The multiple-channel strategy refers to a situation in which two or more different channels are employed to distribute goods and services. The market must be segmented so that each segment gets the services it needs and pays only for them, not for services it does not need. This type of segmentation usually cannot be done effectively by direct selling alone or by exclusive reliance upon distributors. The Robinson-Patman Act makes the use of price for segmentation almost impossible when selling to the same kind of customer through the same distribution channel. Market segmentation, however, may be possible when selling directly to one class of customer and to another only through distributors, which usually requires different services, prices, and support. Thus, a multiple-channel strategy permits optimal access to each individual segment. Basically, there are two types of multiple channels of distribution, complementary and competitive.

Complementary Channels Complementary channels exist when each channel handles a different noncompeting product or noncompeting market segment. An important reason to promote complementary channels is to reach market segments that cannot otherwise be served. For example, Avon Products, which had sold directly to consumers for 100 years, broke the tradition in 1986 and began selling some perfumes (e.g., Deneuve fragrance, which sells for as much as $165 an ounce) through department stores. The rationale behind this move was to serve customer segments that the company could not reach through direct selling. Samsonite Corporation sells the same type of luggage to discount stores that it distributes through department stores, with some cosmetic changes in design. In this way the company is able to reach middleand low-income segments that may never shop for luggage in department stores. Similarly, magazines use newsstand distribution as a complementary channel to subscriptions. Catalogs serve as complementary channels for large retailers such as J.C. Penney. The simplest way to create complementary channels is through private branding. This permits entry into markets that would otherwise be lost. The Coca-Cola Company sells its Minute Maid frozen orange juice to A&P to be sold under the A&P name. At the same time, the Minute Maid brand is available in A&P stores. Presumably, there are customers who perceive the private brand to be no different in quality from the manufacturer’s brand. Inasmuch as the private brand is always a little less expensive than a manufacturer’s brand, such customers prefer the lower-priced private brand.

Thus, private branding helps broaden the market base. There is another reason that may lead a manufacturer to choose this strategy. In instances where other firms in an industry have saturated traditional distribution channels for a product, a new entry may be distributed through a different channel. This new channel may then in turn be different from the traditional channel used for the rest of the manufacturer’s product line. Hanes, for example, decided to develop a new channel for L’eggs (supermarkets and drugstores) because traditional channels were already crowded with competing brands. Likewise, R. Dakin developed nontraditional complementary channels to distribute its toys. Although most toy manufacturers sell their wares through toy shops and department stores, Dakin distributes more than 60 percent of its products through a variety of previously ignored outlets such as airports, hospital gift shops, restaurants, amusement parks, stationery stores, and drugstores. This strategy lets Dakin avoid direct competition. In recent years, many companies have developed new channels in the form of direct mail sales for such diverse products as men’s suits, shoes, insurance, records, newly published books, and jewelry. Still yet to come is electronic commerce. The Internet is going to change where and how consumers shop and retailers sell. It will become the location to buy almost anything a person wants fast, easy, and whenever he/she wants it. But that does not mean that traditional retail stores will become relics. For one thing, it is going to be a long time before the majority of consumers do most of their shopping on the Web. Further, the physical limits of buying on the Web mean that not every product is suited to online purchasing. U.S. consumers spent $5 billion on purchases on the Web in 1997.

The number was likely to be $11 billion in 1998, and would soar to $95 billion in 2002. As personal computers and online services penetrate more and more households, the number of cybershoppers will grow. By 2002, 22% of U.S. households will use Internet services, and 30% are expected to use the Internet to do a large part of their shopping. A company may also develop complementary channels to broaden the market when its traditional channel happens to be a large account. For example, Easco Corporation, the nation’s second-largest maker of hand tools, had for years tied itself to Sears, Roebuck and Company, supplying wrenches, sockets, and other tools for the retailer’s Craftsman line. Sears accounted for about 47 percent of Easco’s sales and about 62 percent of its pretax earnings in the mid-1980s. But as Sears’s growth slowed, Easco had a critical strategic dilemma: What do you do when one dominant customer stops growing and starts to slip?

