Multi-Channel Distribution Channel Strategies: Exploiting Direct and Indirect Sales without Channel Friction
More than 25% of Middle Market companies identify customer
acquisition through new channels and markets as their number one source
of growth, according to research by the National Center for the Middle
Market. With 31% of these businesses involved in manufacturing or
wholesale, there exist excellent opportunities to reach new customers
through direct sales over the Internet. For consumer-products companies,
however, this creates channel friction, as suppliers increasingly
compete with their wholesale customers to get everything from ice cream
to televisions into the hands of consumers. As boundaries blur between
vertical suppliers and horizontal competitors, companies are forced to
reevaluate their channel strategies.
Anil Arya and Brian
Mittendorf, fellows of The National Center for the Middle Market
conducted extensive mathematical modeling to determine the optimal
approach for suppliers trying to leverage new distribution channels.
Their research demonstrates that by making strategic accommodations for
wholesale customers while promoting their own direct-sales channels and
the overall brand, suppliers can boost sales for all parties. Here are
their recommendations on how to best leverage a multi-distribution
1. Do not respond to negative advertising.
a supplier starts selling direct, its wholesale customers naturally
want to fight back. They won’t demonize the brand, which they still
represent. Instead they go after the channel, typically denigrating
things like service—an obvious target in online environments. The
supplier will want to counter that negative marketing. But wholesale
profits derived from retail partners’ increased demand will tend to
balance the hit taken by direct-sales profits. Rather than
counter-attacking wholesale customers, it is in the supplier’s best
interest to allow negative marketing to take place. This also holds true
for suppliers with their own catalogs and brick-and-mortar stores.
2. Invest in brand promotion.
wholesale customers defensively engage in negative channel marketing,
the supplier should continue to promote its own channel. More
importantly, it should invest in positive brand marketing, which
encourages wholesale customers to stock its products. Provided enough
consumers prefer a traditional shopping experience, all channels will
benefit from the brand’s increased exposure.
3. Lower wholesale prices.
competitors delight in driving up one another's operating costs.
Supplier-competitors are in a perfect position to do so by raising
wholesale prices. But suppliers also want to raise retail partners’
demand for their goods. And they are aware that, as a result of the new
competition, those retail partners may be overly sensitive to price
increases. Consequently, suppliers may choose to lower wholesale prices
4. Create unique channel strategies.
exclusivity Suppliers can adjust the products and prices offered online
both to soften the blow to retail partners’ demand and to reduce direct
competition with retailer partners. For example, they can create
different products for the direct sales channel, set higher prices on
some products sold online, and keep some products off the website
altogether. Being the single source for a hot new product can produce
significant profits. Suppliers should consider granting retail partners
windows of exclusivity in which they alone distribute some new
offerings. This strategy takes the traditional first-to-market advantage
and turns it on its head.
To learn more download the white paper.