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The larger companies are squeezing out the smaller

Symptom: The larger, established competitors are squeezing the smaller competitors.

Implications for the market:

  • Distributors always make room on their shelves for products that customers demand, and they will bring on new suppliers in order to meet that demand. If a new supplier has a product that is unique in the eyes of the end user, the channel must carry it.
  • Yet, because of the costs of managing multiple suppliers, channels always prefer to keep the number of suppliers they use to a minimum. New suppliers usually cannot overcome a distributor's reluctance to increase its costs unless they are supplying a product that the distributor cannot get elsewhere or cannot get at the same level of quality or for the same price.
  • Once established companies have duplicated the product characteristics that the new supplier used to appeal to the end user, those companies are positioned to take back shelf space lost to innovative new entrants.
  • Then, both the smaller and the larger, more established companies must decide whether to pursue share gain with new products--a winning approach in the past--or with new services where wins are less dramatic but, arguably, longer lasting.

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Analyses:

Perspectives: Conclusions we have reached as a result of our long-term study and observations.