Read this chapter, which explains that a direct marketing channel consists of just two parties: the producer and the consumer. By contrast, a channel that includes one or more intermediaries (wholesalers, distributors, brokers, or agents) is an indirect channel. Firms often utilize multiple channels to reach more customers and increase their effectiveness. Some companies find ways to increase their sales by forming strategic channel alliances. Other companies look for ways to cut out the middlemen from the channel, known as disintermediation. Direct foreign investment, joint ventures, exporting, franchising, and licensing are some of the channels by which firms attempt to enter foreign markets.
Typical Marketing Channels
Learning Objectives
- Describe the basic types of channels in business-to-consumer (B2C) and business-to-business (B2B) markets.
- Explain the advantages and challenges companies face when using multiple channels and alternate channels.
- Explain the pros and cons of disintermediation.
- List the channels firms can use to enter foreign markets.
Figure
8.4 "Typical Channels in Business-to-Consumer (B2C) Markets" shows the
typical channels in business-to-consumer (B2C) markets. As we explained,
the shortest marketing channel consists of just two parties - a
producer and a consumer. A channel such as this is a direct channel. By
contrast, a channel that includes one or more intermediaries - say, a
wholesaler, distributor, or broker or agent - is an indirect channel. In
an indirect channel, the product passes through one or more
intermediaries. That doesn't mean the producer will do no marketing
directly to consumers. Levi's runs ads on TV designed to appeal directly
to consumers. The makers of food products run coupon ads. However, the
seller also has to focus its selling efforts on these intermediaries
because the intermediary can help with the selling effort. Not everyone
wants to buy Levi's online.
Figure 8.4 Typical Channels in Business-to-Consumer (B2C) Markets

Figure 8.5 Typical Channels in Business-to-Business (B2B) Markets

Figure
8.5 "Typical Channels in Business-to-Business (B2B) Markets" shows the
marketing channels common in business-to-business (B2B) markets. Notice
how the channels resemble those in B2C markets, except that the products
are sold to businesses and governments instead of consumers like you.
The industrial distributors shown in Figure 8.5 "Typical Channels in
Business-to-Business (B2B) Markets" are firms that supply products that
businesses or government departments and agencies use but don't resell.
Grainger Industrial Supply, which sells tens of thousands of products,
is one of the world's largest industrial distributors. Nearly two
million businesses and institutions in 150 countries buy products from
the company, ranging from padlocks to painkillers.
Disintermediation
You
might be tempted to think middlemen, or intermediaries, are bad. If you
can cut them out of the deal - a process marketing professionals call
disintermediation - products can be sold more cheaply, can't they? Large
retailers, including Target and Walmart, sometimes bypass middlemen.
Instead, they buy their products directly from manufacturers and then
store and distribute them to their own retail outlets. Walmart is
increasingly doing so and even purchasing produce directly from farmers
around the word. However, sometimes cutting
out the middleman is desirable but not always. A wholesaler with buying
power and excellent warehousing capabilities might be able to purchase,
store, and deliver a product to a seller more cheaply than its producer
could acting alone. Walmart doesn't need a wholesaler's buying power but
your local In ‘n Out convenience store does. Likewise, hiring a
distributor will cost a producer money. But if the distributor can help
the producer sell greater quantities of a product, it can increase the
producer's profits. Moreover, when you cut out the middlemen you work
with, you have to perform the functions they once did. Maybe it's
storing the product or dealing with hundreds of retailers. More than one
producer has ditched its intermediaries only to rehire them later
because of the hassles involved.
The
trend today is toward disintermediation. The Internet has facilitated a
certain amount of disintermediation by making it easier for consumers
and businesses to contact one another without going through any
middlemen. The Internet has also made it easier for buyers to shop for
the lowest prices on products. Today, most people book trips online
without going through travel agents. People also shop for homes online
rather than using real estate agents. To remain in business, resellers
need to find new ways to add value to products.
Figure 8.7

Be
glad you're not the owner of this parking lot because it's going to
need a lot of cleanup. This Nationwide Insurance ad drives home the
point that close personal contact with your insurance agent might be a
good idea.
Figure 8.8

Michael
Dell, founder of the worldwide corporation Dell, Inc., initially made
and sold computers to buyers by telephone out of his college dorm room.
However,
for some products, disintermediation via the Internet doesn't work so
well. Insurance is an example. You can buy it online directly from
companies, but many people want to buy through an agent they can talk to
for advice.
Sometimes
it's simply impossible to cut out middlemen. Would the Coca-Cola
Company want to take the time and trouble to personally sell you an
individual can of Coke? No. Coke is no more capable of selling
individual Cokes to people than Santa is capable of delivering toys to
children around the globe. Even Dell, which initially made its mark by
selling computers straight to users, now sells its products through
retailers such as Best Buy as well. Dell found that to compete
effectively, its products needed to be placed in stores alongside
Hewlett-Packard, Acer, and other computer brands.
Multiple Channels and Alternate Channels
Marketing
channels can get a lot more complex than the channels shown in Figure
8.4 "Typical Channels in Business-to-Consumer (B2C) Markets" and Figure
8.5 "Typical Channels in Business-to-Business (B2B) Markets", though.
Look at the channels in Figure 8.9 "Alternate Channel Arrangements".
Notice how in some situations, a wholesaler will sell to brokers, who
then sell to retailers and consumers. In other situations, a wholesaler
will sell straight to retailers or straight to consumers. Manufacturers
also sell straight to consumers, and, as we explained, sell straight to
large retailers like Target.
Figure 8.9 Alternate Channel Arrangements

