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Industrial Marketing Management 36 (2007) 4 ??? 9 Multi-channel strategy in business-to-business markets: Prospects and problems Bert Rosenbloom ? LeBow College of Business, Drexel University, Philadelphia, Pennsylvania, USA Available online 28 July 2006 Abstract Multi-channel marketing strategy has become a major force in business-to-business distribution channels, especially since the option of Internet-based online channels emerged less than a decade ago. Making products and services available to business markets via a wide array of different channels can provide increased levels of customer choice and service.
But the task of coordinating and integrating multiple channels that operate at high levels of efficiency has forced managers responsible for channel management to deal with a variety of challenging issues. These include the role of e-commerce in the multi-channel structure, finding an optimal channel mix, creating synergies across channels, building strategic alliances, creating sustainable competitive advantages, managing more complex supply chains, dealing with conflict, and providing the leadership necessary to attain well integrated multiple channels. 2006 Elsevier Inc. All rights reserved. Keywords: Multi-channel strategy; Channel management; Integrated multiple channels; Multiple channels; Channel coordination Moving past the first half decade of the twenty-first century, it has become obvious that such forces as Internet-based Ecommerce, globalization, and intense international competition have made marketing channel management much more challenging and complicated than it was just a few short years ago (Narus & Anderson, 1996).
Businesses all over the world now have many more choices in the channels they can use to reach their customers (Rangaswamy & Van Bruggen, 2005). In fact, numerous companies in the business-to-business sector already use multiple channels to go to market with their products and services (Cespedes & Corey, 1990). The company’s own field sales force channel, the distributor channel, the sales rep channel, the catalog/mail order channel, the online channel, the call center channel, and several other may all be needed by the same company to serve ts customers effectively and efficiently (Friedman & Furey, 1999). But such a wide range of channel choice and combination potential means that businesses also face the challenge of formulating strategies to achieve an optimal channel mix while avoiding conflict among the different channels being used ? Tel. : +1 215 895 6992; fax: +1 215 895 6975. E-mail address: rosenblb@drexel. edu. 0019-8501/$ – see front matter ?? 2006 Elsevier Inc. All rights reserved. doi:10. 1016/j. indmarman. 2006. 06. 010 (Rosenbloom, 2004).
So, the overriding question becomes: How do firms utilize multiple channels, including new hightech E-commerce channels, to foster channel confluence and synergy rather than conflict? Other important and related questions include: Will virtually all firms regardless of size and products sold face the challenge of developing well-integrated multiple channels? Or will a multi-channel strategy need to be pursued only by those firms that deal with diverse customer segments that seek maximum choice in how, when, and where they purchase products and services?
The multi-channel challenge may also involve cost/benefit tradeoffs (Frazier, 1999). Does offering customers maximum convenience via a wide variety of channel choices necessarily raise the cost of distribution? Or, is it feasible to design multiple channel structures that actually reduce the overall cost of distribution by segmenting the firm’s customer base in such a way that each customer segment is served by the most cost effective channel? Thus, large volume customers get called on regularly by the field sales force channel while small customers have access only to call center channels.
Customers in the intermediate range are served mainly by the independent distributor channel. Numerous firms selling in business-to-business markets already operate essentially according to this channel strategy. But are more sophisticated multi-channel strategies feasible that allow B. Rosenbloom / Industrial Marketing Management 36 (2007) 4???9 5 customers more flexibility in channel choice and that move beyond the perhaps overly simplistic and static model based virtually entirely on size and on cost?
Instead, can more dynamic multi-channel strategies be developed that enable even small customers to have access to premium, more peopleintensive channels on the assumption that some of today’s small customers could become giant ones in the future if the “expensive” channel offered them a superior level of service that exceeded their expectations? The purpose of this special section of Industrial Marketing Management on Multi-Channel Strategy in Business-to-business Distribution Channels is to begin addressing the opportunities and challenges presented by multi-channel marketing strategy.
Five highly thought provoking articles that deal with some of the most important issues in business-tobusiness multi-channel marketing have been included in this special section. This article then goes on to discuss further some of the key challenges and opportunities associated with B2B multi-channel marketing strategy. 1. Overview of the articles The first article, “The multi-channel challenge: A dynamic capability approach” by Hugh Wilson and Elizabeth Daniel, provides an analysis of the underlying decision processes needed for effective multi-channel strategy.
