1. Channel Fission and Channel Fusion
Min Ding
Pennsylvania State University

2. E-Commerce, Min Ding, PSU
Motivating Question
We are developing an online community with no near-term commerce activity, do you think we could be a member of a marketing channel? If yes, are we replacing (competing against) an existing member, or become a new layer in the channel?
11/14/2019
E-Commerce, Min Ding, PSU

3. Topics on Channel Fission and Fusion
Session 1:
Producer
Retailer
Wholesaler
Consumer (no kidding!)
Session 2:
E-Supply chain management (logistics)
11/14/2019
E-Commerce, Min Ding, PSU

4. Marketing (distribution) Channel
Definition:
Sets of interdependent organizations involved in the process of making a product or service available for use or consumption:
Merchant, Retailer, Wholesaler (distributor)
Broker, Facilitator
Manufacturers’ representative, (Sales) Agent, Sales Force
11/14/2019
E-Commerce, Min Ding, PSU

5. Some hot and not so hot buzzwords
Disintermediation (not so hot)
Reintermediation (hotter)
Channel fission and fusion (less used but I like them better)
11/14/2019
E-Commerce, Min Ding, PSU

6. Channel Fission and Fusion
Fusion: a fusion or melting together
Fission: a splitting apart, cleavage.
-- Webster’s New World Dictionary
Mostly corresponding to disintermediation and reintermediation, used esoterically.
11/14/2019
E-Commerce, Min Ding, PSU

7. Producers Why do they need intermediaries?
Intermediaries is more optimal by the nature of a market
Let’s vary the numbers of producers and consumers in a market and see the effect
Intermediaries perform better by specialization.
They know more about customers
They have greater knowledge of local markets
They carry a broader product line within a category
They carry multiple product categories
11/14/2019
E-Commerce, Min Ding, PSU

8. How does internet impact these rationales for using intermediaries?
Reduce the cost of per contact DRAMATICALLY
Consumers are more likely to initiate the contact (search for product) and thus bear the cost
Contact made online may generate rich customer database (thus the number of contact no longer becomes a liability, rather, a benefit);
Intermediaries’ competitive advantages are eroding
11/14/2019
E-Commerce, Min Ding, PSU

9. E-Commerce, Min Ding, PSU
Channel Strategies
Traditional Strategies:
Exclusive distribution (often coupled with exclusive dealing)
Selective Distribution
Intensive Distribution
Online channel
Which is optimal?
Impact on traditional distribution channel
11/14/2019
E-Commerce, Min Ding, PSU

10. Three Criteria Used in Evaluating Channel Alternatives
Economic Criteria
Control Criteria
Adaptive Criteria
Can you see the advantage of e-channel?
11/14/2019
E-Commerce, Min Ding, PSU

11. E-Commerce, Min Ding, PSU
Channel Dynamics
Conventional marketing channel
Producer, wholesaler(s) and retailer(s) are independent, seeks to maximize its own profits
Vertical marketing system (act as a unified system)
Corporate VMS (vertical integration), e.g., Sherwin-Williams
Administered VMS, through the power and size of one member (Campbell’s soup)
Contractual VMS
Horizontal Marketing System
Supermarket and onsite banking service
Multichannel Marketing System
Introduce conflict (between different channels) and control problems.
11/14/2019
E-Commerce, Min Ding, PSU

12. Manage Channel Conflicts
Vertical channel conflict
Coca-Cola with its bottlers
Horizontal channel conflict
Offline: Auto dealers compete too aggressively with each other
Online: a bigger issue, because an online storefront will compete with ALL other online stores
Multichannel conflict
GE appliances sold through American Appliances (unique models)
Purchasing appliance from netmarket.com vs. from Best Buy (wrap service around)
11/14/2019
E-Commerce, Min Ding, PSU

13. Where to integrate the e-channel?
Shift sales entirely to manufacturer direct (Dell, Cisco)
Use (new) online intermediaries
Use existing retailers and their web sites (autos, perfume)
11/14/2019
E-Commerce, Min Ding, PSU

14. What kinds of producers need traditional channels?
Those that will eventually rely mainly on online channels
Those that will use a balanced traditional and online channels
Those that will still rely mainly on traditional channels
11/14/2019
E-Commerce, Min Ding, PSU

15. E-Commerce, Min Ding, PSU
A producer case, Dell
What does it do?
How does it make money?
What consumer needs does it satisfy?
Why did its model work? Think of another example/industry that this might work.
11/14/2019
E-Commerce, Min Ding, PSU

16. E-Commerce, Min Ding, PSU
Retailing Types
Store retailing
Specialty stores, department stores, supermarkets, convenience stores, discount stores, off-price retailers (factory outlets, wholesale clubs, independent off-price retailers, superstores, and catalog showrooms)
Two dimensions of retailing -- service and assortment breadths
Nonstore Retailing
Direct selling, direct marketing (including e-shopping), automatic vending, buying services
Retail Organizations
Let’s examine online storefront’s impact on each of these retailing types.
11/14/2019
E-Commerce, Min Ding, PSU

17. A retailing case, Peapod
What does it do?
How does it make money?
What consumer needs does it satisfy?
Q: Will it survive? Will it prosper? Will it take away a significant market share from grocery stores?
11/14/2019
E-Commerce, Min Ding, PSU

18. E-Commerce, Min Ding, PSU
Wholesaling Types
Merchant wholesalers
Brokers and agents
Manufacturers and retailer's branches and offices
Miscellaneous wholesalers (e.g., auction companies that auction to dealers)
Let’s examine online storefront’s impact on each of these wholesaling types.
11/14/2019
E-Commerce, Min Ding, PSU

19. Consumer as a channel member Reverse Channel
Firms may not be the only ones making channel decisions;
Reverse channel
Consumer develops an optimal channel structure for herself
Buyer’s agent will be one example, how about group purchasing?
Why internet will have an impact on this?
What do you see the future will be for reverse channel?
11/14/2019
E-Commerce, Min Ding, PSU

20. Let’s take it one step further
I need a server for our class project, how do I satisfy my need –
NOW:
FUTURE (following the reverse channel paradigm):
11/14/2019
E-Commerce, Min Ding, PSU

21. E-Commerce, Min Ding, PSU
Allow me …
Understand what producers, wholesalers and retailers are and should be doing with their e-channels are important. But most importantly,
We should understand the implication of reverse channel (translation, a lot of money may be made there)
11/14/2019
E-Commerce, Min Ding, PSU

22. Answer to the motivating example
Yes, we will be a new layer in the marketing channel. Our purpose could be best served if we could perform the role of a reverse channel member.
11/14/2019
E-Commerce, Min Ding, PSU