Designing and Managing Integrated Marketing Channels
I. Chapter Overview/Objectives/Outline
A. Overview
Value network and marketing channel decisions are among the most complex and challenging decisions facing a firm. Each channel system creates a different level of sales and costs. Once a firm selects a particular marketing channel, the firm usually must adhere to it for a substantial period. The chosen value network or channel will significantly affect and be affected by the other elements in the marketing mix.
Middlemen typically are able to perform channel functions more efficiently than the
manufacturers. The most important channel functions and flows are information, promotion,
negotiation, ordering, financing, risk taking, physical possession, payment, and title. These marketing functions are more basic than the particular retail and wholesale institutions that may exist at any time, and when a channel member no longer provides value-added service it can and often is replaced by another channel member or a new means of distribution.
Manufacturers face many channel alternatives for reaching a market. They can choose selling
direct or using one, two, three, or more intermediary channel levels. Channel design calls for
determining the service outputs (lot size, waiting time, spatial convenience, and product variety), establishing the channel objectives and constraints, identifying the major channel alternatives (types and number of intermediaries, specifically intensive, exclusive, or selective distribution), and the channel terms and responsibilities. Each channel alternative has to be evaluated according to economic, control, and adaptive criteria.
Channel management calls for selecting particular middlemen and motivating them with a
cost-effective trade relations mix. The aim is to build a “partnership” feeling and joint distribution programming. Individual channel members must be periodically evaluated against their own past sales and other channel members’ sales. Channel modification must be performed periodically because of the continuously changing marketing environment. The company has to evaluate adding or dropping individual middlemen or individual channels and possibly modifying the whole channel system.
Marketing channels are characterized by continuous and sometimes dramatic change, especially with the changes brought by the growth of the Internet as a major marketing tool and channel of distribution. For example, the new competition in retailing no longer involves competition between individual firms but rather between retail systems. Technology advances have also precipitated new channel functions while eliminating others. Thus, new organizations have entered while others have been eliminated. Three of the most significant trends are the growth of vertical, horizontal, and multichannel marketing systems. All channel systems have a potential for vertical, horizontal, and multichannel conflict stemming from such sources as goal incompatibility, unclear roles and rights, differences in perception, and high dependence. Managing these conflicts can be sought through superordinate goals, exchange of persons, co-optation, and joint membership in trade associations, diplomacy, mediation, and arbitration. Marketers should continue to explore and respond to the legal and moral issues involved in channel development decisions.
B. Learning Objectives
• Recognize and understand the role and function of intermediaries.
• Understand the concepts related to of channel levels.
• Learn how service outputs can determine channel design.
• Learn how to evaluate channel alternatives.
• Understand the major channel management decisions.
• Develop awareness of channel dynamics in a changing marketing environment.

C. Chapter Outline
I. Introduction - notes the emergence of the value network view of the individual businesses. Deals with all the upstream (suppliers) and downstream (customers) variables. Demonstrates the importance of technological advances and how these advances can be leveraged to optimize the value chain
II. Marketing Channels and Value Networks
A. The Importance of channels:
1. Marketing channel system is a particular set of marketing channels employed by an organization 
2. Channels may absorb 30% - 50% of ultimate selling price to consumer
3. Channels represent an opportunity cost because they do not just serve markets, they must also make markets
4. Company pricing strategy depends upon the respective channel(s) targeted.
5. Company sales force and advertising depend on how much training and motivation dealers need.
6. Channel decisions include relatively long-term commitments from partners
7. Push strategy - manufacturer uses sales force and promotions to induce intermediaries to carry, promote, and sell (i.e., push) products and services to end users
8. Pull strategy - Opposite of push strategy. Manufacturer persuades end users to enter channel and request products and services from intermediaries
9. Many marketing progressive organizations use both push and pull strategies
B. Hybrid Channels and Multichannel Marketing
1. These channels occur when a single firm uses to or more marketing channels to reach customer segments.
2. In multichannel marketing, each channel targets a different segment of buyers, or different need states one for buyer, and delivers the right products in the right places in the right way at the least cost.
3. More use today of  “hybrid” channels (direct, online, and indirect)
4. Customers expect more channel integration (e.g. order online and pickup at brick and mortar, return an online ordered product to nearby brick and mortar, received discounts and promotional offers based on all channel purchases.)

