when each one is the best,

542
00:35:47,940 --> 00:35:51,633
depending on what the
business wants and does.

543
00:35:54,540 --> 00:35:55,773
So here's the example.

544
00:35:57,060 --> 00:35:59,310
This is a show, I think
my daughter liked it.

545
00:35:59,310 --> 00:36:00,450
I haven't ever seen it.

546
00:36:00,450 --> 00:36:04,110
Maybe you have, and I don't know

547
00:36:04,110 --> 00:36:06,480
any of the decisions
that he actually makes.

548
00:36:06,480 --> 00:36:11,190
But, here's our application.

549
00:36:11,190 --> 00:36:14,643
Suppose that you own a hamburger stand.

550
00:36:15,690 --> 00:36:19,410
So you are known for having the juiciest,

551
00:36:19,410 --> 00:36:23,643
best cooked, most
delicious burgers in town.

552
00:36:24,690 --> 00:36:27,840
So there are some inputs

553
00:36:27,840 --> 00:36:31,590
that obviously you are going to buy.

554
00:36:31,590 --> 00:36:34,710
So it wouldn't really make sense for you

555
00:36:34,710 --> 00:36:37,350
to make your own napkins,

556
00:36:37,350 --> 00:36:41,193
or to make your own plates.

557
00:36:43,200 --> 00:36:46,320
On the other hand, it
doesn't make sense for you

558
00:36:46,320 --> 00:36:50,250
to hire someone to make

559
00:36:50,250 --> 00:36:52,863
and sell the burgers
'cause that's what you do.

560
00:36:53,820 --> 00:36:57,090
But let's look at buns.

561
00:36:57,090 --> 00:37:01,860
So it's reasonable that most people

562
00:37:01,860 --> 00:37:04,620
are going to want their burger on a bun.

563
00:37:04,620 --> 00:37:07,170
So obviously if you run a hamburger stand,

564
00:37:07,170 --> 00:37:08,493
you will need some buns.

565
00:37:09,690 --> 00:37:14,343
Now, basically any bun will do,

566
00:37:15,360 --> 00:37:19,770
as long as it's the right
size and it's of good quality,

567
00:37:19,770 --> 00:37:21,690
just an ordinary bun,

568
00:37:21,690 --> 00:37:24,510
you're not looking for anything special,

569
00:37:24,510 --> 00:37:27,210
then certainly you would buy it.

570
00:37:27,210 --> 00:37:31,350
You would probably just work

571
00:37:31,350 --> 00:37:35,190
with your distributor,
look at a list of buns

572
00:37:35,190 --> 00:37:39,870
that they have, there will be
a lot of options I imagine.

573
00:37:39,870 --> 00:37:44,220
They're all basically the
same, but look 'em over,

574
00:37:44,220 --> 00:37:46,710
find the one that works best for you.

575
00:37:46,710 --> 00:37:49,330
It might be the lowest

576
00:37:51,900 --> 00:37:55,380
priced one, but if you
want an ordinary bun,

577
00:37:55,380 --> 00:37:58,560
widely available, you're gonna buy it.

578
00:37:58,560 --> 00:38:03,560
However, maybe you want
a really special bun.

579
00:38:04,380 --> 00:38:07,320
So, again, just sort of
adding attributes on.

580
00:38:07,320 --> 00:38:10,383
So if an ordinary bun won't do,

581
00:38:11,250 --> 00:38:13,173
you need a special bun,

582
00:38:14,190 --> 00:38:18,480
whole grain, gluten-free, organic,

583
00:38:18,480 --> 00:38:23,480
hand mixed, grains grown on a small farm

584
00:38:24,840 --> 00:38:28,500
by a female owned farmer who sings

585
00:38:28,500 --> 00:38:31,710
while she harvests them,
dot, dot, dot, dot, dot, dot,

586
00:38:31,710 --> 00:38:33,843
lots and lots and lots of attributes.

587
00:38:34,770 --> 00:38:39,150
First of all, that bun is
probably not going to be available

588
00:38:39,150 --> 00:38:43,950
from your broad-line
mainstream distributor.

589
00:38:43,950 --> 00:38:48,660
And the more kind of obscure attributes

590
00:38:48,660 --> 00:38:52,740
that you add on and require,

591
00:38:52,740 --> 00:38:56,550
the number of suppliers who
are ready, willing, and able

592
00:38:56,550 --> 00:38:59,370
to do that will get smaller and smaller.

593
00:38:59,370 --> 00:39:04,370
And it may be that the bun
that you want is so obscure,

594
00:39:04,650 --> 00:39:06,930
nobody makes it, in which case,

595
00:39:06,930 --> 00:39:09,570
you will have to make those buns yourself.

