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Praisefor GettingMulti-ChannelDistribution Right

“Despitetheirprevalenceandimportancetofirms,multi-channeldistributionsystemsremainpoorlyunderstood.Thisbookprovidesan originalandmuch-neededframeworkforexaminingsuchdistribution arrangements.Itdoesamasterfuljobofblendingacademicresearch, bothclassicandemerging,withcutting-edgeindustryexamplesand casestudies.Thebookispackedwithoriginalinsights;inparticularI foundthediscussionofperformancemetricstobeoutstanding.Itwill beaninvaluableresourcetoanumberofaudiences,includingacademics,marketingandsalespractitioners,andregulators.Professors AilawadiandFarrisclearlygotmulti-channeldistributionright.”

JanHeide Professor,UniversityofWisconsinSchoolofBusiness

“Thedigitalrevolutionhasfundamentallychangedthewaythatdistributionchannelswork.Alongwiththeopportunitiestoreachconsumersthroughmanydifferentroutescomesmuchgreaterpotential forconflictbetweenmanufacturers,retailers,andtheotherintermediariesinthemarketplacetoday.Theinsights,frameworks,andin-depth caseexamplesinGettingMulti-ChannelDistributionRighteffectively separatethesignalfromthenoise.Thebookiscomprehensiveand timely,andalsoanenjoyableread.You’llfindyourselfreferringtoit oftenasyounavigateyourphysicalanddigitaldistributionchannels.”

BarbaraKahn Professor,WhartonSchool,Authorof TheShoppingRevolution

“Everymarketershouldread GettingMulti-ChannelDistributionRight andhaveitontheirbookshelf.Distributionisarguablythemost fundamentaldimensionofmarketing,yetmysteriousbecausefew haveexposuretothebusiness-to-business“blockingandtackling” whichundergirdsdistributionpartnerships.Thisbookisagift fromtworesearchers,experiencedwithdistributionpractice,who areresponsibleforthemarketingliterature’srichestdistribution insights.KusumAilawadiandPaulFarrismoveusfromdesigninga distributionchannelfromasmallsetofwellunderstoodcomponents toassemblingachannelecosystemwithbusinessmodelsthatdidnot evenexistadecadeago.Inthisaccessiblepresentationofmodern routes-to-market,theyguidesuppliersthroughthetripleobjective ofexpandingdistributioninthedifferentchannelswhereconsumers searchfororbuytheirproducts,whilereducingconflictamong channelmembersandpreservingtheequityoftheirbrands.”

LeighMcAlister Professor,McCombsSchoolofBusiness,UTAustin

MorePraisefor GettingMulti-Channel DistributionRight

“Alotiswrittenaboutomnichannelretail,andrightlyso.Butifyouare asupplier,youneedtofigureouthowtochooseandmanagethemultiple independent channels,bothphysicalandonline,throughwhich yousellyourproducts.ThatisthechallengeProfessorsAilawadiand Farristackleinthistimelyandthoughtfulbook.Withup-to-datemetricsandframeworksappliedtolivecasestudies,theypulltogethera physicalandonlinedistributionstrategytoolkitunlikeanyotheravailabletoday.Ifyouareasupplierlookingtobringyourroute-to-market inlinewithhowconsumersshoptoday,orifyouarearetailer,e-tailer, orotherintermediaryoperatinginthatvaluechain,orifyouaremanagingadigitallynativeverticalbrand,orifyoutrainanyoftheseaforementionedexecutives,thenthisbookisanessentialread.”

DasNarayandas ProfessorandSeniorAssociateDean,HarvardBusinessSchool

“Thisbookaddressesapressingneedinmarketingtoday:thechallenge ofexpandingintoandmanagingmultiplechannelsofdistribution. Experiencedmarketersaswellasthosenewtomarketingchannels willdiscoverhowclassicframeworksmustbeexpandedandadapted tomanagedigitalaswellasbrickandmortardistributionsystems. Theauthorsdeftlyintegratemetricswithstrategicissuessuchas understandingconsumers’searchloyalty,theapplicationandpreservationofpower,thelimitsofthedirect-to-consumerchannel,and policiesthatachievetherightphysicalanddigitalcoveragewhile keepingconflictmanageable.Thevalueofthemetricsandstrategic frameworksisvividlyillustratedincasesandexamplesthatspanboth digitalandphysicalproducts.”

JohnQuelch

ViceProvost,UniversityofMiamiandDean,MiamiHerbert BusinessSchool

“AsP&G’sformerCEOA.G.Lafleysaiddistributionisthe“first momentoftruth.”Ifyoufailingettingtheproducttothecustomer andgettingtherightsupportandappealatthepointofpurchase, youfail.AilawadiandFarrisprovidea comprehensive coverageof multi-channelmarketinganditsevolutionintoday’sworld.Withthe adventofe-commerce,m-commerce,whatJimLecinski,Google’s formerVPofCustomerSolutionshascalledthe“zeromomentof truth,”andnewformsofdistribution,are-bootofhowwethink

MorePraisefor GettingMulti-Channel DistributionRight

aboutdistributionisessential.Fewaspectsofmarketing,ifany,have changedmoreoverthelastcoupleofdecadesthandistribution.With reallifecaseexamples,AilawadiandFarrismaketheissuescome alive.Theyhavenailedhowtomanageyourdistributionstrategy.”

