Channel Dynamics 247
Horizontal Marketing Systems
Another channel development is the horizontal marketing system,in which two or more
unrelated companies put together resources or programs to exploit an emerging mar-
keting opportunity. Each company lacks the capital, know-how, production, or mar-
keting resources to venture alone, or it is afraid of the risk. The companies might work
with each other on a temporary or permanent basis or create a joint venture company.
Adler calls this symbiotic marketing.^16
Consider the long-standing agreement between Sara Lee Intimates and Wal-
Mart, which has enabled the partners to grow their business from an initial $134 mil-
lion account to a $1 billion partnership over 10 years. Both firms have merchandise,
operations, MIS, and marketing managers devoted solely to this agreement. They
meet regularly to iron out problems and make plans, requiring the sharing of market-
ing information, inventory levels, sales history, price changes, and other proprietary
information.^17
Multichannel Marketing Systems
In the past, many companies sold to a single market through a single channel.
Today, with the proliferation of customer segments and channel possibilities, more
companies have adopted multichannel marketing. Multichannel marketingoccurs
when a single firm uses two or more marketing channels to reach one or more cus-
tomer segments.
As one example, the Parker-Hannifin Corporation (PHC) sells pneumatic drills
to the lumber, fishing, and aircraft industries. Instead of selling through one industrial
distributor, PHC has established three separate channels—forestry equipment distrib-
utors, marine distributors, and industrial distributors. There appears to be little con-
flict because each type of distributor sells to a separate target segment.
By adding more channels, companies can gain three important benefits. The
first is increased market coverage—companies often add a channel to reach a cus-
tomer segment that its current channels cannot reach. The second is lower channel
cost—companies may add a new channel to lower the cost of selling to an existing cus-
tomer group (selling by phone rather than personally visiting small customers). The
third is more customized selling—companies may add a channel whose selling fea-
tures fit customer requirements better (adding a technical sales force to sell more
complex equipment).
However, new channels typically introduce conflict and control problems. First,
different channels may end up competing for the same customers. Second, as the
new channels become more independent, the company may have difficulty maintain-
ing cooperation among all of the members. Consider the dilemma faced by insur-
ance firms that sell home, auto, and life insurance policies through agents. On the
one hand, shopping for insurance via Web sites such as Quotesmith.com and
ebix.com can save customers both time and money while giving insurers access to
more prospects. On the other hand, using Internet intermediaries could potentially
alienate the 1.8 million U.S. insurance agents who now sell the bulk of the policies—
and make their living from commissions that can range as high as 20 percent. While
Geico and other insurers that sell directly to customers are moving quickly to open
Internet channels, firms with established agent networks are moving more cautiously.
Their dilemma is summed up by a spokesperson for the St. Paul Companies, who
says: “We must work to build business on-line in a way that does not disenfranchise
our agents and brokers.”^18