C. Value Networks - A system of partnerships and alliances that a firm creates to source, augment, and deliver its offerings
1. Demand chain planning defined - design the value chain starting with the market and working backward up the chain
2. Using a demand chain planning approach allows an organization to:
a) Estimate optimal profit areas within the chain, which can provide input into integration strategies
b) Keep abreast of chain dynamics in advance
c) Leverage technology to optimize communication and transaction activity within the chain

III. The Role of Marketing Channels
            A.       Organizations may relinquish control over some functions to other channel
                       intermediaries when:
a) The intermediaries can perform the function more efficiently or cost effectively
b) Opportunity costs are high, that is, the organization may be better investing their financial or other resources elsewhere 
2. Intermediaries may be able to enhance the effort, for example, increase market coverage, offer end users more options
3. Stern says intermediaries can “smooth the flows of goods and services,” which can help resolve the discrepancy between the organization and end user when the organization provides a large quantity yet limited variety of goods and services when the end user desires a low quantity among a large variety
B. Channel functions and flows (refer to table 13.1 for a list of key channel functions)
1. Main function is to overcome time place and possession gaps that separate the producers and their creation goods and services from those who need want and demand them
2. All channels have three things in common:
a) They use up scarce resources
b) They demonstrate better performance by specialization
c) They can shift functions among members
3. Forward flow of activity - organization to the end user (e.g., physical delivery, title, promotion)
4. Backward flow of activity - end user to the organization (e.g., ordering, payment, returns)
5. Interactive flow - simultaneous exchange of physical, transactional or communication (e.g., negotiation, risk taking, information)
C. Channel levels – (Figure 13.2 (a) illustrates several consumer-goods marketing channels of different lengths, while Figure 13.2 (b) illustrates industrial marketing channels)
1. Zero-level (or direct marketing channel) - sell direct to end user with no intermediary
2. One-level or one intermediary such as a retailer
3. Two-level or two intermediaries - jobber and retailer
4. Three-level or three intermediaries - wholesaler, transporter, retailer
5. Reverse-flow-channels. Bring back products for reuse, refurbish for resale, recycle, disposal. Different intermediaries may perform one or more of these functions
D. Service-sector channels - Focus on location and minimizing levels. Adapting to new channels such as the Internet
IV. Channel-Design Decisions
A. Analyzing Customers Needs and Wants – Channels produce five service outputs:
1. Lot size - number of units channel allows customer to purchase at one time
2. Waiting and delivery time - average time customers wait for delivery of goods in respective channel
3. Spatial convenience - ease of purchase
4. Product variety - large variety increases chances of consumer filling need
5. Service backup - the greater the number of ancillary services surrounding the purchase of a product, the more effort required of the channel
B. Establishing Objectives and Constraints based on:
1. Targeted service output levels
2. Markets chosen to serve
3. Product characteristics as service levels will vary, for example perishable goods require expedient delivery, bulk products require minimal handling, non-standard products require informative selling
4. Strengths and weaknesses of intermediaries
5. Competition’s channels
6. Environmental changes
7. Legal regulations and restrictions
C. Identifying Major Channel Alternatives
1. Types of intermediaries – some examples:
a) Merchants – wholesalers and retailers
b) Agents – brokers, manufacturer representatives, sales agents for customers
c) Facilitators – transportation companies, independent warehouses, banks, ad agencies.
2. Number of intermediaries
a) Exclusive distribution - one or a select few. Appropriate when producer wants to control resellers’ service level and outputs.
b) Selective distribution - more than a few, less than all. Gains adequate market coverage with more control and less cost than intensive distribution
c) Intensive distribution - as many outlets as possible. Appropriate for frequently purchased items ( usually convenience goods)  that consumers will buy in a variety of locations..
3. Terms and Responsibilities of Channel Members - trade relations mix
a) Price policies - must be equitable and efficient
b) Conditions of sale - terms and guarantees
c) Territorial rights of distributors
d) Mutual services and responsibilities
D. Evaluate Major Channel Alternatives
1. Economic criteria - sales versus costs (Figure 13.3 illustrates sales versus costs in six different channels)
2. Control – especially important for channels that are not direct. (e.g. sales agents may concentrate on customers who buy the most and not necessarily those who buy the manufacturer’s goods)
3. Adaptive criteria - degree of intermediary commitment
V. Channel-Management Decisions
A. Selecting Channel Members - evaluate experience, number of lines carried, growth and profit record, solvency, cooperativeness, and reputation
B. Training and Motivating Channel Members –
1. Prepare the channel member employees to perform more effectively and efficiently. This may also provide a competitive advantage 
2. Motivating Channel Members - coercive, reward, legitimate, expert, or referent power. 
3. Producers vary in channel power
a) More sophisticated companies try to form partnerships
b) Can evolve into long-term distribution programming
C. Evaluating Channel Members - sales quota attainment, average inventory levels, customer delivery time, treatment of damaged and lost goods, and cooperation in promotional and training programs. (Refer to “Marketing Skills: evaluating Channel Members” insert.)
D. Modifying Channel Design and Arrangements - system will require periodic modification to
1. Correct inefficiencies
2. Adapt to change in consumer buying patterns
3. Manage market expansion
4. Thwart new competition
5. Implement innovation
6. Adjust activity to change in product life cycle
E. Global Channel Considerations
1. Tailor image to local needs and wants when entering a new market.
2. Get close to customers.
3. Channel structure may need to be different than in Home country