DavidReibstein

Professor,WhartonSchool,Coauthorof MarketingMetrics

“AilawadiandFarrisdrawontheirextensiveconsultingandacademicexperiencetoprovideacompellingaccountofmulti-channel distribution.Thebookskillfullyblendsacademicinsightswithrelevantexamplesandprovidesactionableframeworksandmetrics.A must-readformanufacturersandretailersthatwanttothriveinthe multi-channelenvironment.”

Jan-BenedictSteenkamp Professor,Kenan-FlaglerSchoolUNCChapelHill,Co-authorof RetailDisruptors

“Digitaldisruptionandtheresultingneedtomanagedistribution anddemandacrosschannelsarecriticalissuesfortheleading corporationssponsoringtheMarketingScienceInstitute.ButasProfessorsAilawadiandFarrisnote,“gettingmulti-channeldistribution rightisaboutmuchmorethangoingdigital.”Beyondafocuson omni-channel—offeringcustomersa“seamless”experienceacross touchpoints—theauthorsdemonstratetheequallyimportantneed tooptimize multi-channelrelationshipsbetweenupstreamsuppliers anddownstreamchannelpartners.Combiningrigorandpracticalrelevance,thisbookprovidesmanagerswithclearstrategicframeworks forimplementingmulti-channeldistribution.”

EarlTaylor ChiefKnowledgeOfficer,MarketingScienceInstitute

“Multi-channeldistributionisthemostimportant,complexchallenge facingmanufacturerstoday.KusumandPaulexplainitusingrecent examplesinplainEnglish.Mostimportantly,theyshowhowtomake realisticsolutionsworkinpractice. GettingMulti-ChannelDistribution Right istheclearestandmostusefulbookinitscategory.”

KennethWilbur Professor,RadySchoolofManagement,UCSanDiego

GettingMulti-Channel DistributionRight

Getting Multi-Channel Distribution Right

KusumL.Ailawadi

PaulW.Farris

©2020byJohnWiley&Sons,Inc.Allrightsreserved.

PublishedbyJohnWiley&Sons,Inc.,Hoboken,NewJersey. PublishedsimultaneouslyinCanada.

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LibraryofCongressCataloging-in-PublicationData:

Names:Ailawadi,KusumL.,author.|Farris,PaulW.,author.

Title:Gettingmulti-channeldistributionright/KusumL.Ailawadi,Paul W.Farris.

Description:Firstedition.|Hoboken,NewJersey:JohnWiley&Sons, 2020.|Includesindex.

Identifiers:LCCN2019056782(print)|LCCN2019056783(ebook)|ISBN 9781119632887(hardback)|ISBN9781119632900(adobepdf)|ISBN 9781119632917(epub)

Subjects:LCSH:Marketingchannels.

Classification:LCCHF5415.129.A452020(print)|LCCHF5415.129(ebook) |DDC658.8/7—dc23

LCrecordavailableathttps://lccn.loc.gov/2019056782

LCebookrecordavailableathttps://lccn.loc.gov/2019056783

CoverDesign:Wiley

CoverImages:Topviewofaninfinity©SahachaNilkumhang/GettyImages,Binary code©nadla/GettyImages

PrintedintheUnitedStatesofAmerica

10987654321

Wededicatethisbooktoourparents, NirmalandRajKumarAilawadi

FrancesandPaulFarris

AbouttheAuthorsxxi

Acknowledgmentsxxiii

Prefacexxv

Chapter1DistributionChannelsToday1

1.1Introduction1

1.2WhatIsNew:RadicalChangesintheNavigationof DistributionChannels4

1.2.1ChangingBusinessModels5

1.2.2Omni-ChannelRetailing6

1.2.3Data7

1.2.4Regulation9

1.3TheRoadAhead10

PartITheBedrockofChannelFunctions,Power,and Conflict ....................................................... 13