596
00:39:09,570 --> 00:39:11,920
So you will have to bake them,

597
00:39:11,920 --> 00:39:15,660
and be the one at the make
end so you can control it,

598
00:39:15,660 --> 00:39:19,500
because think about transaction costs.

599
00:39:19,500 --> 00:39:22,113
Who makes it? Hmm, nobody.

600
00:39:23,040 --> 00:39:24,690
How much does it cost?

601
00:39:24,690 --> 00:39:27,390
Well, we know how much
a mainstream bun costs,

602
00:39:27,390 --> 00:39:29,430
but something so obscure,

603
00:39:29,430 --> 00:39:31,560
there really isn't an established market,

604
00:39:31,560 --> 00:39:33,330
so it's going to take a lot of time.

605
00:39:33,330 --> 00:39:35,940
Like, what's a good price?

606
00:39:35,940 --> 00:39:40,940
And then last, how do you know
that it came from local farm

607
00:39:41,700 --> 00:39:45,300
and that the farmer sings
when she's harvesting

608
00:39:45,300 --> 00:39:48,780
the grains and dot, dot, dot, dot?

609
00:39:48,780 --> 00:39:53,280
So having really obscure,

610
00:39:53,280 --> 00:39:58,280
specific specifications adds
to the transaction costs.

611
00:39:58,770 --> 00:40:02,193
And eventually, you may
just need to do it yourself.

612
00:40:03,390 --> 00:40:06,930
Now there may be a middle ground,

613
00:40:06,930 --> 00:40:11,930
that the ordinary bun from
the distributor doesn't work.

614
00:40:12,030 --> 00:40:15,270
You really don't wanna
have to set up a bakery

615
00:40:15,270 --> 00:40:17,280
because what you do is burgers,

616
00:40:17,280 --> 00:40:19,740
that's what you love,
that's what you do best.

617
00:40:19,740 --> 00:40:23,880
So you might form a
partnership with a bakery,

618
00:40:23,880 --> 00:40:27,810
find one that's willing to work with you.

619
00:40:27,810 --> 00:40:29,640
You may have to invest,

620
00:40:29,640 --> 00:40:33,510
you may have to put some skin in the game,

621
00:40:33,510 --> 00:40:35,430
you may have to commit

622
00:40:35,430 --> 00:40:40,430
to some sort of quantity or
time, so it's worth their while.

623
00:40:41,820 --> 00:40:46,410
If there's a specific
kind of oven or a mixer,

624
00:40:46,410 --> 00:40:49,590
you might have to buy that for them.

625
00:40:49,590 --> 00:40:54,590
But you can form a partnership,
such that they are willing

626
00:40:55,380 --> 00:40:59,070
to bake it for you in exactly

627
00:40:59,070 --> 00:41:01,680
or very close to the way that you want it,

628
00:41:01,680 --> 00:41:04,323
but you don't have to do it yourself.

629
00:41:05,610 --> 00:41:07,920
So hopefully, through that

630
00:41:07,920 --> 00:41:11,703
example, that works.

631
00:41:17,820 --> 00:41:22,260
When you think about to
go back to supply chains

632
00:41:22,260 --> 00:41:27,260
and how does it get to
the customer, in a way,

633
00:41:27,810 --> 00:41:32,810
B2C is you make marketing.

634
00:41:32,910 --> 00:41:37,440
So if you're a farmer and you're
going to a farmer's market,

635
00:41:37,440 --> 00:41:40,110
that you're making all of the marketing.

636
00:41:40,110 --> 00:41:43,200
You're showing up at that place,

637
00:41:43,200 --> 00:41:46,560
you sell it, you take the
money, you describe it,

638
00:41:46,560 --> 00:41:49,500
you do the layout, you do the packaging,

639
00:41:49,500 --> 00:41:54,500
you're making all of
those marketing services.

640
00:41:55,530 --> 00:41:58,290
If you are in a B2B model,

641
00:41:58,290 --> 00:42:01,680
you are sort of buying the marketing.

642
00:42:01,680 --> 00:42:04,203
So if you sell to a distributor,

643
00:42:05,070 --> 00:42:07,890
they find the customers,

644
00:42:07,890 --> 00:42:10,500
they figure out what the order is,

645
00:42:10,500 --> 00:42:15,500
they distribute it, they
bill, they collect money.

646
00:42:15,930 --> 00:42:18,900
They do a lot of those marketing services,

647
00:42:18,900 --> 00:42:22,390
and then they pay you for the product.