Using a methodology the authors borrow from the strategic management literature “dynamic capabilities analysis” along with an analytic induction approach to data analysis from four case studies, the authors provide important insights into what is required to create an integrated customer experience and synergy among the different channels being utilized by the firm. From this analysis, Wilson and Daniel derive seven dynamic capabilities that have important and very practical implications for managers designing and managing multi-channel strategies in B2B markets.
The second article in this special section, “Choosing an optimal channel mix in multichannel environments” by Arun Sharma and Anuj Mehrotra develops a framework for creating an optimal channel mix. The authors then apply their model to a large multi-channel software firm operating in B2B markets. Based on the empirical application of the model to this firm, Sharma and Mehrotra derive several managerial implications for formulating multi-channel strategy. These implications point to the need for management to emphasize an empirical, databased approach to multi-channel strategy.
The authors argue that such rational and rigorous approaches are becoming more feasible given the availability of better data such as that provided by modern CRM systems and widespread availability of common software such as Excel. In the third article of this special section, entitled “Internal multi-channel conflict: An exploratory investigation and conceptual framework,” Kevin Webb and C. Jay Lambe, examine one of the most vexing problems in multi-channel strategy ??? conflict.
The authors focus particular attention on what they refer to as internal multi-channel conflict: the type of conflict that is internal to the supplier firm which occurs among the groups and individuals responsible for managing multiple channels. Utilizing in depth research from four case studies, Webb and Lambe derive a broad conceptual framework of internal multi-channel conflict. Based on this, they offer fourteen propositions for future research as well as several managerial implications that may have immediate practical application for dealing with conflict associated with multi-channel marketing strategy.
The fourth article is entitled, “From catalog to Web: B2B multichannel marketing strategy” by Bill Merrilees and Tino Fenech. The authors remind us that even in the modern B2B multi-channel environment, the “old fashioned” catalog channel is still a very important one and indeed often exceeds the dollar volume of online channels. Using a structural equation model, and multiple regression analysis to gain insight into a large sample of customers in the office supplies market, Merrilees and Fenech find that online channels may not be a ready substitute for catalog channels.
Instead, their results show that customers prefer the choice provided by multiple channels which include both catalog and online options. Finally, the fifth article in the special section on B2B multichannel strategy by Julian Ming-Sung Cheng, Show-Ming Tsao, Wen-Hsien Tsai, and Hill H-J Tu, addresses the bottom line issue of financial performance and multi-channel strategy; specifically whether the addition of an online channel to a firm’s channel mix enhances or detracts from financial performance.
Based on their exploratory study using Economic Value Added (EVA) and Market Value Added (MVA) metrics, the authors found that the addition of online channels improved the financial performance of the firms studied. 2. Additional issues in B2B multi-channel strategy The five articles summarized above address several of the most important issues associated with B2B multi-channel marketing strategy. These include multi-channel integration, channel mix optimization, conflict in multiple channels, channel trade offs, and financial performance.
Individually and collectively this work provides some substantial insights and directions for future research on these issues as well as some practical managerial implications for multi-channel marketing strategy. But there are a number of additional issues in multi-channel marketing strategy that also need to be examined in future analysis and research. Some of the most important of these are discussed below in the context of the prospects and problems they present for multichannel marketing strategy. 2. 1.
E-commerce and multi-channel strategy Unquestionably the greatest force to impact marketing channel strategy in at least the last half century has been Internet-based ecommerce. The availability of the online channel option means that now virtually every firm whether large or small must include the Internet as a channel for reaching its customers. Further, all of these firms are faced with the task of blending online channels with conventional channels. So, “bricks and clicks” is no longer just a cute expression but a very real marketing channel strategy issue.
Integrating online channels with conventional channels to create a “seamless” experience for customer is, if course, the 6 B. Rosenbloom / Industrial Marketing Management 36 (2007) 4???9 ideal situation ??? in theory at least. In practice, however, such seamless integration is still more the exception than the rule because substantial obstacles exist. Although the technological barriers seem to be falling rapidly, channel strategy issues are still very much in play. Such key issues as the following still need to be addressed more fully: Should a firm offer all of its products online?
