Page 439 - Marketing Management

416 PART 6 DELIVERING VALUE

Some intermediaries—such as wholesalers and retailers—buy, take title to, and resell the mer-
chandise; they are called merchants. Others—brokers, manufacturers’ representatives, sales
agents—search for customers and may negotiate on the producer’s behalf but do not take title to
the goods; they are called agents. Still others—transportation companies, independent warehouses,
banks, advertising agencies—assist in the distribution process but neither take title to goods nor
negotiate purchases or sales; they are called facilitators.
Channels of all types play an important role in the success of a company and affect all other market-
ing decisions.Marketers should judge them in the context of the entire process by which their products
are made, distributed, sold, and serviced. We consider all these issues in the following sections.

The Importance of Channels

A marketing channel system is the particular set of marketing channels a firm employs, and deci-
sions about it are among the most critical ones management faces. In the United States, channel
members collectively have earned margins that account for 30 percent to 50 percent of the ultimate
selling price. In contrast, advertising typically has accounted for less than 5 percent to 7 percent of
3
the final price. Marketing channels also represent a substantial opportunity cost. One of their chief
roles is to convert potential buyers into profitable customers. Marketing channels must not just
serve markets, they must also make markets. 4
The channels chosen affect all other marketing decisions. The company’s pricing depends on
whether it uses online discounters or high-quality boutiques. Its sales force and advertising deci-
sions depend on how much training and motivation dealers need. In addition, channel decisions
include relatively long-term commitments with other firms as well as a set of policies and proce-
dures. When an automaker signs up independent dealers to sell its automobiles, it cannot buy them
out the next day and replace them with company-owned outlets. But at the same time, channel
choices themselves depend on the company’s marketing strategy with respect to segmentation,
targeting, and positioning. Holistic marketers ensure that marketing decisions in all these different
areas are made to collectively maximize value.
In managing its intermediaries, the firm must decide how much effort to devote to push versus
pull marketing. A push strategy uses the manufacturer’s sales force, trade promotion money, or
other means to induce intermediaries to carry, promote, and sell the product to end users. A push
strategy is particularly appropriate when there is low brand loyalty in a category, brand choice is
made in the store, the product is an impulse item, and product benefits are well understood. In a
pull strategy the manufacturer uses advertising, promotion, and other forms of communication to
persuade consumers to demand the product from intermediaries, thus inducing the intermediaries
to order it. Pull strategy is particularly appropriate when there is high brand loyalty and high
involvement in the category, when consumers are able to perceive differences between brands, and
when they choose the brand before they go to the store.
Top marketing companies such as Coca-Cola, Intel, and Nike skillfully employ both push and pull
strategies. A push strategy is more effective when accompanied by a well-designed and well-executed
pull strategy that activates consumer demand.On the other hand,without at least some consumer inter-
est, it can be very difficult to gain much channel acceptance and support, and vice versa for that matter.

Hybrid Channels and Multichannel Marketing

Today’s successful companies typically employ hybrid channels and multichannel marketing,multiply-
ing the number of “go-to-market”channels in any one market area.Hybrid channels or multichannel
marketing occurs when a single firm uses two or more marketing channels to reach customer
segments. HP has used its sales force to sell to large accounts, outbound telemarketing to sell to
medium-sized accounts, direct mail with an inbound number to sell to small accounts, retailers to sell
to still smaller accounts, and the Internet to sell specialty items. Philips also is a multichannel marketer.

Philips Royal Philips Electronics of the Netherlands is one of the world’s biggest
Philips electronics companies and Europe’s largest, with sales of over $66 billion in 2009. Philips’s

electronics products are channeled toward the consumer primarily through local and international
retailers. The company offers a broad range of products from high to low price/value quartiles,
relying on a diverse distribution model that includes mass merchants, retail chains, independents,