VI. Channel Integration and Systems
Conventional Marketing Channel comprises an independent producer, wholesaler(s) and retailer (s).
A. Vertical Marketing Systems (VMS)
                        Producer, wholesaler and retailer act as a unified system.  (one member emerges
                        as dominant in channel, can be called the channel captain). Refer to insert
                      “Marketing Insight: The Importance of Channel Stewards”.  Three types of
                       VMS: Corporate, Administered, and Contractual.
1. Corporate VMS – combines successive stages of production and distribution under one owner.
2. Administered VMS – Coordinates successive stages of production and distribution through one member’s size and power, i.e. big brand secures strong reseller cooperation and support.
3. Contractual VMS – Independent firms at different levels of production, distribution and selling, integrate their programs on a contractual basis to obtain more economies or sales impact than they could achieve alone.
a) Wholesaler-sponsored voluntary chains
b) Retailer cooperatives
c) Franchise organizations
(1) Manufacturer-sponsored retailer franchise (Ford dealers) or manufacturer-sponsored wholesaler franchise (Coca-Cola bottlers)
(2) Manufacturer-sponsored wholesaler franchise (Coca-Cola and its bottlers)
(3) Service-firm-sponsored retailer franchise (McDonald’s and its franchises)
4. The new competition in retailing - between systems, not individuals
B. Horizontal Marketing Systems 
1. Two or more unrelated firms put together resources or programs to exploit an emerging market opportunity 
2. Each firm lacks the capital, technology, marketing resources or
            other variables to take on the venture alone. Can be temporary or
            permanent
            c.       Can be permanent or temporary
C. Integrated Multi-Channel Marketing Systems
1.  Single firm uses two or more marketing channels to reach noe or more customer segments. Tactics and strategies of selling through one affect the strategies and tactics of selling through one or more other channels.
2. Benefits include:
a) Increased market coverage
b) Lower channel cost
c) More customized selling
3. Must decide on appropriate marketing mix for each channel

     
    
VII. Conflict, Cooperation, and Competition
Channel conflict is generated when one channel member’s actions prevent another channel member from achieving its goal. Channel coordination occurs when channel members are brought together to advance the channel’s goals
A. Types of Conflict and Competition
1. Horizontal channel conflict – occurs between channel members at the same level (e.g. Sears and J.C. Penny)
2. Vertical channel conflict – occurs between different levels of the channel (e.g. Wal-Mart exerts price reduction pressure on its suppliers)
3. Multi-channel conflict – can occur when the manufacturer has tow or more channels that sell to the same market. (e.g. one channel receives lower prices than another channel for same product line)
B. Causes of Channel Conflict
1. Goal incompatibility – e.g. mfg may want to lower prices to achieve rapid market penetration but retail wants higher margins for short-ru profitability
2. Unclear roles and rights - e.g. territory boundaries and credit for sales
3. Differences in perception - e.g. manufacturer and dealer have different economic forecasts
4. Intermediary dependence on manufacturer – e.g. economic profits of dealers affected by manufacturer decisions on product and price
C. Managing Channel Conflict – healthy conflict leads to better strategies but too much conflict creates dysfunctional environment. Some mechanisms that can be utilized to create balance:
1. Strategic justification
2. Dual compensation
3. Superordinate goals
4. Employee exchange –between channel levels
5. Joint memberships – in trade-groups
6. Co-optation
7. Diplomacy, mediation, or arbitration
8. Legal recourse – if nothing else proves effective
D. Dilution and Cannibalization
1. Major problem for luxury brands whose image may rest on exclusivity and personalized service
2. Monitor and minimize “fakes” sold online
E. Legal and Ethical Issues in Channel Relations
1. Exclusive Dealing – with exclusive distribution a manufacturer requires dealers to not carry competitor’s products
2. Exclusive arrangements are legal as long as they are voluntary and do not substantially lessen competition or tend to create a monopoly
3. Tying agreements
a) Manufacturer sells to dealer only of dealer will agree to sell other products (also called full-line forcing)
b) Not necessarily illegal but are illegal if they lessen competition substantially.

