Development of a New Direct Marketing Channel in the Chinese Rural Market

Abstract

Distribution channel decisions involve long-term commitments with other firms that are very difficult to change or replace. In particular, marketing channel decisions in emerging markets are much more complicated due to unfamiliar conditions and problems such as lack of market data and distribution systems. Therefore, when a company considers changing or introducing a marketing channel in an area, it is much more difficult to judge its effectiveness in an emerging market than in a developed market. In this study, we investigate the development process of a new direct marketing channel of Hongfu Fertilizer Company (hereafter Hongfu), a medium-sized Chinese fertilizer manufacturer, and propose an approach to test the feasibility of this new marketing channel in the Chinese rural market. We measure the effectiveness of Hongfu`s new marketing channel from two perspectives: i) from customers` perspective through direct responses of farmers, which showed that a new channel can increase the convenience and lower the purchasing costs for the farmers, and ii) from the company`s perspective, by calculating the incremental profit of the company using the expansion factor (T/Q) method, which suggested that the execution of Hongfu`s strategy to expand a new marketing channel will result in an increase in profits. The results of this study contribute to the development of a methodology to test the feasibility of a new direct marketing channel in the emerging markets such as the Chinese rural market. Traditional and indirect distribution channels in emerging markets are generally not very efficient and difficult to change. Especially, in emerging markets, like the Chinese rural market, the methods of testing channel feasibility must be different from that of developed markets. Considering market situations, market experiments can be more effective then systematic market surveys in testing channel feasibility in emerging markets. This study implies that managers must learn to cope with a transition from the traditional marketing channels in emerging markets. With the development in farmers` understanding of marketing concept, the transition from traditional marketing channel is unavoidable for all firms. Farmers in China are generally very conservative, however, their buying behaviors are changing. Therefore, fertilizer companies should try to adjust in accordance with farmers` demand characteristics that the efforts to meet the economic needs of farmers with new marketing channels as well as trust building are critical in the near future.