Chapter2Push,Pull,andTotalChannelPerformance15

2.1Introduction15

2.2AnOrganizingFrameworkIllustratedwithNatura’s DistributionChannel16

2.2.1Push16

2.2.2Pull17

2.2.3SupplierInputs,DownstreamEffects,and ChannelPerformance17

2.3Push-PullInputsandDownstreamEffectsin PepsiCo’sChannel20

2.4PushandPullforServicesandDigitalChannels21

2.5BeneficialandHarmfulFeedbackLoopsinthe Push-PullSystem23

2.6Conclusion26

Chapter3RootCausesofChannelConflict29

3.1Introduction29

3.1.1ExamplesofChannelConflict31

3.1.2MyopiaandFourRootCausesofConflict thatStrainthePartnership32

3.2UncoordinatedPricingandSellingEffort33

3.2.1Double,Triple,andQuadruple Marginalization33

3.2.2LossLeadersHaveTheirOwnProblems37

3.3Over-andUnder-Distribution40

3.3.1Under-Distribution40

3.3.2Over-Distribution42

3.3.3CompetingwithYourCustomers44

3.3.4UnauthorizedDistribution45

3.4DivisionofWorkandPay:WhoSoldThat?46

3.4.1TheCaseofLeatherItalia:Functions PerformedandMarginEarned46

3.4.2FreeRidingonShowrooms,Webrooms, andBillboards49

3.5AdaptingtoChange:WhereDoestheFutureLie?51

3.6Conclusion52

Chapter4MiddlemeninToday’sChannelEcosystemand TheirFunctions57

4.1Introduction57

4.2Brick-and-MortarIntermediaries60

4.3NewDigitalIntermediaries64

4.4SupportServiceProviders67

4.5What’sDifferentaboutToday’sChannelFunctions69

4.5.1TheCriticalNatureofDeliveryandReturns69

4.5.2IncreasinglyTargetedSellingandPeer Persuasion71

4.5.3LocationMeansMore,NotLess72

4.5.4AgglomerationIsAliveandWell74

4.6Conclusion74

Chapter5TheSourcesandIndicatorsofPowerinthe Channel79

5.1Introduction79

5.2PowerintheChannelandItsSources81

5.2.1HowSocialPsychologistsandEconomists ThinkaboutPower81

5.2.2SourcesofPowerintheDistribution Channel83

5.3ConsumerSearchLoyalty:TheUltimateSourceof Power85

5.3.1LoyaltytotheBrandortotheChannel?86

5.3.2SearchLoyalty:HardtoGet,Harderto MeasureinthePhysicalWorld87

5.3.3FakeItTillYouMakeIt?89

5.3.4IsLoyaltyaDinosaurintheDigitalWorld?89

5.4EconomicIndicatorsofPower91

5.4.1MonopolyPower:TheLernerIndexand PriceElasticity91

5.4.2ManufacturerversusRetailerPrice ElasticityandHowItCanDistortPower Assessment93

5.4.3ProfitabilityasaSignofPower94

5.5Conclusion96

Chapter6UsingPowerWithoutUsingItUp99

6.1Introduction99

6.2ApplyingPowerinChannelRelationships100

6.3InvestmentsandSafeguards:EfficientPartnership orPowerStruggle?103

6.3.1MakePartner-SpecificInvestmentswith OpenEyes103

6.3.2SafeguardsProtectEachParty’sInterests104

6.3.3SafeguardsCanOutliveTheirUsefulness105

6.3.4HowAutomobileDealerSafeguardsCame toBe106

6.4TheChallengeofPreservingPower107

6.4.1UsingUpPower:The“Objectification”of LeatherItaliaUSA108

6.4.2PushingPowerTooFarorGivingItUp: RetailersandTheirPrivateLabels110

6.4.3ShouldNationalBrandManufacturers ProducePrivateLabels?111

6.5VerticalRestraints:WelfareEnhancingor Anticompetitive?112

6.6Conclusion116

PartIIMetrics,Tools,andFrameworksforGetting theRightDistribution ....................................... 121

Chapter7MetricsforIntensityandDepthofDistribution Coverage123

7.1Introduction123

7.2AFrameworkforMeasuringDistributionand MatchingIttoDemand124

7.3MeasuringStockingOutletFindability:Metricsfor IntensityofDistributionCoverage127

7.3.1ImportanceofOutletsCanBeMeasuredby TheirACV,PCV,andGMV128

7.3.2TrafficandSearchAreImportant,Perhaps EvenMoreThanSalesVolume131

7.3.3OnlineorOffline,StockingOutletsHaveto BeFindable133

7.3.4TheDouble-EdgedSwordofIncreasing ImportanceofaChannelMember136

7.3.5IntegrateMetricsAcrossOfflineandOnline Channels137

7.4MetricsforDistributionDepth138

7.4.1TotalDistributionProvidesMore InformationThanBrandDistribution139

7.4.2AggregateOtherDepthMetricsOnly AcrossStockingOutlets140

7.4.3GettingtheDatatoMonitorTheseMetrics141

7.5Conclusion142

Appendix:AnExampletoCalculateBasic DistributionMetrics143

Chapter8WhatAreYouManagingTowards?147

8.1Introduction147

8.2AHierarchyofPerformanceMetrics149

8.2.1ComplianceMetricsCanCatchProblems Early150

8.2.2Cross-andOmni-ChannelMetricsAre IncreasinginImportance152

8.2.3BothPartiesCareaboutSales,Share,and SalesVelocitybutinSlightlyDifferent Forms154