VIII. E-Commerce and M-Commerce Marketing Practices
A. Online retailers leverage the savings from not having to support a brick and mortar environment, to profitably sell low-margin products to niche markets
1. Online retailers compete in three key aspects of a transaction:
a) Customer interaction with the web site
b) Delivery
c) Ability to address problems when they occur
B. E-Commerce and Pure-click companies
1. Types of Pure-click companies
a) Search engines (e.g., Google)
b) Internet service providers (ISPs) (e.g., cable companies, telecommunication companies, individual employers, stand-alones such as Earthlink and NetZero)
c) Commerce sites (e.g.,  Amazon, eBay, Expedia, buy.com)
d) Transaction sites
e) Content sites (e.g, news, blogs)
f) Enabler sites
2. B2B web sites – make markets more efficient by giving buyers easy access to a great deal of information from:
a) Supplier Web sites
b) Infomediaries -3rd parties that add value
c) Market makers - 3rd parties that link buyers and sellers
d) Customer communities - (e.g., blogs, organization-sponsored chat rooms)
C. E-Commerce and Brick-and-Click Companies
1. Original brick entity incorporating click
a) Offer different brands
b) Offer online partners higher commissions to cushion the negative impact on sales
c) Take order on Web but have retailer deliver and collect payment
2. Original click entity incorporating brick 
a) Provide consumer with channel option
b) Facilitate building and growth of brand awareness
D. M-Commerce Marketing (m for mobile)  
1. Phone or PDA allow for virtual commerce allowing companies to keep consumers connected to brands throughout their day
2. By 2015 more people will be accessing the Internet from their phones than from their PCs
3. Mobile marketing taking new forms:
a) Target people who need to book travel while on the move
b) Use text messaging to alert consumers to special promotions
4. Mobile marketing, with its GPS capability, is raining privacy concerns
 
