Marketing Channel Strategy

An Omni-Channel Approach

Robert W. Palmatier, Eugene Sivadas, Louis W. Stern, Adel I. El-Ansary

• Publisher: Routledge
• Year: 2019
• ISBN:
  9781000650457
• Edition: 9
• Topic: Business
• Subtopic: Marketing
• Index: Business

Marketing Channel Strategy: An Omni-Channel Approach is the first book on the market to offer a completely unique, updated approach to channel marketing. Palmatier and Sivadas have adapted this classic text for the modern marketing reality by building a model that shows students how to engage customers across multiple marketing channels simultaneously and seamlessly.

The omni-channel is different from the multi-channel. It recognizes not only that customers access goods and services in multiple ways, but also that they are likely doing this at the same time; comparing prices on multiple websites, and seamlessly switching between mobile and desktop devices. With the strong theoretical foundation that users have come to expect, the book also offers lots of practical exercises and applications to help students understand how to design and implement omni-channel strategies in reality.

Advanced undergraduate and graduate students in marketing channels, distribution channels, B2B marketing, and retailing classes will enjoy acquiring the most cutting-edge marketing skills from this book.

A full set of PowerPoint slides accompany this new edition, to support instructors.

CHAPTER 1

The Omni-Channel Ecosystem

LEARNING OBJECTIVES

After reading this chapter, you will be able to:

• Define a go-to-market strategy.

• Appreciate the importance of marketing channel management to a firm’s success.

• Define an omni-channel strategy.

• Articulate the differences between an omni-channel and a multi-channel strategy.

• Identify and describe drivers and trends shaping the move to omni-channel strategies.

• Outline the elements of a framework for omni-marketing channel design and implementation.

INTRODUCTION

This book examines ways to design, modify, and maintain effective channel strategies and structures, in consumer goods markets and business-to-business markets, for both physical products and services, within nations and across country borders. We take an omni-channel perspective. In this first chapter, we define and elaborate on the concept of omni-channels and discuss the factors driving and shaping their ecosystem. We also contrast an omni-channel approach with a multi-channel approach and provide examples of ways to go to market with an effective omni-channel strategy.

This approach represents an expansion beyond a traditional marketing strategy, which focuses on the four marketing mix elements: product, price, promotion, and channel (or “place,” in the popular 4P designation).¹ Marketers devote attention and energy to decisions about the development, branding, promotion, and prices of the products and services they offer; the ability to make products and services available to customers, when and where they want them, is also a critical and indispensable marketing function and the focus of this book. Each firm must make a series of decisions, both strategic and tactical, to determine how to distribute its offerings to ensure they are available to end-customers. These comprehensive, firm-to-end-user links essentially function as the routes a firm uses to get its products and services into the hands of the end-users. Actors within these links together make up a marketing channel or marketing channel system, composed of inter- and independent organizations that work to go to market with a product or service, so that it is available for use or consumption.

Developing a go-to-market strategy that deploys the most optimal combination of actors in an efficient manner, such that the product or service is available and easily accessible for purchase, is indispensable to firm success. Conversely, inadequate distribution is a primary cause of failure.² A go-to-market strategy is the blueprint used to deliver the firm’s offerings to end-users in a manner that conforms to their preferred mode and method of buying and also is efficient and cost-effective, so that it confers a competitive advantage on the firm.

When developing a go-to-market strategy, the firm must know its consumers’ or end-users’ buying preferences, including the information and education end-users might need before they can make purchase decisions, the services and after-sales support they seek, their expectations, their willingness to pay for extras, their delivery preferences, their financing needs, and the mode of ordering they like best. As a firm devises its go-to-market approach, it also must be cognizant of the costs and benefits associated with various routes to market and balance them against customers’ preferences, as well as with the firm’s own desire for market coverage, willingness and ability to invest to acquire this necessary market coverage, and desire for control.