8.2.4GrossandNetMargins,Category,and CustomerProfitability156

8.3Conclusion160

Chapter9TheChallengeofOptimizingDistribution Breadth163

9.1Introduction163

9.2ClassicCategorizationsofProductsandDistribution Coverage165

9.3ConsumerSearchLoyaltyandDistributionElasticity167

9.3.1HowConsumerSearchLoyaltyReduces DistributionElasticity169

9.3.2EmpiricalEvidenceofDistribution170

9.3.3FeedbackEffectsandLonger-Term DistributionElasticity172

9.4TheDifficultiesofOptimizingDistributionCoverage172

9.4.1TheComplexityofDistributionCosts173

9.4.2DiscontinuitiesArisingfromRetail Structure175

9.4.3DistributionIsNotundertheComplete ControloftheSupplier175

9.5Conclusion176

Chapter10UsingVelocityGraphstoGuideSustainable DistributionCoverage179

10.1Introduction179

10.2TheConceptofaVelocityGraph180

10.2.1SustainablePositionsLikelyLieCloseto theVelocityGraph181

10.2.2SpecialLogisticsCanAllowaBrandto Persist“Off”theGraph182

10.2.3ThreeMainVariantsofVelocityGraphs182

10.3InsightsfromVelocityGraphs:AnIllustrationwith LaundryDetergents183

10.3.1BrandDistributionVelocityGraphs183

10.3.2TotalDistributionVelocityGraphs186

10.4VelocityGraphs,StateFranchiseLaws,and OverdistributionofU.S.AutoMakers188

Chapter11AugmentingtheDistributionMix:Digital ChannelsandOwnBricksandClicks193

11.1Introduction193

11.2AVarietyofOwn-StorestoAugmentDistribution byIndependentResellers194

11.2.1Store-Within-a-StoretoImprove DistributionDepth194

11.2.2FlagshipStoresandOutletsStoresAreat TwoExtremesoftheBrandingSpectrum196

11.2.3LookBeforeYouLeapwithRegular PhysicalandWebStores198

11.2.4ShowroomsAreaLittleLikeFlagship Stores200

11.3TheInevitabilityandChallengeofOnline Distribution201

11.3.1WhethertoBeOnlineIsNoLonger Debatable201

11.3.2CoverageVersusControlIsaSteeper Trade-offOnline202

11.3.3HowViableIstheOnlineChannel’s RevenueandProfitModel?205

11.4BeClearabout“Why”toDecide“How”to DistributeOnline205

11.4.1WhichSegmentsAreYouTryingtoReach andWhyDoTheyGoOnline?206

11.4.2OwnWebsiteIsUsuallyNotEnoughand Omni-ChannelRetailersWillExpecttoSell Online208

11.4.3ThinkHardAbouttheFunctionsThatPure PlayWebIntermediariesPerform209

11.4.4WhetherandHowtoDoBusinesswith TechBehemothsIsaStrategicQuestionAll ItsOwn209

Chapter12ThreeCasesonOnlineDistribution215

12.1Introduction215

12.2TheSagaofBrooksRunningandAmazon.com215

12.2.1WhatDoSegmentsofRunnersSearchfor OnlineandWhere?216

12.2.2CoveragewithoutSacrificingControl218

12.3Aggregation:WorkWorththePayintheOnline TravelChannel?220

12.3.1WhyOnlineTravelIntermediariesThrive221

12.3.2PowerfromConsolidationandPull Marketing223

12.3.3LimitstoPowerfromRegulationand Competition224

12.3.4WhatIsSustainable?228

12.4BuildingaViableRevenueModelOnline:News, Music,andTV229

12.4.1OnlineErosionofaTwo-SidedPlatform’s BusinessModel230

12.4.2MusicandPay-TVTreadMoreCarefully231 12.5Conclusion235

PartIIIAligningtheMarketingMixtoManage

Distribution .................................................. 239

Chapter13UsingtheProductLinetoManageMultiple Channels241

13.1Introduction241

13.2Channel-MotivatedExpansionofSKUs,Brands, andCategories243

13.3PortfoliosofSKUsforaPortfolioofChannels245

13.3.1ProductLineLengthIsTiedtoMarketing andDistributionStructure245

13.3.2ProductLineGuidancefromTotal DistributionandSKUDistributionVelocity Graphs246