IX. Executive Summary
II. Lecture
“Measuring Channel Performance”
This discussion provides a discussion of distribution / channel strategy in the contemporary marketing setting and the role and value of effective channel strategy in the overall marketing process and strategy.  It is useful to update the examples utilized so that students will be able to identify readily with this concept, based on their general knowledge of the companies and products involved in the lecture / discussion.
Teaching Objectives
• To stimulate students to think about the critical issues, pro and con, for a firm when it develops or modifies its channel strategy.
• Points to consider in proceeding with a modification of the distribution strategy
• Role of various channel and distribution strategies and policies in helping the firm achieve a balanced position vis á vis the customer and the competition.
Discussion
INTRODUCTION
One of the more important functions in today’s complicated marketing environment is how to measure the performance of channel members. Whether the analysis involves an independent or vertical marketing environment, the problem is similar. There are means for following and measuring the results of this activity, and this discussion will focus on one such method.
Before beginning the formal evaluation of the channel, there are several considerations. 
• Degree of manufacturer control over the channel members. If there is a strong contractual relationship there will be a much greater expectation for information on performance.
• Importance of channel members. If the manufacturer uses many intermediaries, the evaluation will be more comprehensive versus those using fewer intermediaries. For example, major appliance dealers receive much more comprehensive analysis from manufacturers largely due to the number and degree of service and support involved, versus a tire dealer. Major tire dealers in the past tended to be company stores, so the companies did less analysis on the independents.
• Nature of the product. Obviously, the more complex the product, the more the evaluation. Since complexity also usually means more after sale services, the criteria tends to be focused more on issues of target market satisfaction.
• The number of channel members. Intensive distribution normal involves cursory examination, but for selective distribution the analysis tends to be much more comprehensive.
PERFORMANCE EVALUATION
Performance evaluation clearly will be more comprehensive than day-to-day monitoring efforts. Accordingly, there are typically three levels in developing a performance audit vehicle:
• Develop measurement criteria.
• Evaluate channel members against the criteria.
• Take corrective actions, as needed.
The measurement criteria for the channel member should include the following:
• Sales performance. This critical measurement includes both sales to the channel member and member sales to its customers. This may or may not be a reliable measure depending on the perishability of the product. For example, convenience stores tend to get much information from its franchisees. The key variables here are current versus historical sales, comparisons to quotas, and cross comparisons to other channel members. The 80/20 rule is important in the last measure.
• Inventory maintained. This major indicator provides information on the degree to which the member maintains stock or meets stocking requirements as specified in any agreements between the manufacturer and the channel member.  It is important to understand whether this agreement is formal or informal.  Also, while this is an area which often is difficult to perform, there are 6 key questions that can help with the measurement:
o Total inventory level
o Breakdown by units/types/prices
o Comparisons between the member estimates and purchases of related and competitive lines
o Condition of the inventory holding facilities
o Quality of inventory control and record-keeping
• Selling capabilities. It is worthwhile to evaluate the abilities of the channel member by appraising their salespeople. One way to do this is to cross check this information with other members of the channel. You should check the number of salespeople working with the manufacturer’s line, the technical knowledge and competence of the sales people and the level of interest the salespeople have in the manufacturer’s products.
• Attitudes of the channel member. Usually this is not done until there is a drop in performance. The best way to handle it is to survey the attitudes through face-to-face contact and also solicit feedback from the member’s clients, salespeople, the competition, and related sources.
• Competition faced by the member. This refers to competition from other intermediaries and from other product lines carried by the manufacturer’s direct channel members. The questions might include how does the member do against the competition? Then, the issue of is more support required from the manufacturer. To probe this issue further, it would be appropriate to ask for names of the competitors and how they rank them. This will help you determine the degree to which the member understands the competitive arena.
• General growth prospects for the channel member. This measurement provides you with an awareness of how aware and sophisticated the member is regarding the general and area economies and the potential growth in each of them.
• Macro environmental forces affecting the channel member.  Performing a SWOT analysis as if one were the channel partner provides insight into their world, which should be used in determining specific strategies with that respective member. For example, if a supplier is heavily dependent on human labor, and growth has created a scarcity of human resources for the supplier, the supplier faces several alternatives, each of which will affect the organization.
• Other Criteria. Includes financial status, character, reputation, and reliability and quality of services.
Applying these performance criteria involves three different approaches:
1. First, there is a separate performance evaluation, utilized primarily when there is intensive distribution and a limited sales, inventory, and selling capability. The goal here is easy and fast, but it offers little insight into the operations of the business.
2. Second, the multiple criteria are combined informally. The goal here is to combine the criteria into an overall judgment. There are, however, some pros and cons: 
• One advantage of this approach is that it is not only still fairly informal but also flexible in use and application.
• This measure adds in the element of experience, but it can be arbitrary when the member does well in one area but not so well in other areas
• In addition, it is tough to use the same comparisons between channel members, and there is no one quantitative index to show overall performance.
3. The third measure is the multiple criteria combined informally. The steps here are:
• Complete all criteria operational measures.
• Assign weights in terms of importance.
• Evaluate on the basis of a scale of 1 to 10.
• Multiply the score times the weight to achieve a product for each factor.
• Sum the factors to obtain an overall status.
The advantage of the third method is that it provides weights and measures to provide an explicit and overall quantitative index. While this may be viewed as a bit artificial in some ways, it also is easier to rely on a number to start with and then develop ameliorating qualitative data to make a final conclusion.

