The
OmnI-ChAnnel eCOsysTem
8
Manufacturers: Upstream Channel Members
When we refer to
manufacturers
, we mean the producer or originator of the prod-
uct or service being sold. In the modern retail marketplace, ownership of a brand
can belong to the manufacturer (Mercedes-Benz) or a retailer (e.g., Arizona cloth-
ing at JCPenney), or the retailer may be the brand (e.g., The Gap). Manufacturers
can
produce brands, or they can sell private labels, and these two broad categories
feature some key distinctions. First, manufacturers that brand their products are
known by those names to end-users, even if intermediaries distribute their offerings.
Famous examples include Coca-Cola, Budweiser beer (owned by Anheuser-Busch
InBev), Mercedes-Benz, and Sony. Second, manufacturers that make products but
do not invest in a branded name for them produce
private-label products
,
and the downstream buyer (manufacturer or retailer) puts its own name on them.
For example, Multibar Foods Inc. makes private-label products for the neutra-
ceutical marketplace (health, diet, and snack bars); its branded clients include
Dr. Atkins’ Nutritionals and Quaker Oats Co. The company takes care of research
and development, so the expertise and knowledge it can provide make it valuable
to brand companies that hire it to produce their products.
20
Branded manufactur-
ers sometimes choose to allocate some part of their available production capacity
to make private-label goods, though at the risk of helping a future competitor.
In the U.K. market, private labels account for more
than half the goods sold in
leading supermarkets.
21
A manufacturer can produce a service too, such as the tax preparation services
offered by H&R Block (franchisor) or insurance policies provided by State Farm
or Allstate. These brands sell no physical products; rather, the companies create
families of services to sell, which constitutes their “manufacturing” function. In
turn, marketing channel functions typically focus on promotional or risk-oriented
activities, such as when H&R Block promotes its services on behalf of both itself
and its franchisees with a guarantee to find the maximum
tax refund allowed by
law. Insurance companies similarly tend to ignore physical products and focus on
promotions (on behalf of independent agents in the marketplace) and risk (here,
risk management is the very heart of the industry). Therefore, the lack of a physi-
cal product that needs to move through the channel does not mean that channel
design or management issues disappear.
As these examples also suggest, the manufacturer is not always the channel
captain. For branded,
produced goods, such as Mercedes-Benz automobiles, the
manufacturer clearly serves this role; its ability and desire to manage channel efforts
proactively relates intimately to its investment in the brand equity of its offerings.
But a private-label apparel or neutraceutical manufacturer is not evidently the
owner of the brand name, at least from end-users’ perspectives, who instead see
another channel member (e.g., the retailer) as the apparent owner.
Nor does a manufacturer’s ability to manage production mean that it excels in
other marketing channel activities. An apparel manufacturer is not necessarily a
The OmnI-ChAnnel eCOsysTem
9
retailing or logistics expert. But there are some activities that nearly every manufac-
turer must undertake. Physical product manufacturers
must hold on to the product
and maintain ownership of it, until the product leaves their manufacturing sites
and travels to the next channel member. Manufacturers must engage in negotia-
tions with buyers, to set the terms for selling and merchandising their products.
The manufacturer of a branded good also participates significantly in promoting
its products. Yet various intermediaries in the channel still add value through their
superior performance of functions that manufacturers cannot, so manufacturers
voluntarily seek them out to increase their reach and appeal.
Intermediaries: Middle-Channel Members
The term
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