The company decided to lessen its dependence on Sears by adding some 500 new hardware and home-center stores for its hand tools. To broaden their markets in recent years, many clothing manufacturers, including Ralph Lauren, Liz Claiborne, Calvin Klein, Anne Klein, and Adrienne Vittadini, have opened their own stores to sell a full array of their clothes and accessories. Again, to broaden the market, brand-name fast-food companies, Pizza Hut, Subway Sandwiches, Salads Kiosk, and others, have started selling their products in public school cafeterias. Complementary channels may also be necessitated by geography. Many industrial companies undertake direct distribution of their products in such large metropolitan areas as New York, Chicago, Detroit, and Cleveland. Because the market is dense and because of the proximity of customers to each other, a salesperson can make more than 10 calls a day. The same company that sells directly to its customers in urban environments, however, may use manufacturer’s representatives or some other type of intermediary in the hinterlands because the market there is too thin to support full-time salespeople. Another reason to promote complementary channels is to enhance the distribution of noncompeting items. For example, many food processors package fruits and vegetables for institutional customers in giant cans that have little market among household customers. These products, therefore, are distributed through different channels. Procter & Gamble manufactures toiletries for hotels, motels, hospitals, airlines, and so on, which are distributed through different channel arrangements. The volume of business may also require the use of different channels.

Many appliance manufacturers sell directly to builders but use distributors and dealers for selling to household consumers. The basis for employing complementary channels is to enlist customers and segments that cannot be served when distribution is limited to a single channel. Thus, the addition of a complementary channel may be the result of simple costbenefit analysis. If by employing an additional channel the overall business can be increased without jeopardizing quality or service and without any negative impact on long-term profitability, it may be worthwhile to do so. However, care is needed to ensure that the enhancement of the market through multiple channels does not lead the Justice Department to charge the company with monopolizing the market.

Competitive Channels The second type of multiple-channel strategy is the competitive channel. Competitive channels exist when the same product is sold through two different and competing channels. This distribution posture may be illustrated with reference to a boat manufacturer, the Luhrs Company. Luhrs sells and ships boats directly to dealers, using one franchise to sell Ulrichsen wood boats and Alura fiberglass boats and another franchise to sell Luhrs wood and fiberglass/wood boats. The two franchises could be issued to the same dealer, but they are normally issued to separate dealers. Competition between dealers holding separate franchises is both possible and encouraged. The two dealers compete against each other to the extent that their products satisfy similar consumer needs in the same segment. The reason for choosing this competitive strategy is the hope that it will increase sales. It is thought that if dealers must compete against themselves as well as against other manufacturers’ dealers, the extra effort will benefit overall sales. The effectiveness of this strategy is debatable. It could be argued that a program using different incentives, such as special discounts for attaining certain levels of sales, could be just as effective as this type of competition. It could be even more effective because the company would eliminate costs associated with developing additional channels. Sometimes a company may be forced into developing competing channels in response to changing environments.

For example, nonprescription drugs were traditionally sold through drugstores. But as the merchandising perspectives of supermarkets underwent a change during the post-World War II period, grocery stores became a viable channel for such products because shoppers expected to find convenience drug products there. This made it necessary for drug companies to deal with grocery wholesalers and retail grocery stores along with drug wholesalers and drugstores. In the 1980s, Capital Holding Corp. (a life insurance company located in Louisville, Kentucky) adopted a variety of marketing innovations. For example, in 1985 it began selling life insurance in novel ways, notably through supermarkets. Impressed by Capital Holding’s steady growth and strong financial performance, many other insurance companies were forced to develop new channels to sell their insurance products. The argument behind the competitive channel strategy is that, although two brands of the same manufacturer may be essentially the same, they may appeal to different sets of customers. Thus, General Motors engages different dealers for its Buick, Cadillac, Chevrolet, Oldsmobile, and Pontiac cars. These dealers vigorously compete with one another. Amore interesting example of competing multiple channels adopted by automobile manufacturers is provided by their dealings with car rental companies. Carmakers sell cars directly to car rental agencies. Hertz, for example, buys from an assembly plant and regularly resells some of its slightly used cars in competition with new cars through its more than 100 offices across the United States. Many of these offices are located in close proximity to dealers of new cars.