A discussion on how the Internet and wireless technology advances have impacted channel management may include:
• The Internet has provided organizations with great cost reduction opportunities. Any digital entity such as information and transactions can be managed over the Internet thereby reducing or eliminating functions required to manage the information or transaction. But it also means that new channel activities are required to manage the Internet applications.
• The Internet provides a vehicle for organizations to find new solutions and suppliers. It also, through reverse auctions, has provided buyers with more power over suppliers. Tendency to commoditizing products and services by the buyer using reverse auctions places pressure on suppliers to further differentiate them from their competitors.  
• Suppliers not prepared to begin using radio frequency identification (RFID) when Wal-Mart demanded that all of its suppliers use RFID on all of their shipments were and are at a competitive disadvantage.
• Consumer access to manufacturer information more readily on the Internet has provided them with additional leverage over intermediaries in the same channel.
• New organizations enter the channel to provide Internet and wireless enabling technologies.
• Channel members who fail to retrofit their technology from print to digital will leave the channel. In fact, even if they convert, buyers of their services may be able to perform some of the functions themselves.
• The Internet has made it easier for the end users to pull from the channel. Push techniques using the Internet can sometimes be treated as spam unless the proper permission marketing techniques are implemented.
III.  Background Articles 
Issue:  Channel Management in the New Economy
A. Source: “Five Tips for Achieving Channel Management Success and Better Understanding End-Customer Needs,” PRN Newswire, April 2002, p. 14.

For many business-to-business companies selling through complex channels, relationships with end-customers have been limited due to the role of the intermediary.  Recent studies indicate that many marketing managers do not realize that effective channel management strategy cannot only provide collaboration and visibility into the channel, but can also reach and serve customers by leveraging new technology. Marketers and information officers should consider the following before undertaking the search for a solution.
1. Give channel partners a role in creating the solution, so they are then part of its success.  Often this is done with little input from the partners. If partners are involved from the beginning, they will have a better understanding of the system, an easier time adopting it and a vested stake it making it work.  
2. Add e-commerce through the channel to increase sales and visibility into end-customer preferences. Incorporating e-commerce through channel partners to end-customers can greatly supplement sales activity and brand awareness, as well as provide transactional capabilities and visibility into buying activities. Even if the sale is completed off-line, a point of sale feature can help track customer  purchases and partner activity, such as which partner made the sale, at what price, to whom and with what frequency.
This can then be integrated into the customer relationship marketing (CRM), leads management and partner profiling systems, so that the company can better assess the effectiveness of past and future marketing campaigns, product configurations and gain insight to the buying habits of end-customers. A centralized commerce system in which a master catalog drives channel partner storefronts and catalogs allows partners to present fresh and pertinent product information with a minimal amount of cost and resources.
3. Encourage partners to update product and pricing information. Empower partners to easily and cost-efficiently maintain their own profiles, online catalogs and even co-branded storefronts. End-customers will benefit from real-time, tailored updates regarding specific products, prices or services. To make this process as easy and time efficient as possible, the channel management solution should allow the partners to manage by exception-that is to receive notification of changes and to choose when these changes apply to them.
4. Monitor end-customer satisfaction. Many organizations with a channel network do not have access to the true end-customer experience. A channel management solution should incorporate the ability to execute customer surveys either via email or through a Web site, which can help evaluate partner performance, product and market needs and more.
5. Keep tabs on partners and make it easier for them to close sales.  Every channel management program should do what it says-manage channels. While giving power to the partners can increase efficiency, marketing managers should also remember to promote communication with partners through easy-to-use online tools such as partner surveys and other aggregate reporting systems.

