Push versus pull strategies
FIGURE 4.2: A CHANNEL ‘PUSH’ STRATEGY
Conventionally, and the way most intermediaries would prefer it, each company in the chain sells to the next one down the chain (Figure 4.2).
This means that each link can play upstream suppliers one off against each other (as we saw in Chapter 1, Part 2).
This behaviour, as shown above, is known as channel ‘push’ as each producer and every subsequent link in the chain tries to ‘push’ its products down through the pipeline. However, powerful and rich players can avoid being played off against their competitors via the adoption of a ‘pull’
strategy, as shown below.
FIGURE 4.3: A CHANNEL ‘PULL’ STRATEGY The thick arrows indicate the flow of the
‘demand and cash’ back up the chain.
Wholesaler Your
supplier
Your
company O.E.M Retailer Consumers
The thin arrows indicate the promotional messages being addressed toward the consumers and the intermediaries between you and them.
Arrows indicate the flow of the ‘product’ through the chain, and sales effort involved when using a ‘push strategy’
Your supplier
Your
company O.E.M Wholesaler Retailer Consumers
Figure 4.3 above sets out a simplified ‘pull’ strategy. In principle, the marketing producer company communicates downstream direct to the ultimate or the most important customer in their chain, so as to raise awareness, desire and demand for his/her product. In consumer markets, mass media advertising is used, e.g. Heinz, Coca Cola, Thompsons Travel etc. In business to business markets this and/or direct mail is used (so as to be more target group specific and focused), e.g. Microsoft, Intel, Nokia, Sage Accounting.
The demand engendered by this promotion causes the ‘Down-Stream’
customers to ‘demand’ the producer’s products from their suppliers and accept no substitutes. Thus the supplier, hopefully, has no choice but to supply the product demanded and demand the same from their suppliers in their turn, and so on up the chain.
One of the key behavioural dimensions of distribution channel manage- ment is leadership, because in inter-organizational relationships a producer does not enjoy control via ownership. However, the company will still desire to be involved with and, in many cases, give direction to, channel members.
The key characteristic of inter-organizational relationships such as those between a manufacturer and an intermediary is mutual dependence.
Fundamentally, the dealer depends upon the manufacturer for good products, the manufacturer depends upon the dealer for value-added services.
Most companies assume that it is the manufacturer/producer who has the initiative and can invent and take control of their route to market.
However, with the possible exception of (so-called) direct marketing, (aka database marketing) and the increasing use of the Internet in business to business markets, companies requiring a ‘route to market’ often find the decision taken for them. Channels are often already in place and are confirmed by the buying behaviours of the various customer sets along the way.
It is only in the early days of a market that the infrastructure is immature and fragmented enough to allow all and sundry to try doing their own thing. Michael Dell and PC World could not be established from scratch today. The more mature a market is, the more entrenched are its channels and infrastructure.
Firms in mature markets either ‘go with the flow’, or pioneer (if they are rich enough) entirely novel channels such as did many of the Financial Services companies (Virgin, First Direct, Direct Line) or software houses (Lotus [IBM], S.A.P., Sun Microsystems, et al), even cosmetics (Avon).
Indeed, so powerful are ‘channels’ in mature markets that they can often select those offerings they wish to ‘carry’ and refuse all others – (those so refused will often fail). It is not unknown in some markets for the more powerful channel members to drive the product development and R&D of their suppliers in order to give themselves a competitive advan- tage (this is a trend most prevalent in consumer markets, though not unknown in those dealing in business to business).
‘He who owns the customer controls the channel’ (WalMart®). This
‘control’ is a function of who has the power and the initiative. Real power in markets comes via the size of the volume, value and customer loyalty for the given producer’s type of products, i.e. the derived demand within the ‘food chain’. The greater the combination (of these factors) the more power (and thus potential control) is in the hands of the producer. If these companies take the initiative they will become the (so-called)
‘channel captain’ and they will be able, via promotion, to have the end customers ‘PULL’ the product through the pipeline.
If the market is fragmented so that the combination (of these factors) does not represent a substantial proportion of the channel’s business, the most powerful intermediary (not necessarily the largest) will become the channel’s captain. In this case intermediaries will exercise their initiative by playing one supplier off against another, thus driving
the supply in the direction they want (often lower prices, faster delivery, less work for them, ‘better’ specifications, i.e. into commodity markets).
In such circumstances the options open to the supplier are highly constrained, the two most open being either:
• to adopt an active sales ‘PUSH’ strategy – hoping to load the intermediary’s stockrooms and soak up lots of their cash thus encouraging them to sell on down the chain (but intermediaries will be very wary of this happening)
OR
• to go direct to the ‘end’ customer. This ploy violates the inter- mediary’s belief that customers downstream belong to them, NOT to the supplier. This will produce a great deal of ill will, friction and conflict in the chain, and may even mean that the chain, often en masse, will boycott that supplier, leaving the ‘direct route’
their only route to market.