Despite such competition, a manufacturer undertakes distribution through multiple channels to come off, on the whole, with increased business. In adopting multiple competing channels, a company needs to make sure that it does not overextend itself; otherwise it may spread itself too thin and face competition to such an extent that ultimate results are disastrous. McCammon cites the case of a wholesaler who adopted multiple channels and thus exposed itself to a grave situation: Consider, for example, the competitive milieu of Stratton & Terstegge, a large hardware wholesaler in Louisville. At the present time, the company sells to independent retailers, sponsors a voluntary group program, and operates its own stores. In these multiple capacities, it competes against conventional wholesalers (Belknap), cash and carry wholesalers (Atlas), specialty wholesalers (Garcia), corporate chains (Wiches), voluntary groups (Western Auto), cooperative groups (Colter), free-form corporations (Interco), and others. Given the complexity of its competitive environment, it is not surprising to observe that Stratton & Terstegge generates a relatively modest rate of return on net worth. One of the dangers involved in setting up multiple channels is dealer resentment. This is particularly true when competitive channels are established. When this happens, it obviously means that an otherwise exclusive retailer will now suffer a loss in sales. Such a policy can result in the retailer electing to carry a different manufacturer’s product line, if a comparable product line is available. For example, if a major department store such as Lord & Taylor is upset with a manufacturer such as the Hathaway Shirt Company for doing business with discounters (i.e., for adopting competing channels), it can very easily give its business to another shirt manufacturer.

Consider the following examples. Hill’s Science Diet pet food lost a great deal of support in pet shops and feed stores as a result of the company’s experiments with a “store within a store” pet shop concept in the competing grocery channel. In the auto market, ATK, the dominant seller of replacement engines for Japanese cars, lost its virtual monopoly when it attempted to undercut distributors and sell direct to individual mechanics and installers. Quaker Oats’s recent $1.4 billion write-off from the divestiture of its Snapple business was caused in part by channel conflict. Quaker had planned to consolidate its highly efficient grocery channel supporting the Gatorade brand with Snapple’s channels for reaching convenience stores. Snapple distributors were supposed to focus on delivering small quantities of both brands to convenience store accounts while Gatorade’s warehouse delivery channel handled larger orders to grocery chains and major accounts, leveraging Quaker’s established strength in this area. However, the strategy backfired. As Quaker suggested moving larger Snapple accounts to Gatorade’s delivery system, Snapple’s distributors revolted. They saw the value of their Snapple business as an exclusive geographic franchise that the split channel strategy would undermine. Several Snapple distributors took legal action against Quaker. The company ultimately backed down, but the dispute had created a considerable distraction at a time when competition from Arizona and Nantucket Nectars was intensifying. Multiple channels also create control problems. National Distillers and Chemical Corporation had a wholly owned New York distributor, Peel Richards, that strictly enforced manufacturer-stipulated retail prices and refused to do business with price cutters. Since R.H. Macy discounted National Distiller’s products, Peel Richards stopped selling to them. R.H. Macy retaliated by placing an order with an upstate New York distributor of National Distillers.

National Distillers had no legal recourse against either R.H. Macy or the upstate New York distributor, who was an independent businessperson. These problems do not diminish the importance of multiple distribution: they only suggest the difficulties that may arise with multiple channels and the difficulties with which management must contend. A manufacturer’s failure to use multiple channels gives competitors an opportunity to segment the market by concentrating on one or the other end of the market spectrum. This is particularly disastrous for a leading manufacturer because it must automatically forgo access to a large portion of market potential for not being able to use the economies of multiple distribution. If a manufacturer determines that multiple channels could cause problems, solutions must be found to resolve those problems.