If not, what is the proper balance between conventional and online channels? Can online channels lower the cost of distribution? Are certain products more “Internetable” (amenable to the Internet) than others? Do online channels provide access to new customers? To what degree do online channels take sales away from the firm’s conventional channels? Can online channels enhance customer service even as they replace humans in conventional channels? 2. 2. Reaching more customers via multi-channel strategy Does having more channels automatically mean that the firm will gain access to more customers?
Much of the literature on multi-channel marketing suggests that it does because additional channels provide more points of contact for customers to gain access to the firm’s products. While this proposition seems self evident, it may not hold up to closer scrutiny. Additional channels may not reach the intended customer segments, or the customer segments that patronize the new channels may be comprised largely of customers who simply switched from the firm’s prior channels resulting in “channel cannibalization” rather than new customers.
Moreover, poorly integrated multiple-channels may engender in customer dissatisfaction with the firm’s multichannel strategy resulting in loss of customers to competitors. So, it might be that it is not the number of channels but the channel mix and how well the mix is coordinated and integrated that determine how the customer base is affected by multi-channel strategy (Coelho, Easingwood, & Coelho, 2003). Future analysis and research on multi-channel strategy will need to deal with these questions to see whether any evidence can be found for the proposition that simply adding channels attracts more customers. . 3. Finding the optimal channel mix If as alluded to in the previous section, it is the quality of the channel mix rather than the quantity of channels that has the most influence on the size of a firm’s customer base, future research on multi-channel strategy should focus on the channel mix or what has been referred to as the channel portfolio. In the context of multi-channel strategy, the channel portfolio can be viewed as analogous to financial instruments in a conventional portfolio.
So, just as a well-designed financial portfolio provides coverage across a range of investment opportunities to achieve diversification, the well designed channel portfolio may need to offer the firm access to a range of customer segments while achieving channel diversification (Johnson & Selnes, 2004). Of course the particular channel mix in terms of number of different channels and the composition of the channel mix or portfolio will vary widely for different industries and firms. But the emphasis on obtaining an optimal channel mix or portfolio may prove to be the core concept of multi-channel strategy (Fein & Jap, 999). 2. 4. Synergy and multi-channel strategy Synergy has become an overused term in business, particularly when it comes to mergers and acquisitions. But in the context of multi-channel strategy, synergy meaning one channel reinforcing the effectiveness and efficiency of other channels might be a very real outcome. Using online channels to obtain information before purchasing via conventional “brick and mortar” channels is perhaps the most common example of multi-channel synergy. But the potential for other kinds of synergy across channels may be much broader.
Through well-designed multi-channel strategies, it might be possible, for example, to have more channels available to customers while at the same time actually lowering the costs of distribution. This would be possible if multi-channel strategy were to result in a more efficient allocation of distribution tasks across the various channels (Rosenbloom, 2004). The result would be that each channel would focus on those distribution tasks which it is best suited to perform and in the process complement the performance of other channels in the mix.
Multi-channel strategy synergies might also emerge when different channels in the mix “help each other out” and in doing so create synergies that result in better customer service. This would occur, for example, when a customer confronted with a stockout from his usual channel is automatically served by another channel from the mix. If this channel shift were done smoothly and seamlessly through a well-conceived multichannel strategy, the firm instead of having a dissatisfied or even disgruntled customer facing a stockout, could have a pleasantly surprised or even delighted customer.
Such possible synergies from multi-channel strategy could be a fertile area for future research on multi-channel strategy in business-tobusiness markets (Payne & Frow, 2004). 2. 5. Strategic alliances and multi-channel strategy Securing the cooperation of channel members to work together as a team is certainly not a new idea but it takes on added importance in a multi-channel environment (Frazier & Rody, 1991).
Because there are more channel options for reaching customers, channel members may fear being bypassed under certain conditions or left out of the channel structures completely ??? replaced by the Internet or some other channel configuration. Consequently, the success of multi-channel strategy may depend heavily on whether distribution tasks are allocated within and across multiple channels in a manner that enhances cooperation among channel members while avoiding conflict. Strategic alliances have emerged in recent years as a means of securing enhanced channel member cooperation.
