Today, marketing channel decisions are as important as the decisions companies make about the features and prices of products (Littleson, 2007).^[1] Consumers have become more demanding. They are used to getting what they want, when they want. If you can’t get your product to them when, where, and how they want it, they will simply buy a competing product. In other words, how companies sell has become as important as what they sell (“Developing Channel,” 2007).^[2].

The firms a company partners with to actively promote and sell a product as it travels through its marketing channel to users are referred to by the firm as its channel partners. Companies strive to choose not only the best marketing channels but also the best channel partners. A strong channel partner like Walmart can promote and sell a product that might not otherwise turn a profit for its producer. In turn, Walmart wants to work with strong channel partners it can depend on to continuously provide it with great products that fly off the shelves. By contrast, a weak channel partner can be a liability.

The simplest marketing channel consists of just two parties: a producer and a consumer. Your haircut is a good example. When you get a haircut, it travels straight from your hairdresser to you. No one else owns, handles, or remarkets the haircut to you before you get it. However, many other products and services pass through multiple organizations before they get to you. These organizations are called intermediaries.

Companies partner with intermediaries not because they necessarily want to (ideally, they could sell their products straight to users) but because the intermediaries can help them sell the products better than they could working alone. In other words, they have some sort of capabilities the producer needs: contact with many customers or the right customers, marketing expertise, shipping and handling capabilities, and the ability to lend the producer credit are among the types of help a firm can get by utilizing a channel partner.

Intermediaries also create efficiencies by streamlining the number of transactions an organization must make, each of which takes time and costs money to conduct. As figure 9.1 shows, by selling the tractors it makes through local farm machinery dealers, the farm machinery manufacturer John Deere can streamline the number of transactions it makes from eight to just two.

The marketing environment is always changing, so what was a great channel or channel partner yesterday might not be a great channel partner today. Changes in technology, production techniques, and your customers’ needs mean you have to continually reevaluate your marketing channels and the channel partners you ally yourself with. Moreover, when you create a new product, you can’t assume the channels that were used in the past are the best ones (Lancaster & Withey, 2007).^[3] A different channel or channel partner might be better.

Marketing Channels versus Supply Chains

In the past few decades, organizations have begun taking a more holistic look at their marketing channels. Instead of looking at only the firms that sell and promote their products, they have begun looking at all the organizations that figure into any part of the process of producing, promoting, and delivering an offering to its user. All these organizations are considered part of the offering’s supply chain.

For instance, the supply chain includes producers of the raw materials that go into a product. If it’s a food product, the supply chain extends back through the distributors all the way to the farmers who grew the ingredients and the companies from which the farmers purchased the seeds, fertilizer, or animals. A product’s supply chain also includes transportation companies such as railroads that help physically move the product and companies that build websites for other companies. If a software maker hires a company in India to help it write a computer program, the Indian company is part of the partner’s supply chain. These types of firms aren’t considered channel partners because it’s not their job to actively sell the products being produced. Nonetheless, they all contribute to a product’s success or failure.

Firms are constantly monitoring their supply chains and tinkering with them so they’re as efficient as possible. This process is called supply chain management. Supply chain management is challenging and was especially difficult during the recent pandemic when many supply chains were disrupted due to shuttered factories and labour shortages at ports and terminals.

Types of Channel Partners

Let’s now look at the basic types of channel partners. To help you understand the various types of channel partners, we will go over the most common types of intermediaries. The two types you hear about most frequently are wholesalers and retailers. Keep in mind, however, that the categories we discuss in this section are just that—categories. In recent years, the lines between wholesalers, retailers, and producers have begun to blur. Microsoft is a producer of goods, but recently it began opening up its own retail stores to sell products to consumers, much as Apple has done (Lyons, 2009).^[4] As you will learn later in the chapter, Walmart and other large retailers now produce their own store brands and sell them to other retailers. Similarly, many producers have outsourced their manufacturing, and although they still call themselves manufacturers, they act more like wholesalers. Wherever organizations see an opportunity, they are beginning to take it, regardless of their positions in marketing channels.

Wholesalers

Wholesalers obtain large quantities of products from producers, store them, and break them down into cases and other smaller units more convenient for retailers to buy, a process called “breaking bulk.” Wholesalers get their name from the fact that they resell goods “whole” to other companies without transforming the goods. If you are trying to stock a small electronics store, you probably don’t want to purchase a truckload of iPads. Instead, you probably want to buy a smaller assortment of iPads as well as other merchandise. Via wholesalers, you can get the assortment of products you want in the quantities you want. Some wholesalers carry a wide range of different products, while others carry narrow ranges of products.

Most wholesalers “take title” to goods—or own them until purchased by other sellers. Wholesalers such as these assume a great deal of risk on the part of companies further down the marketing channel as a result. For example, if the iPads you plan to purchase are stolen during shipment, damaged, or become outdated because a new model has been released, the wholesaler suffers the loss—not you. Electronic products, in particular, become obsolete very quickly. In 1973, the phone was the latest and greatest of gadgets. Martin Cooper, who championed the development of the device, was a lead engineer at Motorola. To whom do you think Cooper made his first phone call on the device? To his rivals at AT&T, which at the time manufactured only “landline” phones. He wanted to let them know he and Motorola had changed the telephone game.

