by John Martin
Channel power can be defined as control over the flow
of goods or services at any point between their origin and the end user.
Hundreds of years ago, channel power came from royally granted monopolies
or military control over key trade routes. Today the power comes from
expertise; technological superiority; ability to mediate rewards; coercion;
proximity to the end user; leadership; and legitimacy (e.g., patents).
The notion of channel power has both strategic and
tactical implications. It is an engine for growth and profitability. But
developing and asserting channel power involves risk. And that risk is
increased when initiatives are undertaken without adequate information
to support the complex decisions involved. Yet when done well, the rewards
can be great.
Take the example of Argyle Diamonds. This Australian
mining company was struggling with the iron grip (and control of pricing)
that De Beers held on distribution of its product. Argyle was faced with
what it considered a life and death situation, and chose to take control
of its destiny. Guided by rock-solid market information, Argyle created
a new international distribution channel, breaking the De Beers distribution
monopoly.
Now many other companies are faced with visions of
their own mortality due to the emergence of the Internet. Suddenly, entire
channels, and the business models that are built on them, appear to be
in danger of becoming less relevant, even obsolete. As large as the impact
of the Internet as a distribution channel is likely to be in the long
run, perhaps the largest impact is in renewing the interest of corporate
managers in strategic channel management.
So what does the renewed focus on channel power
look like?
First, corporate managers will build channel
power by actively seeking out and pursuing opportunities to add channels
because they know that each new or expanded channel increases their power
in all their existing channels.
Second, while most companies continue to be
structured along channel lines (each channel as a separate business unit
with its own P&L), corporate managers are beginning to recognize that
customers are under no obligation to consider their relationships with
a company in terms of those distinctions. They also recognize how leveraging
channels across those artificial barriers can pay off in more efficient,
higher return marketing investments, increased loyalty, and a stronger
competitive brand position. They will seek out the information that quantifies
the current and potential impacts of leveraging across channels to create
a return on the whole that is greater than the sum of its current parts.
Third, corporate managers will take advantage
of this holistic view of channel management to ensure alignment of brand
messages and experiences across channels. It is critical to understand
which specific elements of the brand add competitive value and to ensure
that those elements are supported and delivered through every channel.
In each of these areas, channel management involves
taking significant business risks in a rapidly changing world. A channel
management effort must be clearly grounded in reality. As is human nature,
the desires, assumptions and past experiences of those involved will color
their views. The application of proven market information approaches reduces
risk and ensures fact-based, effective decisions.
John Martin is chairman of Chadwick Martin Bailey, a Boston-based market
research and consulting firm that uses advanced, proprietary research
and measurement to help its clients identify and penetrate markets, develop
products, improve service delivery, and build brand value. He can be reached
by calling 617.350.8922 or visiting www.ChadwickMartinBailey.com.
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