Strategic alliances require channel members to share similar long term goals and often require a significant level of capital and management input. Even though a written agreement may be signed by each channel member, strategic alliances are usually not legally defined entities, governed by state, national or international laws. Instead, the real core of the relationship is based on trust, B. Rosenbloom / Industrial Marketing Management 36 (2007) 4???9 7 commitment, and cooperation between the parties.
To work together effectively, channel members have to believe each other (trust), be willing to assist each other on a regular rather than ad hoc fashion (commitment) and work together to achieve this goal (cooperate) (Mehta, Larsen, Rosenbloom, & Ganitsky, 2006). The emerging emphasis or multi-channel strategy raises several important questions about the nature and viability of strategic alliances with respect to multi-channel strategy: Are strategic alliances more difficult to develop in the more fluid structure of a multi-channel environment?
Does multi-channel strategy undermine the viability of existing strategic alliances as customers expect more channel flexibility? Might the use of strategic alliances be more important than ever when employing multichannel strategy to help engender trust and commitment among channel members in what may appear to be a much less stable channel environment? Future research on multi-channel strategy will need to examine these very basic but crucial questions about the future role of strategic alliances in marketing channels. . 6. Sustainable competitive advantage and multi-channel strategy Today’s global competitive environment has made it more difficult than ever for a company to build a sustainable competitive advantage by focusing on product differentiation or lower price. Product differences whether based on technological superiority, design innovation, quality, or brand identity, can be copied, matched or even improved upon by competitors from all over the world in a relatively short eriod of time. Similarly, a sustainable competitive advantage focusing on lower price is an even less viable strategy today because there is almost always some part of the world where the product can be made more cheaply and then priced lower by a competitor. As a result of these developments, channel strategy and particularly multi-channel strategy has, and is likely to continue to enjoy increased attention as a means for gaining a sustainable competitive advantage.
Probably the main reason for this is that well formulated channel strategies are more difficult for competitors to quickly copy. Developing multi-channel strategies often requires a long-term commitment and significant investment in infrastructure involving capital and human skills. Caterpillar’s world wide dealer network, for example, is not something that a competitor could copy and implement in a short period of time (Fites, 1996). This new focus on multi-channel strategy can provide a fertile area for analysis and research in competitive strategy.
By examining various channel configurations and mixes in the context of how such channel strategy and structure might be utilized for competitive advantage, a new research perspective may emerge in the area of competitive strategy. Moreover, from the standpoint of the practitioner, the increased emphasis on multichannel strategy could provide a significant new range of options for competing in a intense global competitive environment. 2. 7.
Supply chains and multi-channel strategy More channel options mean more complex supply chains to feed products through multiple channels. Having the right product, in the right amount, at the right place and the right time applies to all channels being offered by the firm engaged in multi-channel strategy. From the customers’ point of view, (which it the only view that really matters in the long run), a multichannel strategy that does not meet this standard will not be seen as having added value (Montoya-Weiss, Voss, & Grewal, 2003).
In fact, quite the opposite may occur whereby inadequate channel integration results in inferior rather than superior customer service. Thus, multi-channel strategy raises the bar for managing the supply chain. Synchronizing the supply chain so that each channel in the multi-channel mix is capable of meeting customer service standards regardless of which channels the customer chooses will require the latest technology and logistical management expertise (Kim, Cavusgil, & Calantone, 2006).
Radio frequency identification (RFID) which is starting to emerge in some supply chains may become a minimum prerequisite technology to keep track of thousands of different products flowing through multiple channels. Managing supply chains in complex multi-channel environments to provide for high and increasing levels of customer service while still driving down the costs of distribution will be the expected norm for supply chain management. Can this challenge be met? Will new supply chain paradigms be needed to meet the multi-channel challenge?
Or, can the challenge be met with existing supply chain management paradigms? Is effective and efficient supply chain management, even in the new multichannel environment still really a matter of good execution and appropriate technology? Going forward, these are some of the key questions both practitioners and researchers will need to address as more and more firms in business-to-business markets utilize more channels to reach their customers all over the globe. 2. 8.
