The Internet as ChannelMKT628 – Prof Viar

Channel as a Resource: Overview

• What is a channel?– Purpose: to move stuff from supplier to buyer– Nature: interdependent firms as intermediaries

• How is the Internet a channel?– Enables distribution– Enables and acts as intermediary

• What are the effects of the Internet…– On channel characteristics?– As channel component, on mix elements?

– Forms, flows, and functions

The Internet and Distribution: The Future Through the Past

• Traditional forms of channel structure– Manufacturer-->Consumer

• Ex.: Land’s End

– Manufacturer-->Retailer-->Consumer• Ex.: anything you buy at WalMart

– Manufacturer-->Wholesaler-->Consumer• Ex.: Sam’s Club

– Man.-->Whole.-->Ret.-->Con.• Ex.: Grocery stores

• + ancillary members…

Impact of the Internet: The Past, Present…

• As the only channel member– Which companies can do this?

• Depends on product type– E.g., digital are most direct

• Depends on channel relationships– Producer and retailer (need strong producer)

– Producer and consumer (nature of contacts)

– Multi-channel strategies

• As a channel component– Disintermediation (most hyped possibility)– Reintermediation (most likely possibility)

Characteristics of Disintermediation

• Elimination of one or more middlemen– e.g., Direct sales by producer to buyer– Related factors

• More effective when producer has more power• More effective when retailer-consumer relationships

are less important – I.e., less specific market (commodities)– More for B2C than B2B? (lower asset specificity)

• In toto, when barriers to entry are lower

• Likely victims of disintermediation

Another Option: Reintermediation

• Introduction of new middlemen– Infomediaries– Aka, “cybermediaries”

• Characteristics of infomediaries– Constitute online brands (e.g., Travelocity)– Reflect new way to create relationships, matching products

to buyers’ needs (e.g., CarPoint)– Occupy different niche in channel structures

• From transferring product• To creating buyer/seller links

– Function as service, not as product• For buyers and for sellers

Mix Implications of the Internet as a Channel Resource

• Channel and Product– A digital bias?– Issues for determining product strategy

• Digital form as replacement or complement?• Effects on product assortment (virtual aggregation)

– Coordination benefits for inventory and warehouse costs

• Effects on product development– Supply chain coordination

• Channel and Price– Shifts to power structure

• To buyer, given transparency• Disintermediation effects• Reintermediation effects

More Mix Implications

• Channel and Place– Effects of the channel on the end of the channel

• Online stores– Lower physical costs– Tax advantages– Virtual inventory advantages

• The emergence of reverse netcentricity• Global distribution

• Channel and Promotion– Information as what gets transferred– Global reach

• Target appropriateness issues (channel affects content)• Channel as means for contact (personalization, customization)

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Do You Have a Problem with This?• Issues for marketers: feasibility

– Channel relationships• Power and conflict• Leveraged cooperation

• Issues for consumers: availability– Real v. ephemeral benefits– Product availability (Toys-R-Us at Xmas…)

• Issues for policymakers: liability– Illegal consumption (e.g., drugs and alcohol)

• Issues for technology: stability– Reliability of channel delivery (e.g., hackers)– System/process development (e.g., extranets as Internet EDI)

Questions?