648
00:42:25,110 --> 00:42:30,110
So in B2C, the marketing effort

649
00:42:30,240 --> 00:42:34,470
goes all the way to the
customer, you are making it.

650
00:42:34,470 --> 00:42:38,730
And in B2B, basically the marketing ends

651
00:42:38,730 --> 00:42:42,720
at the end of your loading dock, say.

652
00:42:42,720 --> 00:42:45,780
And everything from then on,

653
00:42:45,780 --> 00:42:50,550
you're buying the marketing
services from the distributor.

654
00:42:50,550 --> 00:42:52,623
So hopefully that makes sense.

655
00:42:57,960 --> 00:43:02,250
The last topic of the day
is how to address place

656
00:43:02,250 --> 00:43:05,070
in a service-based business.

657
00:43:05,070 --> 00:43:07,143
I'm imagining a lot of you will.

658
00:43:08,250 --> 00:43:12,453
So one thing to think about
is, will you have a storefront?

659
00:43:12,453 --> 00:43:13,800
Will you have an actual place?

660
00:43:13,800 --> 00:43:16,650
Or will it have a virtual place?

661
00:43:16,650 --> 00:43:19,770
What attributes should it have?

662
00:43:19,770 --> 00:43:23,490
And what are some of the
trade offs that you will face?

663
00:43:23,490 --> 00:43:28,490
So an obvious one is if
you actually have a place,

664
00:43:28,710 --> 00:43:31,290
that is a lot of an upfront cost,

665
00:43:31,290 --> 00:43:34,083
you have to buy the building or pay rent.

666
00:43:35,160 --> 00:43:39,120
Whereas if you have a virtual place,

667
00:43:39,120 --> 00:43:41,883
then not, such as a website.

668
00:43:42,900 --> 00:43:46,470
So if you have a car repair place,

669
00:43:46,470 --> 00:43:48,693
like you will have to have a place there,

670
00:43:49,710 --> 00:43:50,760
but others things not.

671
00:43:50,760 --> 00:43:53,850
And as far as location goes,

672
00:43:53,850 --> 00:43:58,850
so usually some place that
has a lot of foot traffic

673
00:43:58,950 --> 00:44:01,860
that will sort of naturally
bring business in,

674
00:44:01,860 --> 00:44:05,940
like Church Street, will
have much higher rent

675
00:44:05,940 --> 00:44:10,593
or higher cost than somewhere
that's more out of the way.

676
00:44:11,940 --> 00:44:14,883
And we'll talk about this
more when we discuss it.

677
00:44:18,030 --> 00:44:20,280
So we talked about the four P's,

678
00:44:20,280 --> 00:44:23,850
but there's three
additional P's in service.

679
00:44:23,850 --> 00:44:26,250
First is people,

680
00:44:26,250 --> 00:44:31,200
who interacts with the customers?

681
00:44:31,200 --> 00:44:34,320
Who performs the tasks?

682
00:44:34,320 --> 00:44:39,320
So if it's car repair, who
makes the appointments?

683
00:44:39,330 --> 00:44:41,970
Who actually fixes the cars?

684
00:44:41,970 --> 00:44:46,110
There is process, so how do you do it?

685
00:44:46,110 --> 00:44:47,040
How do you fix the car?

686
00:44:47,040 --> 00:44:51,120
What is it about you that
gives you an advantage?

687
00:44:51,120 --> 00:44:53,700
You know, if you're a cleaning service,

688
00:44:53,700 --> 00:44:58,380
if you're a dog walking
service, what is it about,

689
00:44:58,380 --> 00:45:00,000
well, what do you do great?

690
00:45:00,000 --> 00:45:01,290
What's great about you?

691
00:45:01,290 --> 00:45:05,520
What are the attributes
about your process?

692
00:45:05,520 --> 00:45:09,360
What is it? Are you fast, are you better?

693
00:45:09,360 --> 00:45:12,720
Are you consistent? Are you convenient?

694
00:45:12,720 --> 00:45:16,290
Hopefully you'll be good at all of those

695
00:45:16,290 --> 00:45:19,443
and really great at, at least one.

696
00:45:21,240 --> 00:45:25,320
Finally, in many cases, you
have to look like a business,

697
00:45:25,320 --> 00:45:30,320
that there's physical evidence.

698
00:45:30,450 --> 00:45:34,890
So we'll talk about, what
does a classroom look like?

699
00:45:34,890 --> 00:45:37,620
I know that we're not
actually in a classroom

700
00:45:37,620 --> 00:45:42,620
for fall of 2020.

701
00:45:42,630 --> 00:45:45,540
But what is it that you know

702
00:45:45,540 --> 00:45:49,173
that you're in a classroom
when you walk into it?