13.3.3UsetheOpportunitytoBea“Category Captain”Judiciously248

13.3.4BeClearAboutWhyandHowSKUsAre AlignedwithChannels250

13.4PortfoliosofBrandstoProtectEquityandMitigate ChannelConflict252

13.4.1GetClarityonYourBrandPortfolio StrategyandBrandArchitecture252

13.4.2RealDifferentiationIsHarderthanItLooks254

13.5ExpandingtoSupportanExclusiveorDirect Channel255

13.5.1EnticingConsumerstotheDirectChannel RequiresGreaterScaleandScope255

13.5.2SometimesItMakesSensetoSacrifice ProfitstoSupporttheChannel257

13.5.3ButMakeSuretheLongTailIsNot WaggingtheStrategyDog258

13.6CautionsatAllThreeLevelsofProductLine Expansion259

13.6.1Preempt,Monitor,andControl UnauthorizedDistribution259

13.6.2CurationIsMoreImportantthanEver260 13.7Conclusion261

Chapter14HarnessingthePowerofPriceandPrice Promotions267

14.1Introduction267

14.2WhyOne“Everyday”PricetoResellersIsUsually NotaSmartIdea268

14.2.1VariableSupplierPricesCanAlleviate DoubleMarginalization268

14.2.2TradePromotionsFundRetailPromotions toConsumers271

14.3TheManyVarietiesofTradePromotions272

14.3.1TradePromotionGoalsEvolveOverthe ProductLifeCycle274

14.3.2Pay-for-PerformanceTradePromotionsTie FundingtoResellerActions275

14.4TheChallengeofAssessingtheCostsand ProfitabilityofTradePromotions276

14.4.1WhatIstheCostofaTradePromotion?277

14.4.2HowMuchoftheSales(andProfit)Bump IsIncrementalforWhom?278

14.4.3AdditionalMetricsforKeyValueItemsand Loss-Leaders281

14.4.4BaselineSalesEvolveOverTime282 Appendix:TradePromotion,RetailPrice Discrimination,andPromotion“Cost”:ANumerical Example284

Chapter15ManagingPricesandIncentivesAcross Channels287

15.1Introduction287

15.2TheGoalsandChallengesofChannelIncentives288

15.2.1SalesandChannelManagementGoals288

15.2.2ChallengesinImplementingIncentives288

15.2.3ConditioningIncentivesonResellerEfforts orPerformance291

15.3HowtoMaintainResellerPrices293

15.3.1IncentivestoKeepResellerPricesfrom BeingTooLow293

15.3.2ControlInventorytoControlPrice294

15.4DecideWhethertoDifferentiateorHarmonize AcrossMultipleChannels296

15.4.1DifferentProducts,RetailPrices,andRetail ServicesAcrossChannels296

15.4.2HarmonizedRetailPricesAcrossChannels CanReduceShowrooming297

15.4.3MinimumAdvertisedPrice(MAP)Policies CanHelp298

15.4.4DifferentialIncentivesforValuable ChannelsthatServeasShowrooms299

15.4.5UseTargetingtoReduceChannel Conflict301

15.5ChallengesEvenWhenYouControlRetailPrice Directly303

15.5.1Don’tErodeYourOwnPricetoGetthe BuyBox304

15.5.2Paywalls:WhenInformationWantstoBe FreebutTwo-SidedMarketsFallApart305

15.6Conclusion307

Appendix:ExcerptsfromMizuno’sMAPPolicy309

Chapter16Summary:DashboardsandPrinciplesfor ManagingNewDirectionsinDistribution313

16.1Pulling(andPushing)ItallTogether313

16.1.1AnExpandedViewofthePush-Pull System314

16.1.2ANoteAboutPull316

16.1.3WhatDoesItMeantoCoordinatePulland Push?318

16.1.4Measure,Match,andManagetoNurture BeneficialFeedbackLoops320

16.2DistributionDashboards321

16.2.1ASimpleIllustrationoftheInsightfrom Push-PullDashboards322

16.2.2ADistributionDashboardforPeteand Gerry’sOrganicEggs323

16.2.3AMoreComplicatedDistribution DashboardforHotelCompanies326

16.3TheMagicalNumberSevenPlusorMinusTwo NuggetsofWisdom330

16.3.1ConsumerSearchLoyaltyBestowsPower andCanCreateConflict330

16.3.2PreventPowerOutages:PowerIsPrecious andIt’sEasytoUseItUp331

16.3.3BetheExpertonWhereandWhyYour TargetConsumerVisits,(Re)Searches,and Buys331

16.3.4FormShouldFollowFunctionwith ChannelPayandIncentives332

16.3.5TheDirectApproachCanWork,butYou ReallyHavetoKnowWhatYou’reDoing332

16.3.6TheDevilIsintheDetails,andSoIsthe Profit333

16.3.7AvoidFutureShockbyPlanningand ManagingtheRateofChange333

16.4Conclusion:WhoWillBetheMastersof Multi-ChannelDistribution?334

AuthorIndex337

SubjectIndex343

AbouttheAuthors

KusumL.Ailawadi istheCharlesJordan1911TU’12Professorof MarketingattheTuckSchoolofBusinessatDartmouthCollege.She receivedherBSc(Honors)andMBAdegreesfromDelhiUniversity andtheIndianInstituteofManagement-Bangalore,respectively,and herPhDfromtheUniversityofVirginia.Shehasbeenonthefaculty atTucksince1993andcurrentlyservesasthechairofthemarketing department.