B. Source: “Top 10 Tips for Managing Indirect Sales Channels”, Business Wire, June 18, 2002.
In today’s economy, companies generate a staggering percentage of revenues by way of indirect sales channels. One study reported that 60% of the U.S. GDP is sold through indirect channels. In such an environment, executives must develop and maintain strong relationships with channel partners to maximize market-share and quell the competition. A recent white paper lists over 100 strategies to help companies become more “channel-centric” and to implement a sound channel management program. Following are the top ten tips which have emerged from this and other sources:
1. Approach channel management as a critical process that directly impacts overall company performance. Remember that the channel is a unique and autonomous audience, demanding its own set of tactical considerations. By ignoring channel management or simply sweeping it under the “Customer Relationship Marketing / Management (CRM) carpet,” you risk alienating trusted sales partners and forgoing significant revenue.
2. Companies limit the effectiveness of their channels through apathy and subtle sabotage. Overcoming these “sales prevention programs” requires a change of attitude, where the roles and rules governing a channel are clearly understood and mapped appropriately with the sales process.  
3. Don’t expect your partners to: 1) support your products if it requires too much change in the way they do business; 2) sell your product if they are not already entrenched in your market.
4. Never forget that the market is glutted with products. Do not inundate the channel with product inventory unless you are prepared to support the products with planned activities and aggressive programs to pull them through to your end users.  Provide solid sales tools and training programs that will enable your channel partners to create services and downstream revenues surrounding your products.
5. Ask yourself if your product is strategic to the channel’s business model.  Find out if your partners are emphasizing your products in their selling efforts.  Reward them for doing so.
6. Channels switch customers to known product brands greater than 60% of the time.  Accordingly, practice simultaneous branding, in which you brand products to both end users and the channel at the same time. Channels must be alerted to the reasons customers will request your brand, and how it will resolve their problem. Accordingly, be sure to allocate a significant portion of your marketing budget toward the introduction of new products into the channel.
7. Make sure you have a process defined to address channel conflict issues. They will arise. Bear in mind that a little channel conflict can sometimes be good as long as you manage that conflict and respond to the channel’s needs - clearly explaining the reasons behind the decisions.
8. Automate channel management to cut costs and make it easy for partners to do business with you. However, be sure that your system is configured to execute “your” specific processes (do not take a “cookie cutter” approach to automation). Minimize risk with a phased approach, implementing one process at a time, starting with the processes that can provide the greatest impact.
9. Make sure that your channel management systems provider has the expertise and real-world knowledge to help you in the upfront planning and strategy work - before applying technology.
10. Achieve long lasting channel relationships by scrutinizing your end-to-end process for delivering products to your customers. Make adjustments to compensate for the important role your partner plays. Evaluate your channel business proposition, which details the reasons to do business with you. If it’s not compelling - make changes. 
IV. Case
CVS:  The Web Strategy
                     HBS Case: 9-500-008,  TN 501-064

Teaching Perspectives
This case can be used to teach consumer behavior, if the discussion concentrates on the retail integration questions. It shows how entrenched consumer habits become drags on new business creation. It was easy in 1999 to envision an online drugstore, but few saw how difficult it would be to motivate customers to visit one. Online shopping meshes badly with the buying process for drugs for acute, urgent medical conditions. For chronic conditions, the fit is closer but still far from perfect. The mail order drug store, Merck-Medco, was better placed to succeed. It did not have to initiate a new behavior, merely to shift the behavior of its customer base from direct mail to the Internet. This careful mapping of channel characteristics into buying habits can be surprisingly informative to students, particularly to those who think that they would never fall for the cavalier consumer behavior assumptions made by so many failed dot.com ventures.
CVS, a major drugstore chain, buys Soma.com, one of three pure-play online drugstores founded in the first half of 1999. At the level of retail detail, the case is about how to integrate Soma into the CVS retail store and direct mail system. There are decisions to be made about whether the online operation must conform to the chain’s policies on branding, merchandise assortment, pricing, and so on, or whether it should deviate from these policies to more fully exploit the medium. At the industry level, the case is about the effects of information technology on the balance of power in the healthcare market. A policy clash between CVS.com and a pharmacy benefit manager, Merck¬-Medco, serves to show how market power is shifting as better information becomes available to the drug supply chain.
From the patient’s point of view, there may he some interest in having chronic medication delivered rather than picked up in stores, but the Pharmacy Benefit Managers (PBMs) have been working hard and successfully to convert insured people to mail order. A third of the chronic medication taken by insured people is already going by mail, and it’s the fastest-growing sector of the industry. (Every time a PBM moves a customer from retail to mail order, a drugstore loses the business.) Does the Web have any advantage over direct mail for the patient? Certainly not with respect to receipt of the medicines, as they both ship by mail. It may be marginally easier to place the order at a Web site than over the phone, but the gains are minimal, and surely not sufficient to drive consumers to this channel.
There is one niche that may respond to the Web, and that is the people behind the 11 percent or $11 billion’s worth of prescriptions bought at retail and paid for by patients (Exhibit 5). Note that the conversion of these uninsured patients to mail order is much lower (2:11) than insured patients (12:25). Why? The PBMs have had no incentive to convert them because of course the drugs they buy don’t pass through a PBM’s hands. These drugs move directly from manufacturer to drugstore. Drugstores had no incentive to convert them because they did not want to channel business away from their stores. Now someone does have a wish to convert them. The pure-play online drugstores have their sights set on this market, because they can undercut drugstore prices by the cost of the store network. To the extent that they succeed, CVS will have to retaliate by moving its uninsured customers to the Web, but at the cost of cannibalization. Conclusion: A defensive move may be necessary.

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