Conflict and multi-channel strategy Perhaps the most significant obstacle to building successful multi-channel strategies is the emergence of conflict between the different channels used for reaching customers. For some channel participants, multi-channel strategy may be viewed as a zero sum game: If one channel gains customers then another channel must have lost customers. Researchers examining multi-channel strategy in businessto-business markets will need to determine just how prevalent this zero sum perception is among channel participants when multi-channel strategy is employed and whether it is a major cause of conflict.
Further, researchers should also examine whether this perception reflects the reality of multi-channel strategy (Mohr & Nevin, 1999). It may well turn out that welldesigned multi-channel strategies can avoid the zero sum model and instead provide for greater potential returns for all channels in the mix. If indeed this were the case, very interesting and important research could focus on how and why erroneous perceptions develop in multiple channel systems.
Practitioners will also be very interested in conflict associated with multi-channel strategy. Perhaps the most emphasis should be placed on avoiding dysfunctional conflict in the first place during the process of designing multi-channel strategies. Can conflict between channels be “designed out” by anticipating 8 B. Rosenbloom / Industrial Marketing Management 36 (2007) 4???9 potential conflicts and then formulating strategies and policies that prevent conflict or at least significantly ameliorate them?
For example, if a manufacturer sells via its online channel directly to the same customers that are served by its field sales force and/or independent distributors can sales commissions be configured so as to create a win???win???win channel strategy? This type of positive outcome would occur if the multi-channel strategy results in customers having additional channel choices, field sales representatives or independent distributors get credit for direct from manufacturer sales (and receive commissions on them), and the manufacturer gains incremental sales because of the wider channel net cast before customers?
If it is not possible to completely or virtually eliminate channel conflict via the original design of multi-channel strategy, both practitioners and researchers will need to examine ways of resolving or at least mitigating cross channel conflicts associated with multi-channel strategies. Some of the tools managers use to deal with conflict may involve traditional behavioral approaches that seek to enhance relational exchanges between channel members as well as arbitration and legal means. But technology may also play a larger role in the future.
Under the banner of distribution relationship management (DRM), some firms have developed and one has patented software that can help channel managers deal with conflict by providing automated systems to assure that all channel members receive their fair share of the margins when products are sold via multiple channels that appear to compete with each other. (Reshare, 2006) 2. 9. Channel leadership and multi-channel strategy Multi-strategy does not appear to be some fleeting new marketing concept or fad.
Rather, it is more likely to become a core marketing challenge for the foreseeable future simply because customers are demanding more channel options and technology has made multiple channel options possible and economically feasible (Verhoef & Donkers, 2005). Thus, multichannel strategy has become, for many firms, a strategic issue that deserves the attention of top management. But in addition to top management focus, multi-channel strategy also requires anagement attention at the tactical or “nuts and bolts” level to oversee how various channels should be developed, managed and coordinated to create a seamless customer experience. If such highly coordinated or integrated multiple channels are to be realized, organizational changes that focus management attention on developing well-integrated multiple channels will need to become more of a priority. The position of “channel manager” that has been discussed in the marketing channels literature for several decades and actually established at some firms could become more prevalent (Jackson & Walker, 1980).
Such a position would integrate responsibilities that are often dispersed among various executives such as V. P. marketing, general marketing manager, sales manager, as well at the president and CEO in some organizations. The increased concentration and focus under one executive position responsible for managing multiple channels would, at least in theory, enhance multichannel integration. 3. Conclusion Multi-channel strategy is fast becoming the norm for going to market in the business-to-business sector.
Customers all over the globe are demanding more channel options for gaining access to products and services while technology has made it possible and economically feasible for firms to offer a wider array of channels, especially Internet-based online channels. But the growth of multiple channel structures while providing firms with more opportunities to reach more customers has also put a premium on well-conceived multi-channel strategy. Managers responsible for designing and managing channels of distributions must now deal with a range of challenging issues affecting multi-channel strategy.