ProfessorAilawadi’sresearchexpertiseisinmanagingthepartnershipandthepowerbalancebetweensuppliersandtheirdistribution channelmembers.Shehaspublishedextensivelyinthemajormarketingjournalsontopicssuchasthemanifestationofbrandequityin marketplaceperformance;theimpactofpromotionsandprivatelabel brandsontheperformanceofmanufacturersandretailers;andconsumer,competitor,andchannelresponsetomajormarketingpolicy changes.Herworkhaswonaccoladesandawardsfromthe Journalof Marketing, JournalofMarketingResearch, JournalofRetailing,and MarketingScience forbestcontributionstomarketingtheoryandthepractice ofmarketingresearch,forbestcollaborationbetweenacademicsand practitioners,foroverallbestpapers,andforlong-termimpact.She hasalsowrittenonthesetopicsforpractitioneraudiencesinpublicationslikethe HarvardBusinessReview, WallStreetJournal, Forbes,and AdvertisingAge’sCMOForum.Sheteachesahighlysubscribedandhighly regardedMBAcourseonmulti-channeldistributionandconsultson thesetopics.

ProfessorAilawadiisthepresident-electoftheINFORMSSociety forMarketingScienceandanacademictrusteeoftheMarketing ScienceInstituteandofAiMark.MSIandAiMarkareorganizations intheUnitedStatesandEurope,respectively,thatbringtogetheracademics,seniorpractitioners,anddataproviderstofacilitateresearch andideaexchange.Sheiscurrentlyanassociateeditorforthree majormarketingjournals—JournalofMarketing, JournalofMarketing Research,and MarketingScience—andhasservedontheeditorialboards ofseveralothers.

PaulW.Farris istheEmeritusLandmarkCommunicationsProfessor ofBusinessattheUniversityofVirginia’sDardenGraduateSchoolof BusinessAdministration.HisdoctorateisfromtheHarvardBusiness School,wherehetaughtbeforehisappointmentattheUniversity

ofVirginia.HisMBAisfromtheUniversityofWashingtonandhis undergraduatedegreeisfromtheUniversityofMissouri.Hehasalso servedinintheU.S.Army,workedinmarketingmanagementfor UNILEVER,Germany,andinaccountmanagementfortheLINTAS advertisingagency.

ProfessorFarrishaspublishedtwelvebooksandovereightyarticles.Hehasco-authoredaward-winningarticlesondistributionand marketingmetrics,retailerpower,dynamicsofmarketingstrategy,and marketingbudgeting.Heisacurrentorpastmemberoftheeditorial boardsforthe JournalofMarketing, the JournalofRetailing, Journalof AdvertisingResearch,Marketing:AJournalofResearchandManagement, the InternationalJournalofAdvertising,andalsoservedasanacademic trusteeoftheMarketingScienceInstitute. MarketingMetrics:50+ MetricsEveryExecutiveShouldMaster,nowinthefourthedition,wasselected by Strategy + Business,as“2006MarketingBookoftheYear.”His2015 co-authoredpaperonclarifyingmarketingROIwastheMarketingScienceInstitute’smostfrequentlydownloadedpaper.

ProfessorFarrishasconsultedformanyinternationalcompanies, includingGoogle,Apple,Kroger,BestBuy,andProcter&Gamble. Hehasprovidedexpertwitnesstestimonyinanumberoflawsuits involvingmarketinganddistributionpractices.ProfessorFarrishas alsoservedasadirectorontheboardsofsixcompanies,including retailers,manufacturers,anddistributors.

Acknowledgments

Overthepastmanyyears,thetwoofushaveworkedonanumber ofresearcharticles,industryassignments,casestudies,andteaching materialsrelatedtothemeasurementandmanagementofdistribution channelperformance.Someofthisworkwastogetherandmuchwas withothercolleaguesfromindustryandacademia.Forthisbook,the challengethatwesetourselveswastoquilttogetherourownandothers’writingandourexperiencesinteractingwithexecutivesfroma varietyofcompaniesanddistillwhatwebelievethoughtfulmanagers wouldfinduseful.

JimWeber,presidentandCEOofBrooksRunning,shareddetails oftherevivaloftheBrooksbrandandthecompany’sstrategyandhas beensogenerouswithhisinsightsandhistimeinmeetingsandconversationsoveralmostadecade.Jim,weappreciateitmorethanwe cansay!

JesseLaFlamme,CEO,andPaulTurbeville,VicePresidentofMarketing,atPeteandGerry’sOrganicEggsofferedaninsidelookattheir distributionexpansionandtheirdataandpatientlyansweredallof ourmanyquestions.RobertMcDowell,ChiefCommercialOfficerof ChoiceHotels,madetime,multipletimes,todiscussthetravelindustrywithusandgiveushisinsights.MichaelCampbell,CEOofLeather Italia,allowedustotellthestoryofhiscompany’searlyyears.Youall havemadethisbookpossible.

Manyotherfriendsfromindustrymadetimeforconversationsand interviews–ElyseKane,JamieRusso,DougLaue,AniruddhPandit, ErikKiewietdeJonge,SarahSearls,JamesBlack,BillBean,Charlene Eisenberg,RickPaschal,JimLecinski,andJimWalker.Thenuggetsof informationandinsightyousharedhavebeensohelpful.

