Marketing Channel Strategy

The OmnI-ChAnnel eCOsysTem
6
that can drive consumers to visit stores, because of their loyalty to the brands or because they 
want to experience and try items before purchasing them. For example, the recent addition of 
Dyson products means that consumers can try out innovative hair dryers and vacuum cleaners in 
Best Buy stores.
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 Furthermore, Best Buy invests heavily in training a knowledgeable, customer- 
friendly sales force. To establish an omni-channel experience, the retailer lets consumers shop 
for products across multiple platforms and buy according to their own preferred shopping com-
bination, whether that involves researching in store and buying online, or vice versa, or some 
other combination of channels.
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Marketing Channel Actors
To be straightforward and avoid confusion, we identify and define three key 
entities involved in every marketing channel: manufacturers, intermediaries 
(wholesale, retail, and specialized), and end-users (business customers or consum-
ers). The presence or absence of a particular type of channel member is dictated 
by its ability to perform the necessary channel functions in such a way that it 
adds value. Sidebar 1.1 details an example from the tea industry in Taiwan that 
showcases the value that an intermediary can provide.
SIDEBAR 1.1
Tea Selling in Taiwan: The Key Roles of Tea Intermediaries
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The Taiwanese tea industry got its start when tea trees imported from China got planted in the 
Taiwanese hills in the mid-1800s. By the late 1920s, there were about 20,000 tea farmers in Taiwan, 
who sold their product (so-called crude tea) to one of about 60 tea intermediaries, who in turn 
sold it to 280 tea refineries located in Ta-tao-cheng, on the coast, ready for commercial sale and 
exportation. The tea intermediaries traversed the hills of Taiwan to search for and buy tea then 
bring it down to the dock to sell to refineries. But they also suffered a poor reputation among 
both farmers and refineries. Intermediaries were accused of exploiting the market by buying low 
and selling high; critics suggested that a simple direct trading system could be instituted to bypass 
them completely.
Thus in 1923, the Governor-General of Taiwan set up a tea auction house in Ta-tao-cheng. Farmers 
could ship their tea directly to the auction house, where a first-price, sealed-bid auction would 
determine the price refineries would pay to obtain their products. The auction house’s operating 
costs were covered by farmers’ membership fees, trading charges, and subsidies by the Governor-
General, so the tea intermediaries suddenly had to compete with the auction house. Despite this 
new and well-supported form of competition, the intermediaries not only survived, they ultimately 
forced the closing of the auction house. But how could this outcome arise if they were just 
“exploiters” of the buy–sell situation? The answer is that they weren’t. They served key functions.
(continued)

The OmnI-ChAnnel eCOsysTem
7
First, the intermediaries facilitated search in the marketplace. An intermediary would visit 
many farms, finding tea to sell, which constituted an upstream search for product supply. With 
the product supply in hand, the intermediary would take samples to a series of refineries and 
ask for purchase orders. Visiting multiple refineries was necessary because the same variety and 
quality of tea could fetch very different prices from different refineries, depending on the uses 
to which they would put the tea. This search process repeated every season, because each refin-
ery’s offer changed from season to season. The intermediaries thus found buyers for the farmers’ 
harvest and tea supplies for the refineries.
second, tea intermediaries performed various sorting functions. Crude tea was highly het-
erogeneous; even the same species of tea tree, cultivated on different farms, exhibited wide 
quality variations. Furthermore, 28 different species of tea trees grew in the Taiwanese hills! 
The appraisal process, at both intermediary and refinery levels, therefore demanded con-
siderable skill. Refineries hired specialists to appraise the tea they received; intermediaries 
facilitated this process by accumulating the tea harvests of multiple farmers into homogeneous 
lots for sale.
Third, tea intermediaries minimized the number of contacts in the channel system. With 
20,000 tea farmers and 60 refineries, up to 1,200,000 contacts would be necessary for each 
farmer to market the product to get the best refinery price (even if each farmer cultivated 
only one variety of tea tree). Instead, each farmer tended to sell to just one intermediary, such 
that about 20,000 contacts existed at this first level of the channel. If the average intermediary 
collected n varieties of tea, and we assume that each of the 280 intermediaries negotiated, 
on behalf of the farmers, with all 60 refineries, we find [60 × 280 × n] negotiations between 
intermediaries and refineries. The total number of negotiations, throughout the channel, in 
the presence of intermediaries thus was [20,000 + 16,800 × n], a value that exceeds 1,200,000 
negotiations only if the number of tea varieties exceeded 70. But because there were only 
about 25 tea varieties in Taiwan at the time, intermediaries reduced the number of contacts 
from more than 1 million to about 440,000.
such value-added activities had been completely ignored in the attacks made on the tea inter-
mediaries as “exploiters.” The resulting failure of the government-sanctioned and -subsidized 
auction house suggests that, far from merely exploiting the market, tea intermediaries were 
efficiency-enhancing market-makers. In this situation, the intermediation of the channel added 
value and reduced costs at the same time.
In many cases, one channel member serves as the 

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