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PART 1: Defining Marketing and the Marketing Process (Chapters 1–2)
PART 2: Understanding the Marketplace and Customer Value (Chapters 3–6)
PART 3: Designing a Customer Value-Driven Strategy and Mix (Chapters 7–17)
PART 4: Extending Marketing (Chapters 18–20)

12 Marketing Channels
Delivering Customer Value

Chapter Preview We now look at the third mar- logistics—an area that has grown dramatically in importance and
keting mix tool—distribution. sophistication. In the next chapter, we’ll look more closely at two
Companies rarely work alone in creating value for customers and major channel intermediaries: retailers and wholesalers.
building profitable customer relationships. Instead, most are only a
single link in a larger supply chain and marketing channel. As such, We start by looking at Netflix. Through innovative distri-
a firm’s success depends not only on how well it performs but also bution, Netflix has become the world’s largest video subscrip-
on how well its entire marketing channel competes with competi- tion service. But as baseball great Yogi Berra, known more for
tors’ channels. The first part of this chapter explores the nature of his mangled phrasing than for his baseball prowess, once said,
marketing channels and the marketer’s channel design and man- “The future ain’t what it used to be.” To stay atop the churning
agement decisions. We then examine physical distribution—or video distribution industry, Netflix must continue to innovate at
a break-neck pace or risk being pushed aside.

NETFLIX’S CHANNEL INNOVATION: Finding the Future by Abandoning the Past
T ime and again, Netflix has innovated its way to the top
in the distribution of video entertainment. In the early Blockbuster plunged, Coinstar’s Redbox came out of nowhere to
2000s, Netflix’s revolutionary DVD-by-mail service put build a novel national network of $1-a-day DVD-rental kiosks.
all but the most powerful movie-rental stores out of busi- Then high-tech start-ups such as Hulu—with its high-quality, ad-
supported free access to movies and current TV shows—began

ness. In 2007, Netflix’s then groundbreaking move into digital pushing digital streaming via the Internet.

streaming once again revolutionized how people accessed mov- All along the way, Netflix has acted boldly to stay ahead

ies and other video content. Now, with Netflix leading the pack, of the competition. For example, in 2007, rather than sitting on

video distribution has become a boiling, roiling pot of emerg- the success of its still-hot DVD-by-mail business, Netflix and its

ing technologies and high-tech competitors, one that offers both CEO, Reed Hastings, set their sights on a then-revolutionary

stomach-churning risks and mind-bending opportunities. new video distribution model: Deliver the Netflix service to

Just ask Blockbuster. Only a few years ago, the giant brick- every Internet-connected screen, from laptops to Internet-ready

and-mortar movie-rental chain flat-out owned the industry. TVs to mobile phones and other Wi-Fi-enabled devices. Netflix

Then along came Netflix, the fledgling DVD-by-mail service. began by launching its Watch Instantly service, which let Netflix

First thousands, then millions, of subscribers were drawn to Net- members stream movies instantly to their computers as part of

flix’s innovative distribution model—no more trips to the video their monthly membership fee, even if it came at the expense of

store, no more late fees, and a selection of more than 100,000 Netflix’s still-booming DVD business.

titles that dwarfed anything Blockbuster could offer. Even better, Although Netflix didn’t pioneer digital streaming, it poured

Netflix’s $5-a-month subscription rate cost little more than rent- resources into improving the technology and building the larg-

ing a single video from Blockbuster. In 2010, as Netflix surged, est streaming library. It built a huge subscriber base and sales

once-mighty Blockbuster fell into bankruptcy.

The Blockbuster riches-to-rags story un-

derscores the turmoil that typifies today’s video Time and again, Netflix has innovated its way to the top in the distribution

distribution business. In only the past few years, of video entertainment. But to stay atop its boiling, roiling industry, Netflix

a glut of video access options has materialized. must keep the distribution innovation pedal to the metal.
At the same time that Netflix ascended and