OurcolleaguesErvShames,ScottNeslin,andDavidMillsreadthe firstfewchaptersandprovidedbothencouragementandcritiquesin equalmeasure,forwhichwecouldnotbemoregrateful.BillBranch andLeandroGuissonihelpeduswithhard-to-getdataforseveral examples.TheverysamewastrueofWaltSalmon,lateProfessorat theHarvardBusinessSchoolandworldfamousretailingexpert.His encouragementhelpedoneofusgetaresearchfootholdindistribution.LeighMcAlister,JohnQuelch,EarlTaylor,ElyseKane,Jan Heide,RobertSpekman,JBSteenkamp,RajVenkatesan,andSandy Japgaveusthepsychologicalboostweneededtocrossthefinishline.

DikshaGautham,KesavVasudevan,GeorgiosMexis,RongGuo, BobBurnham,AjayKumar,andespeciallyAnneGivens,helpedwith industrybackgroundresearchandthedatacompilationforseveral charts.Anne,thankyousomuchforyourpatienthelpthroughthe manyiterationsofsomeoftheFigures.JeanneLevinehelpedus navigatetheprocessofselectingourpublisher.

KirkKardashianworkedtirelesslywithustoeditthechaptersmore thanonce,askingusquestionsalongthewaythathelpedusmake ourpointsclearerandourwritingcrisper.Kirk,thankyouforalways meetingthedeadlinesweimposed,forthefunpicturesandnewspieces youoftensentus,andforyourvaluableediting.

Weowethankstoourrespectiveschools,theTuckSchoolatDartmouthandtheDardenSchoolatUVA,forsupportingandappreciatingourresearchthroughtheyearsandforprovidingtheintellectual environmentwithoutwhichwewouldnothavebeenabletoembark onthisendeavor.Ourstudentshavemotivatedandshapedthisbook withtheirclassdiscussionsandprojects,andwiththeirquestionsover theyears.AspecialthankstothestudentsinKusum’sMulti-Channel Route-to-Marketcoursewhoservedasatestmarketforearlyversions ofmanychaptersandwereinstrumentalinmakingimprovements.

Itisaloteasiertostartabookthanitistofinishone.Ourspouses, AnandNatrajanandKateFarris,havenotonlytoleratedusbeingon Skypeandonthephoneonevenings,nights,andweekendsforlonger thanwecaretoadmitbuthavealsobeenourbiggestsupporters.What wouldwedowithouttheirloveandtheirpatience?

Theresearchandwritinghavebeenrewarding,andoftenevenfun! Inthesamewaythatweenjoyworkingtogetherandlearningfrom eachother,wehopereadersofthisbookwillfindtheirtimewellspent.

Preface

Wehavewrittenthisbooktoprovideguidanceonhowasupplier canmanagethemultipledistributionchannels—physicalanddigital, independentandcompany-owned—throughwhichitsproductsreach endconsumerstoday.Multi-channeldistributionissometimesconflatedwithomni-channelmarketingbutthetwoareverydifferent. Omni-channelisprimarilyaretailconcept.Itrepresentseffortsbya retailertointegrateitsdifferenttouchpointswithconsumerssothatthe consumer’soverallexperiencewiththeretaileris “seamless.”Aconsumermightwanttogetadvicefromasalespersonintheretailer’s brick-and-mortarstore,orderaparticularcolorandsizeforsame-or next-daydeliveryontheretailer’sapp,andperhapsexchangeorreturn partoftheorderbackinthestore.Theretailer,whoownsallofthese interfaces,triestocoordinatethewholeseriesoftransactionsandthe relationshipwiththeconsumer—thesameasyouwouldexperience ifyouwereconversingwithafriendinperson,overemail,onthe phone,orbytext.Thememories,therelationship,andtheflowoftopicsofconversationallremainuninterrupted.Omni-channelisharder toexecutethanitappearsatthesurface,andmostretailersarestill strugglingtoperfectit.

Nowconsideranupstreamsupplierwhosellsitsproductlineto andthroughdifferenttypesofretailers(evenifitalsohasadirect-toconsumerretailoperation).Theretailersareindependentfirmsthat competewithoneanother,andthesupplierdoesnothaveownership controloverthem.Canthesuppliercreateaseamlessomni-channel experienceforconsumersacrossallthoseretailers?Browsingatone retailer,purchasesatanotherretailer,returnsatathird?Mostlikely not.Shouldthesupplierevenmakethatanobjective?Thesameproducts,thesameservices,thesamepriceseverywhere?Insomeinstances, perhaps.Inmanyothers,probablynot.Thesupplier’sperspective,certainlybynecessityandoftenbychoice,isoneofmultiplechannelsand multiplechannelpartners.Ofcourse,thesupplier’smulti-channeldistributionisdrivenbywhere,why,andhowconsumersegmentsshop, anditrequirescoordination.Butthecoordinationisfocusedonthe supplier’svariousindependentchannelsasitstrivestooptimizemarket coverageandsellingeffortwhileminimizingconflictsamongchannel partners.Satisfyingtherequirementsofomni-channelresellersneeds tobepartofasupplier’stoolkit,butthatisonlyoneofmanyimportant considerationsinmulti-channeldistribution.

