Marketing Channels and Value Networks

Most producers do not sell their goods directly to the final users; between them stands a set of intermediaries
performing a variety of functions. These intermediaries constitute a marketing channel
(also called a trade channel or distribution channel). Formally, marketing channels are sets of
interdependent organizations participating in the process of making a product or service available
for use or consumption. They are the set of pathways a product or service follows after production,
culminating in purchase and consumption by the final end userSome intermediaries—such as wholesalers and retailers—buy, take title to, and resell the merchandise;
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 marketing
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 decisions
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
the final price.3Marketing 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 decisions
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 procedures.
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 interest,
it can be very difficult to gain much channel acceptance and support, and vice versa for that matter.