Retailers

Retailers buy products from wholesalers, agents, or distributors and then sell them to consumers. Retailers vary by the types of products they sell, their sizes, the prices they charge, the level of service they provide consumers, and the convenience or speed they offer. You are familiar with many of these types of retailers because you have purchased products from them. We mentioned Nike and Apple as examples of companies that make and sell products directly to consumers, but, in reality, Nike and Apple contract manufacturing to other companies. They may design the products, but they actually buy the finished goods from others.

Supermarkets, or grocery stores, are self-service retailers that provide a full range of food products to consumers as well as some household products. Supermarkets can be high, medium, or low range in terms of the prices they charge and the service and variety of products they offer. Whole Foods and Urban Fare are grocers that offer a wide variety of products, generally at higher prices. Midrange supermarkets include stores like Safeway and Superstore. No Frills and Buy-Low Foods are examples of supermarkets with a limited selection of products and service but low prices.

Drugstores specialize in selling over-the-counter medications, prescriptions, and health and beauty products and may offer services such as photo printing.

Convenience stores are miniature supermarkets. Many of them sell gasoline and are open twenty-four hours a day. They are often located on corners, making it easy and fast for consumers to get in and out. Some of these stores contain fast-food franchises like Tim Horton’s and Triple O’s. Consumers pay for the convenience in the form of higher markups on products.

Specialty stores sell a certain type of product, but they usually carry a deep line of it. Pandora, which sells jewelry, and Williams-Sonoma, which sells an array of kitchen and cooking-related products, are examples of specialty stores. The personnel who work in specialty stores are usually knowledgeable and often provide customers with a high level of service. Specialty stores vary by size. Many are small. However, in recent years, giant specialty stores called “category killers” have emerged. A category killer sells a high volume of a particular type of product and, in doing so, dominates the competition, or “category.” PetSmart is a category killer in the retail pet-products market. Best Buy is a category killer in the electronics-product market. Many category killers are, themselves, struggling, as shoppers for their products are moving to the web or to discount department stores.

Department stores, by contrast, carry a wide variety of household and personal types of merchandise such as clothing and jewelry. Many are chain stores. The prices department stores charge range widely, as does the level of service shoppers receive. Holt Renfrew and Nordstrom sell expensive products and offer extensive personal service to customers. The Bay and Simons department store prices are midrange, as is the level of service shoppers receive. Walmart, Target and Winners are discount department stores with cheaper goods and a limited amount of service. As mentioned earlier, these discount department stores are a real threat to category killers, especially in the form of a superstore.

Superstores are oversized department stores that carry a broad array of general merchandise as well as groceries. You have probably shopped at a Superstore or a large Walmart and noticed electronics, housewares, and clothing in addition to groceries. Superstores are also referred to as hypermarkets and supercentres.

Warehouse clubs are supercentres that sell products at a discount. They require people who shop with them to become members by paying an annual fee. Costco and Sam’s Club (in the US) are examples.

Off-price retailers are stores that sell a variety of discount merchandise that consists of seconds, overruns, and the previous season’s stock other stores have liquidated. Marshalls, Winners and dollar stores are off-price retailers.

Outlet stores were a new phenomenon at the end of the last century. These were discount retailers that operated under the brand name of a single manufacturer, selling products that couldn’t be sold through normal retail channels due to mistakes made in manufacturing. Often located in suburban areas but along highways, these stores had lower overhead than similar stores in big cities due to lower rent and lower employee salaries. But due to the high popularity of the stores, demand far outstripped the supply of mistakes. Most outlet malls are now selling first-quality products only, perhaps at a discount.

Online retailers can fit into any of the previous categories; indeed, most traditional stores also have an online version. You can buy from Costco.ca, Walmart.ca, and so forth. There are also stores like Amazon and Ali Express that operate only on the Internet.

Used retailers are retailers that sell used products. Online versions, like eBay and Craigslist, sell everything from used airplanes to clothing. Traditional stores with a physical presence that sell used products include Value Village and clothing consignment stores like Turnabout or Mintage in Vancouver. Note that in consignment stores, the stores do not take title to the products but only retail them for the seller.

A new type of retail store that turned up in the last few years is the pop-up store. Pop-up stores are small temporary stores. They can be kiosks or temporarily occupy unused retail space. The goal is to create excitement and “buzz” for a retailer that then drives customers to their regular stores. Disney partnered with Nordstrom and brought exclusive Disney merchandise to select Nordstrom stores in North America (Fuhs, 2021).^[5] Before Japanese clothing retailer Uniqlo opened its first Vancouver location, it ran a pop-up shop for just one day in Yaletown. Its overwhelming response and popularity propelled its establishment of a permanent location in Vancouver, and now the brand has three locations in Canada. Muji, a Japanese houseware store chain, also opened up a pop-up shop in a hotel in Vancouver to test out the market. Muji was greatly anticipated by consumers, so much so that the store actually took reservations for consumers to visit (Yeung, 2017)!^[6] Naturally, this excitement resulted in a permanent storefront opening up in several locations around Canada (Braun, 2016).^[7] These are prime examples of how stores can use the pop-up shop business model to spark excitement, create an initial media buzz and be successful long term (Apostolou, 2017).^[8] Most commonly, though, pop-up stores are used for seasonal sales, such as a costume store before Halloween or the Christmas trees and decorations you see at the mall just before Christmas.

Not all retailing goes on in stores, however. Nonstore retailing—retailing not conducted in stores—is a growing trend. Online retailing; party selling; selling to consumers via television, catalogues, and vending machines; and telemarketing are examples of nonstore retailing. These are forms of direct marketing. Companies that engage in direct marketing communicate with consumers by urging them to contact their firms directly to buy products.