Thus, developing a go-to-market strategy requires three main steps.³ First, the firm must perform a thorough analysis of industry channel practices to isolate critical successful factors. Second, channel managers should identify areas of improvement in their practices. Third, the firm can develop policies and procedures to incentivize and alter channel partners’ behaviors to motivate their efficient execution of channel tasks. That is, most distribution systems rely on independent third parties, whose incentive systems may not align with the seller’s, so implementing a go-to-market strategy also entails managing the relationship with partners, to get them to do what the firm wants from them.

Firms have many alternatives when it comes to designing a channel system, each with its own strengths and weaknesses. Consider two massive restaurant chains, McDonald’s and Starbucks. Franchising is the preferred route to market for the fast food giant McDonald’s, such that 82 percent of its 36,000 outlets are franchised.⁴ But Starbucks typically operates company-owned stores and has avoided franchising, at least in the United States, due to fears about diluting the brand and customers’ in-store experience.⁵ Yet even Starbucks makes some concessions, such that it uses licensing to operate stores in airports and college campuses and has also adopted franchising as a go-to-market strategy in European markets, where the high rents made company-owned stores infeasible.⁶

Some firms take over distribution functions, by building an in-house distribution system over which they maintain complete control, but such a system also requires developing internal expertise and making considerable investments to build company-owned distribution channels—such that this option might not be feasible or desirable in all cases. Furthermore, most products and services need to go through multiple marketing channels before reaching end-users. A direct distribution model, in which items move straight from the manufacturer to the end-user without any intermediaries, is rare, due to the conflicting demands associated with resource availability, cost, coverage, specialization requirements, and end-consumer preferences. Intermediaries can perform many required tasks at lower costs or with greater efficiency and effectiveness, especially when they possess superior operational expertise, better infrastructure (e.g., warehousing facilities), market knowledge, or connections to consumers. It likely would be cost and time prohibitive for manufacturers to acquire such expertise, resources, and connections, so, for example, many firms use Amazon or Alibaba as a key channel to market, granting the massive retail channel partner the responsibility for most channel tasks.

EXAMPLE: FULFILLMENT BY AMAZON (USA)

Amazon is the 237th largest corporation in the world.⁷ Among its customer base of about 120 million people, 63 million are Prime members and pay an annual membership fee to receive enhanced services, such as free shipping.⁸ Amazon also offers its business clients a service, Fulfillment by Amazon (FBA),⁹ that permits them to ship their products in bulk to Amazon. For a fee, it will store the product and then complete individual customer orders as they come in and provide the customer support service. Thus, businesses get access to Amazon’s huge customer base and delegate many channel functions to it, all for a relatively small fee.

WHAT IS A MARKETING CHANNEL?

A marketing channel goes by many aliases, including “place” in the 4P framework, distribution channel, route to market, and go to market, or simply channels. We define a marketing channel specifically as the set of interdependent but in many cases independent organizations involved in the process of taking a product or service to market and making it available for use or consumption. Unique organizations, each with specific strengths and weaknesses, comprise any marketing channel system: distributors, wholesalers, brokers, franchisees, and retailers. With the participation of these various actors, marketing channels represent a significant portion of the world’s business, and an effective marketing channel strategy can be a source of competitive advantage, by delivering superior customer value.

Total sales through such channels represent approximately one-third of the world’s annual gross domestic product, so understanding and managing these marketing channels is critical for most businesses.¹⁰ For example, raw material and component product manufacturers often rely on distributors and manufacturer representatives to sell their offerings to original equipment manufacturers (OEMs), so that they can outsource various necessary functions like sales, business development, education (or information), logistics, contracting, and order processing and financing. In addition, these intermediaries may share risk and help manage the customer relationship. Then the end-customer—that is, the OEM—assembles the components into finished products and services, which it sells to wholesalers and retailers, and the retailers ultimately make the products available to consumers. Figure 1.1 outlines some varied channel functions. A marketing channe...