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Channels of Distribution

manner points out the unique, ecological-like connections This innovative selling orientation inspired the devel-
that exist among the participants within any marketing opment of new intermediaries as manufacturers sought
channel. All marketing channels are connected systems of fresh ways to expand market coverage to an increasingly
individuals and organizations that are sufficiently agile to mobile population. The selling orientation required that
adapt to changing marketplaces. more intimate access be established to a now more diver-
This concept of a connected system suggests that sified marketplace. In response, wholesale and retail inter-
channel exchange relationships are developed to build mediaries evolved to reach consumers living in rural areas,
lasting bridges between buyers and sellers. Each party then newly emerging suburbs, and densely populated urban
can create value for itself through the exchange process it centers.
shares with its fellow channel member. So, a channel of Pioneering retailers such as John Wanamaker (1838–
distribution involves an arrangement of exchange rela- 1922) in Philadelphia and Marshall Field (1834–1906) in
tionships that create value for buyers and sellers through Chicago quickly sprouted as Goliaths in this brave new
the acquisition (procurement), consumption (usage), or retail world. Small retailers came of age, as well, offering
elimination (disposal) of goods and services. specialized operations tailored to meet the needs of a
changing marketplace. Retailers and their channels
EVOLUTION OF CHANNELS evolved in lockstep with the movements and needs of the
consumer marketplace. As always, marketing channels
Marketing channels always emerge from the demands of a
marketplace. Nevertheless, markets and their needs are were evolving in response to changing marketplace needs.
always changing. It is true, then, that marketing channels The impact of two remarkable innovations taken for
operate in a state of continuous evolution and transforma- granted today—the car and the interstate highway sys-
tion. Channels of distribution must constantly adapt in tem—cannot be ignored. These transforming innovations
response to changes in the global marketplace. Remem- simultaneously stimulated and satisfied Americans’ desire
ber: Nothing endures but change. for mobility. Manufacturers suddenly began selling their
wares in previously inaccessible locations. Millions of
At the beginning of the nineteenth century, most
goods were still produced on farms. The point of produc- Americans fled from the cities to the suburbs in the 1950s
and 1960s. Retailers quickly followed. Yet another chan-
tion had to be close to the point of consumption. But
nel phenomenon emerged, this one involving groups of
soon afterward, the Industrial Revolution prompted a
major shift in the American populace from rural commu- stores situated together at one site. The suburban shop-
nities to emerging cities. These urban centers produced ping center was born. Its child, the mall, soon followed.
markets that needed larger and more diverse bundles of In 1951 the earth moved. That was the year mar-
goods and services. At the same time, burgeoning indus- keters first embraced the marketing concept. The market-
trialization required a larger assortment of production ing concept decrees that customers should be the focal
resources, ranging from raw materials to machinery parts. point of all decisions about marketing mix variables. It
The transportation, assembly, and reshipment of these was accepted that organizations should make only what
goods emerged as a critical part of production. they could market instead of trying to market whatever
During the 1940s, the U.S. gross national product they could make. This new perspective had a phenomenal
grew at an extraordinary rate. After World War II impact on channels of distribution. Suppliers, manufac-
(1939–1945) ended, inventories of goods began to stock- turers, wholesalers, and retailers were all forced to adopt a
pile as market demand leveled off. The costs of dor- business orientation initiated by the needs and expecta-
mant inventories—goods not immediately convertible tions of each channel member’s customer.
into cash—rose exponentially. Advancements in produc- The marketing concept quickly reinforced the impor-
tion and distribution methods came to focus on cost- tance of obtaining and then applying customer informa-
containment, inventory control and asset management. tion when planning production, distribution, and selling
Marketers soon shifted from a production to a sales orien- strategies. A sensitivity to customer needs became firmly
tation. Such attitudes as “a good product will sell itself” or embedded as a guiding principle by which emerging mar-
“we can sell whatever we make” receded. Marketers con- ket requirements would be satisfied. The marketing con-
fronted the need to expand sales and advertising expendi- cept remained the cornerstone of marketing channel
tures to persuade individual customers to buy their strategy for some thirty years. It even engendered the pop-
specific brands. The classic four Ps classification of mar- ular 1990s business philosophy known as total quality
keting mix variables (product, price, promotion, and management. Small wonder, then, that in Japan the Eng-
place) emerged as a marketing principle. Distribution lish word customer has become synonymous with the
issues were relegated to the place domain. Japanese phrase for “honored guest.”

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 109