Channel Marketing and the Consumer:
Creating a Channel Ecosystem
Channel marketing is most commonly thought of in the high tech realm of selling through resellers and integrators or in the consumer marketplace as selling through retailers. But channel marketing in the wider economy is really any sales approach that is not directly from the manufacturer to the retailer or customer. If you stop to think about it, an amazing amount of the economy moves through distribution channels.
One area we never think of as channel marketing, however, is in the medical device and pharmaceutical space. Yet this area has one of the most sophisticated and deeply linked value-added channels; and it has an almost unique ability to create a “push” for product through the distribution channel manager, spawn incredibly profitable subsidiary markets, and create a “pull” for product from the consumer. It, in fact, creates a “channel ecosystem” (a phrase suggested to me by Liz Coker).
Let’s take one example:
Thirty years ago, almost no one had heard of osteoporosis, and there were certainly no “bone density” tests. Now, every woman of “a certain age” is urged to have that test. The vast majority, incidentally, are diagnosed as having osteoporosis or osteopenia (pre-osteoporosis). Medications are prescribed. Women are told to get more calcium. (Have you noticed how you can now get orange juice with added calcium?) And, further, they must supplement this with additional vitamin D (since, they tell us, the amount you get naturally from the sun is insufficient).
Billions are spent every year on the test, the medications, and the supplements.
How did this happen? And what does this have to do with channel marketing?
Think about it: Physicians are the distribution channel managers, from the manufacturer (for the test and the medications) to the consumer. (And physicians are not merely “referrers.” If they do not actively write the script, prescribe, there is no demand for the tests the radiologists perform or for the medications the pharmacies sell)
Leaving aside good intentions for the moment, the manufacturers convinced their distribution channel managers, the physicians, that there was an unexpressed need in the marketplace: A disease for which there was no test (and up til then, no particular perceived need). Prescribing the test was a win-win situation. The disease could be caught and ameliorated early. And the physicians had a new source of recurring or enhanced revenue: The test must be prescribed by a physician – so there was another reason for every woman to see him annually.
So why was this such a successful channel initiative?
The radiologists loved it. It created a new source of recurring revenue just when X-Rays were becoming passé.
The pharmaceutical companies loved it. It created a new need in the marketplace.
The marketing and advertising agencies loved it. They launched advertising campaigns, which continue to this day, warning the public of this disease for which their pharma clients have a solution. And, thus, they helped create a demand, a “pull,” so that women wanted this test, or at least didn’t question the need for it. Remember, too, that the vast majority of women who are tested have this disease or in danger of getting it. (The reason for this, that the test is flawed, is a discussion for another day.)
It created perceived customer value and real company value. The marketing brilliance of this was the way that the manufacturers convinced the distribution channel managers, the physicians, that increasing or enhancing their recurring revenue was to the benefit of the consumer, the patient. A “doing well by doing good” sales approach.
It delivered long-term and recurring value to the entire channel. The marketing brilliance of this is that once the test was established in the marketplace, the channel distribution manager – the physician – was at risk of a malpractice suit if he didn’t at least recommend it.
It delivered and distributed value through the entire channel. The marketing brilliance of this was that it created revenue opportunities for the drug companies – who immediately set about creating the demand, the “pull,” from the consumer.
The marketing lesson from this is that a solution for which there is no apparent problem is not necessarily an impediment to market success. And that in channel marketing, creating a “push” – and revenue opportunities and incentives for others to create the “pull” – offers a path to create a perpetual and perpetually profitable demand.