Consumers as Channel Participants

A final point concerning channel participants is the role that consumers may or may not play. A debate of long standing is the relative merit of including consumers as channel members, basing inclusion upon their participation in selected risk taking and performance of the final product delivery from point of sale to point of consumption.

Since channel functions and activities can be shifted among organizations, it is logical that some primary participants will seek to enlist or encourage consumers to perform selected duties. For example, AMOCO (Standard Oil Company of America) and ARCO (Atlantic Richfield Oil Company) both revised long-standing practices of providing free consumer credit financing. Under revised programs, consumers were offered their choice of either paying higher prices per gallon and retaining the convenience of free credit or purchasing gasoline at lower prices.

It would appear that the logical criteria to judge if consumers should or should not be treated as channel participants are the functions they perform and the degrees of risk they assume. In selected situations, where major commitments are made in advance and consumers assume considerable risk, consumers should be treated as active channel participants. Being active participant means that consumers or their representatives acknowledge channel dependency and engage in the performance of specific roles.

Consumers’ engagement solely in purchase behavior is not viewed as risk absorption sufficient to qualify them as channel participants. Thus, choosing to pay higher prices to receive the convenience of limited free credit for gasoline purchase is no more risk absorbing than a decision to shop at a full-service department store rather than a cash-and-carry discounter. Each purchase decision involves choosing between different price and service combinations. When involvement is limited to low-risk shopping, no justification exists to include consumers as channel members.

An illustration of a shopping situation in which consumers assume greater risk is when they join discount groups or clubs. When consumers shop at club stores such as Sam’s Club or Price Club, they clearly agree to buy greater-than-normal quantities of product which they plan to keep as inventory until needed for consumption to take advantage of lower prices. Club members typically agree to restrict choices to narrow product-line assortments to facilitate efficiency in the retailer’s operation. As a result of consumers’ commitment to perform selected functions, assume risk, and hold inventory, they are participating as channel members. Many wholesale clubs seek feedback from members on advisory committees concerning such items as stock assortment, hours of operation, and supplemental services. Participation by way of membership may also have supplemental benefits such as purchase discounts at associated non-competitive retailers, travel agencies, and even restaurants.

At the extreme of a dependence-risk relationship is the consumer cooperative. This special type of cooperative is owned by its participating members. The cooperative serves as a buying organization for its members who seek out selected types of merchandise at the lowest available purchase prices. However, even consumer cooperative fall short of locking their members into the full responsibility associated with active channel participation. Unless a member assumes specific risk such as future purchasing guarantees, the actual day-to-day involvement as a cooperative member may not be much different than purchasing from any other retailers. Once again, risk absorption is the key determinant for channel membership.

In summary, the idea that consumers should be treated as channel members is loaded with intrinsic appeal. Indeed, consumers do take limited risks associated with shopping and traditionally perform final product transportation and limited storage. Several difficult dependence risk relationships exist between primary channel participants and consumers. While some channel consumer arrangements are more formalized than others, most fall short of committing the consumer to the same degree of risk as a typical firm engaged as a primary or service support member. Most consumers maintain their freedom of choice to shop at competitive retail locations when they can improve their overall purchase performance. Little evidence exists to equate shopping loyalty to channel membership. In most situations, consumers, rather than being treated as channel members, are more appropriately viewed as the prime customers of the overall distribution process.