The
point is that firms can and do utilize multiple channels. Take Levi's,
for example. You can buy a pair of Levi's from a retailer such as
Kohl's, or you can buy a pair directly from Levi's at one of the outlet
stores it owns around the country. You can also buy a pair from the
Levi's Web site.
The
key is understanding the different target markets for your product and
designing the best channel to meet the needs of customers in each. Is
there a group of buyers who would purchase your product if they could
shop online from the convenience of their homes? Perhaps there is a
group of customers interested in your product but they do not want to
pay full price. The ideal way to reach these people might be with an
outlet store and low prices. Each group then needs to be marketed to
accordingly. Many people regularly interact with companies via numerous
channels before making buying decisions.
Using
multiple channels can be effective. At least one study has shown that
the more marketing channels your customers utilize, the more loyal they
are likely to be to your products. Companies work hard to try to integrate their
selling channels so users get a consistent experience. For example,
QVC's TV channel, Web site, and mobile service - which sends alerts to
customers and allows them to buy products via their cell phones - all
have the same look and feel.
A
company can also use a marketing channel to set itself apart from the
crowd. Jones Soda Co. initially placed its own funky-looking soda
coolers in skate and surf shops, tattoo and piercing parlors, individual
fashion stores, and national retail clothing and music stores. The
company then began an up-and-down-the-street "attack," placing product
in convenience and food stores. Finally, the company was able to sell
its drinks to bigger companies like Starbucks, Barnes & Noble,
Safeway, Target, and 7-Eleven stores".
Would
you like to purchase gold from a vending machine? Soon you will be able
to - in Germany. Germans like to purchase gold because it's considered a
safe alternative to paper money, which can become devalued during a
period of hyperinflation. So, in addition to selling gold the usual way,
TG-Gold-Super-Markt company is planning to install "gold to go"
machines in five hundred locations in German-speaking countries. The
gold is dispensed in metal boxes, and cameras on the machine monitor the
transactions to prevent money laundering.
Video Clip
Gold to Go: Germany's Version of an ATM Machine?
Check out this YouTube clip to get a look at how a gold vending machine works.
Some
companies find ways to increase their sales by forming strategic
channel alliances with one another. Harley-Davidson has a strategic
channel alliance with Best Western. Click on Harley-Davidson's "Ride
Planner" tab on its Web site, and you can sign up to receive points and
other discounts by staying at Best Western hotels and motels. Starbucks now dispenses its beverages in
some of Safeway's grocery stores. Starbucks wants grocery shoppers at
Safeway craving a cup of coffee to grab one; Safeway hopes customers
dropping in for a Starbucks cup of coffee will buy some grocery
products.
International Marketing Channels
Consumer
and business markets in the United States are well developed and
growing slowly. However, the opportunities for growth abound in other
countries. Coca-Cola, in fact, earns most of its income abroad - not in
the United States. The company's latest push is into China, where the
per-person consumption of ready-to-drink beverages is only about a third
of the global average.
The
question is how to enter these markets? Via what marketing channels?
Some third-world countries lack good intermediary systems. In these
countries, firms are on their own in terms of selling and distributing
products downstream to users. Other countries have elaborate marketing
channels that must be navigated. Consider Japan, for example. Japan has
an extensive, complicated system of intermediaries, each of which
demands a cut of a company's profits. Carrefour, a global chain of
hypermarkets, tried to expand there but eventually left the country
because its marketing channel system was so complicated.
Walmart
managed to develop a presence in Japan, but only after acquiring the
Japanese supermarket operator Seiyu. As you learned in "Strategic
Planning" and "Market Segmenting, Targeting, and Positioning",
acquiring part or all of a foreign company is a common strategy for
companies. It is referred to as making a direct foreign investment.
However, as you learned some nations don't allow foreign companies to do
business within their borders or buy local companies. The Chinese
government blocked Coca-Cola from buying Huiyuan Juice, that country's
largest beverage maker.
Corruption
and unstable governments also make it difficult to do business in some
countries. The banana company Chiquita found itself in the bad position
of having to pay off rebels in Colombia to prevent them from seizing the
banana plantations of one of its subsidiaries.
One
of the easier ways of utilizing intermediaries to expand abroad is a
joint venture. You first learned about joint ventures in
"Strategic Planning". A joint venture is an entity created when two
parties agree to share their profits, losses, and control with one
another in an economic activity they jointly undertake. The German
automaker Volkswagen has struggled to penetrate Asian markets. It
recently signed an agreement with Suzuki, the Japanese company, in an
effort to challenge Toyota's dominance in Asia. Will it work? Time will
tell. Many joint ventures fail, particularly when they involve companies
from different countries. Daimler-Chrysler, the union between the
German car company and U.S. automaker Chrysler, is one of many joint
ventures that fell by the wayside. However, in
some countries, such as India, it is the only way companies are allowed
to do business within their borders.
An
even easier way to enter markets is to simply export your products.
Microsoft hasn't done well with its Zune MP3 player in the United
States. It subsequently redesigned the product and launched it in other
countries. Companies can sell their products directly
to other firms abroad, or they can hire intermediaries such as brokers
and agents that specialize in international exporting to help them find
potential buyers for their products.
Recall
that many companies, particularly those in the United States, have
expanded their operations via franchising. Franchising grants an
independent operator the right to use a company's business model, name,
techniques, and trademarks for a fee. McDonald's is the classic example
of a franchise. Unlike Walmart, McDonald's has had no trouble making
headway in Japan. It has done so by selling thousands of franchises
there. In fact, Japan is McDonald's second-largest market next to the
United States. The company also has thousands of franchises in Europe
and other countries. There is even a McDonald's franchise in the Louvre,
the prestigious museum in Paris that houses the Mona Lisa. Licensing is
similar to franchising. For a fee, a firm can buy the right to use
another firm's manufacturing processes, trade secrets, patents, and
trademarks for a certain period of time.