ConsiderBrooksRunning,acompanywewillcomebacktofrequentlyinthisbook.Asaperformancerunningshoemanufacturer,it wantstomeetrunnerswheretheysearchandwheretheybuy,soit distributesitsfullproductlinethroughmultiplechannels,fromspecialtyrunningstorestoomni-channelgeneralsportinggoodschains andsomepure-playonlineretailers,andithasitsowndirectdigital channel.CompanieslikeBrooksmustdevelopasetofmetricsbywhich tomeasuredistributioncoverageandchannelpartnereffortsandconsiderwhethertheyshouldrewardsomechannelsforbeingusedas showrooms,evenifpurchases,especiallyrepeatones,aremadeelsewhere.Incontrast,manyothersuppliersdon’twanttosellthesame productsatthesamepricesinallchannels,especiallyonline.Burberry decidedtosellafewproductsthrough Amazon.com inexchangefor Amazon’scooperationinweedingoutunauthorizedsellersbutitkeeps mostofitsproductlineforitsownstoresandforselectedretailpartners.Inbothcasesthegoalsarethesame—toreducechannelconflict andpreservetheequityoftheirflagshipbrandswhilestillhavingsufficientdistributioncoverage—eveniftheapproachesaredifferent.

Thewebandmobilehaveoccupiedcenterstageinmostdescriptionsofhowdistributionchannelsareevolving,butthisisfarfromthe wholestory.Evencompaniesthatwere“borndigital”havediscovered thattheyneedtobepresentin,ifnotmaster,traditionaldistribution channels.Walmart-ownedclothingmarketerBonobosnotonlyhasits ownwebandbrick-and-mortar“guideshops”butisalsousingindependentretailerNordstrom.JessicaAlbafoundedtheHonestCompany asane-commercebusiness(proclaimingthatsupermarketsarenot whereconsumersshouldhavetoshopfordiapers,detergents,andthe like)butthecompanyisnowworkinghardtogetitsproductsonthe shelfinthegrocerychannel.Likebrandsthatarerootedinphysical distributionandarenownavigatingdigitalchannels,thesesuppliers toomustfigureoutwhichchannelstheyneedtobeinandwhy,how muchcoverageisright,andhowtoattainandkeepit.

Technologyandtheprospectofgreaterprofitshaveencouraged moresupplierswhotraditionallyreliedonthird-partychannelsnotjust toopenupbutincreasinglyemphasizethedirect-to-consumerroute. Nikehasclearlystateditsgoalofacceleratingitsdirect-to-consumer businessandbecoming“morepersonalatscale.”Competingwiththeir customerscreatestheobviousbutdifficultproblemofchannelconflict.But,inaddition,somesuppliersfindtheyneedothermiddlemen toprovidespecialservicesormustinvestinthoseservicesthemselves, whilealsohavingtoexpandtheirproductlineandmarketingbudgetstoattractconsumertraffictothedirectchannel.HotelcompanieslikeHiltonandChoiceHotelshaveinvestedheavilyinloyalty

programsandadvertisingcampaigns,buttheyalsoneedmeta-search platformslikeTripAdvisortoroutetraffictoBrand.com.Meanwhile, theMarriott-Starwoodmergerwasmotivatedatleastpartlybywantingthescaletobuildupthedirectchannel.SowasAT&T’sacquisition ofTimeWarner.Thesecompaniesmust(a)considerthefullsetofcosts, notjustthebenefitsofgoingdirect,(b)ensurethattheconsumerstill receivesalltheservicessheexpectsalongthepath-to-purchaseand beyond,and(c)figureoutthelong-termstrategicroleoftheirindependentanddirectchannels.

Theconsequencesofmanyofthesemulti-channeldistribution decisionsarehardtoforesee.Withtheplethoraofchoicesavailable today,itisevenmoreimportanttoselectandorganizechannelsina waythatdeliverstheexperienceshoppersdemand,whilegenerating thevolumeandmarginsforeveryoneinthechannelthatareneeded tosustainthebusiness.Keepingthebreadthanddepthofdistribution inlinewiththeevolvingnatureandlocationofdemandisnotonlya questionofhavingaclearstrategy,butalsooneofcarefulmeasurementandmonitoring.Alongwithdistributionchannels,productlines, pricing,andchannelincentivesalsotrendtowardmorecomplexity. Wishingitcouldbesimplerdoesnotmakeitso.Instead,webelieve thatmanagersmustacceptthechallengeofmanagingtheincreasing channelcomplexitywithclearobjectives,goodframeworks,andthe rightmetrics.Ourgoalwiththisbookistohelpmanagers,MBA studentswhowillsoonstepintothoseroles,andtheprofessorswho trainthem,meetthatchallenge.

—KusumL.AilawadiandPaulW.Farris