Internet Marketing & e-Commerce
Ward Hanson
Kirthi Kalyanam
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Part Three: Chapter 14
Consumer Channels
“For traditional manufacturers, channel conflict is the thorniest
issue of all on the Internet.”
Mary Modahl, Now or Never: How Companies Must
Change Today to Win the Battle for Internet Consumers
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Consumer Channels and the Internet
• Marketing channels are sets of
interdependent organizations that
make product or services available for
purchase, consumption, use
© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation
Consumer Channels and the Internet
• Marketing channels are sets of
interdependent organizations that
make product or services available for
purchase, consumption, use
• Direct distribution channels generally
are simplest and most straightforward
© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation
Consumer Channels and the Internet
• Marketing channels are sets of
interdependent organizations that
make product or services available for
purchase, consumption, use
• Direct distribution channels generally
are simplest and most straightforward
• But retail intermediaries can reduce
effort for producers and consumers
© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation
Consumer Channels and the Internet
Typical business-to-consumer channels
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Consumer Channels and the Internet
• Different consumer shopping needs
are best met through different channels
– Consumer desire for information can be
easily met with direct online information
– Consumer desire to touch and try on
articles of clothing best met with
intermediary retailer
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Consumer Channels and the Internet
Using the iPACE framework in channel design:
The impact of the Internet on channel services
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Consumer Channels and the Internet
Existing
Customers
Expanding
Markets
Closeouts
• Presales support
• Selling through online intermediaries
• Selling direct and channel conflict
• Reaching new locations
• Selling the “Long Tail”
• Versioning
• Fixed price and auctions
• Opaque liquidators
Additional online channel opportunities
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Existing Customers
• Online, before the sale information
creates more comprehensive,
transparent view of the marketplace
– Manufacturer’s web site offers detailed
information, configuration possibilities but
raises questions about credibility
– Third-party sites offer greater credibility
and more flexibility
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Existing Customers
Online connections inform the consumer channel
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Existing Customers
• Supporting online intermediaries
– Web-ready merchandise
– Supply chain coordination
– Authorization policies for distribution
– Minimum Advertised Prices (MAP)
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Existing Customers
• Encouraging affiliate networks
– Unique to online selling
– Drive substantial portion of online sales
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Existing Customers
Affiliates can generate sales leads for commissions
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Direct Sales
• Advantages to direct online selling
– Better able to meet consumer needs
– Opportunity to expand into new profit pool
– Improved customer knowledge
– Hedge against uncertainty, crises at
intermediary level
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Direct Sales
• Main sources of channel conflict
– Divergent goals
– Disputes over responsibility
– Differing perceptions of reality
• Poor channel performance, retaliation
– Stopping sale of products
– Undermining products
– Developing alternate supply sources
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Direct Sales
Balancing direct sales benefits and channel conflict
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Direct Sales
• Transition and internal opposition
– Appeal of graduated approach
– Online price setting can be key source of
channel conflict (MSRP vs. MAP vs.
innovative pricing plans)
– Creating direct access agreement
– Restructuring organization and reporting
systems
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Direct Sales
How Hewlett Packard transitioned to Internet direct sales
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Direct Sales
• Lessons from Hewlett Packard
transition to direct sales
– Follow the customer
• Learn by participating
• Small, discrete, clear steps
© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation
Direct Sales
• Lessons from Hewlett Packard
transition to direct sales
– Follow the customer
• Learn by participating
• Small, discrete, clear steps
– Manage the risk
•
•
•
•
Clear, consistent communications
Remain focused on customer
Direct selling prices crucial
Compartmentalize information
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Expanding Markets
• Geographic expansion safer than new
product or increasing consumption by
current customers
– Falling transactional costs online reduce
distribution barriers
– Broader selection, lower prices at
traditional outlets through B2B expansion
– Hidden costs from time differences,
language barriers, legal implications
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Expanding Markets
• Assortment expansion as Internet
distribution resolves sales and
distribution hurdles for some products
– Selling the “Long Tail”
– “Versioning” to allow core product to reach
wider audience at differing price points
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Online Closeouts
• Reduced inefficiencies in closeout
markets through online auctions and
closeout online retailers
• Challenge of preventing cannibalization
of regular channel sales
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Online Closeouts
Traditional vs. Internet channel flow for
closeout customers
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