703
00:45:53,290 --> 00:45:54,210
What does every hotel have?

704
00:45:54,210 --> 00:45:56,460
What does every restaurant have?

705
00:45:56,460 --> 00:46:00,480
And then finally, what's
the physical evidence

706
00:46:00,480 --> 00:46:02,070
for a virtual business?

707
00:46:02,070 --> 00:46:06,270
What makes you know, like,
yeah, this is a real thing,

708
00:46:06,270 --> 00:46:07,830
this is not a scam?

709
00:46:07,830 --> 00:46:09,423
So we can discuss that.

710
00:46:14,130 --> 00:46:15,660
A few other things here

711
00:46:15,660 --> 00:46:19,710
is that a service is fairly intangible.

712
00:46:19,710 --> 00:46:22,860
That it cannot be held, seen, or touched.

713
00:46:22,860 --> 00:46:26,943
That a car repair or
dog walk is not a thing,

714
00:46:28,020 --> 00:46:29,283
it's an activity.

715
00:46:30,510 --> 00:46:34,170
It tends to be heterogenous,

716
00:46:34,170 --> 00:46:37,500
that every car needs
its own kind of repairs,

717
00:46:37,500 --> 00:46:40,290
and every house needs
its own kind of watching,

718
00:46:40,290 --> 00:46:43,230
and maybe every dog needs
its own kind of walk.

719
00:46:43,230 --> 00:46:46,800
So it may not be exactly
the same every time.

720
00:46:46,800 --> 00:46:49,890
It cannot be consumed later.

721
00:46:49,890 --> 00:46:53,460
It's not like I can call you

722
00:46:53,460 --> 00:46:55,800
to walk my dog now,

723
00:46:55,800 --> 00:47:00,210
and my dog will get a walk in three weeks.

724
00:47:00,210 --> 00:47:04,320
And since the provider is the product,

725
00:47:04,320 --> 00:47:07,800
and it's delivered and
consumed at the same time,

726
00:47:07,800 --> 00:47:10,500
it's inseparable and simultaneous.

727
00:47:10,500 --> 00:47:12,304
So I'm gonna talk to you

728
00:47:12,304 --> 00:47:14,460
in the next slide about what really,

729
00:47:14,460 --> 00:47:17,613
the big take away point.

730
00:47:19,350 --> 00:47:23,490
So there's two, first of
all, you are the product,

731
00:47:23,490 --> 00:47:26,730
that you have to establish trust

732
00:47:26,730 --> 00:47:31,440
because the best kind of
promotion is word of mouth.

733
00:47:31,440 --> 00:47:35,467
The most credible thing is
another customer saying,

734
00:47:35,467 --> 00:47:39,120
"This business does it
right, they treat me right."

735
00:47:39,120 --> 00:47:43,530
And finally, customer
retention is so important.

736
00:47:43,530 --> 00:47:46,590
It's so much easier and more efficient

737
00:47:46,590 --> 00:47:49,920
to keep an old one than
to acquire a new one,

738
00:47:49,920 --> 00:47:51,900
so treat them right.

739
00:47:51,900 --> 00:47:55,290
And as you get to know them better,

740
00:47:55,290 --> 00:47:59,610
you are better able to
customize your service

741
00:47:59,610 --> 00:48:00,780
to best meet one.

742
00:48:00,780 --> 00:48:05,160
So if you're a dog walker and
you know that there's certain

743
00:48:05,160 --> 00:48:07,770
things that this dog loves,
a certain kind of treat,

744
00:48:07,770 --> 00:48:10,833
a certain scratch, a certain
place they love to go,

745
00:48:11,850 --> 00:48:16,020
or you know that they
have special medical needs

746
00:48:16,020 --> 00:48:19,290
and that their owner
can come to rely on you,

747
00:48:19,290 --> 00:48:20,400
that you're gonna make sure

748
00:48:20,400 --> 00:48:24,213
you really take good care of that dog.

749
00:48:27,136 --> 00:48:32,070
In that way, keeping customers
and building trust with them

750
00:48:32,070 --> 00:48:36,363
is the most important thing
that you can do in a service.

751
00:48:39,780 --> 00:48:42,870
I would like you to watch this,

752
00:48:42,870 --> 00:48:45,750
and we're gonna talk about

753
00:48:45,750 --> 00:48:49,233
where and how does this farmer,

754
00:48:50,140 --> 00:48:53,700
what kind of marketing does
he make and what does he buy?

755
00:48:53,700 --> 00:48:55,683
And also, what is the most,

756
00:48:56,790 --> 00:49:00,813
what does he prioritize and why?