Some of the most important of these involve the integration of high-tech online channels with conventional channels, finding optimal channel mixes, creating synergies across channels, building strategic alliances in a multi-channel environment, using multi-channel strategy to gain a sustainable competitive advantage, coordinating more complex supply chains to serve multiple channels efficiently, dealing with multi-channel conflict, and providing effective leadership to drive multi-channel strategy.
It is hoped that the articles presented in this special section of Industrial Marketing Management will provide some direction for future research on these issues as well as some preliminary insights and management implications for practitioners. References Cespedes, F. V. , & Corey, R. (1990). Managing multiple channels. Business Horizons, 33(4), 65-11. Coelho, F. , Easingwood, C. , & Coelho, A. (2003). Exploratory evidence of channel performance in single vs. multiple channel strategy. International Journal of Retail and Distribution Management, 31, 561? 563. Fein, A. J. & Jap, S. D. (1999, Fall). Manage consolidation in the distribution channel. Sloan Management Review, 61? 72. Fites, D. V. (1996, March???April). Make your dealers your partners. Harvard Business Review, 84? 95. Frazier, G. L. (1999, Spring). Organizing and managing channels of distribution. Journal of the Academy of Marketing Science, 27, 226? 240. Frazier, G. L. , & Rody, R. C. (1991, January). The use of influence strategies in interfirm relationships in industrial product channels. Journal of Marketing, 52? 69. Friedman, L. G. , & Furey, T. R. (1999). The channel advantage.
Boston: Butterworth-Heinemann. Jackson Jr. , D. W. , Jr. , & Walker, B. J. (1980). The channel manager: Marketing’s newest aide? California Management Review, 23, 59? 65. Johnson, M. D. , & Selnes, F. (2004, April). Customer portfolio management: Toward a dynamic theory of exhange relationships. Journal of Marketing, 68, 1? 17. Kim, D. , Cavusgil, T. S. , & Calantone, R. J. (2006, Winter). Information system innovations and supply chain management: Channel relationships and firm performance. Journal of the Academy of Marketing Science, 34, 40? 54. Mehta, R. , Larsen, T. Rosenbloom, B. , & Ganitsky, J. (2006). The impact of cultural differences in U. S. business-to-business marketing channel strategic alliances. Industrial Marketing Management, 35, 156? 165. Mohr, J. , & Nevin, J. R. (1999, October). Communication strategies in marketing channels: A theoretical perspective. Journal of Marketing, 54, 36? 51. Montoya-Weiss, M. , Voss, G. B. , & Grewal, D. (2003, Fall). Determinants of online channel use and overall satisfaction with a relational, multichannel service providers. Journal of the Academy of Marketing Science, 31, 448? 58. B. Rosenbloom / Industrial Marketing Management 36 (2007) 4???9 Narus, J. A. , & Anderson, J. C. (1996, July???August). Rethinking distribution. Harvard Business Review, 112? 120. Payne, A. , & Frow, P. (2004). The role of multichannel integration in customer relationship management. Industrial Marketing Management, 33(6), 523? 528. Rangaswamy, A. , & Van Bruggen, G. H. (2005, Spring). Opportunities and challenges in multichannel marketing: An introduction to the special issue. Journal of Interactive Marketing, 19(2), 5? 11. Reshare Distribution Management.
Retrieved from http://www. reshare. com (February,2006). Rosenbloom, B. (2004). Marketing channels: A management view, 7th edition Mason, Ohio: Thomson/South-Western. Verhoef, P. C. , & Donkers, B. (2005, Spring). The effect of acquisition channels on customer loyalty and cross-buying. Journal of Interactive Marketing, 19 (2), 574? 584. 9 Bert Rosenbloom holds the Rauth Chair in Marketing Management in the Lebow College of Business, Drexel University. Dr. Rosenbloom is a leading authority on the management of marketing channels and distribution systems.
One of his books, Marketing channels: A management view currently in its 7th edition is the leading college textbook in the field of marketing channels and has been used by hundreds of universities in the U. S. and around the world. Dr. Rosenbloom has published widely in professional journals such as the Journal of Marketing, Journal of the Academy of Marketing Sciences, Journal of Retailing, Industrial Marketing Management, European Journal of Marketing and many others. Dr. Rosenbloom has also been an active consultant for businesses and other organizations in the U. S. and abroad.