Distribution channels are undergoing a shakeout

Symptom: Chronic low demand means that distributors are under increasing pressure as they compete for more demanding end users who offer less volume. Dealers are undergoing a severe shakeout.

Implications for the market:

  • Profit dynamics are changing as more channel conflicts occur and as larger dealers increasingly encroach on other dealers.

    • Average unit prices are falling for all competitors as the smaller dealers, who pay notably higher prices than the larger dealers, leave the market.

    • At the same time, costs are rising as all suppliers are under pressure to provide higher levels of service and as share movement becomes scarcer.

    • If a company stands to lose share, then it must evaluate its opportunities either to increase penetration with growing channels or gain more new customers in the shrinking channels.

    • As the volume in the market shifts among the channels, some competitors stand to lose and others to gain, depending on their mix of channel customers.

  • As a result, each company must reexamine its channel customer mix.

Recommended Reading
For a greater overall perspective on this subject, we recommend the following related items:


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

  • "Finding the Open Door"
    Volatility is the movement of volume from one supplier to another. A company can not gain volume unless customers are willing to make a change in suppliers. Volatility has special rules in hostile markets.

  • "The Big Slice of the Pie"
    The head of one industry leader explains his company's insistence on being a key supplier to each of his customers: "The guy with the big slice of the pie doesn't go hungry." The workings of the typical hostile market provide solid support for this philosophy.

  • "Use Subtle Strategy in Tough Markets"
    A hostile market operates differently than a market with "normal" competitive conditions. But as difficult as a tough market can be, it can also present an astute management team with an unusual opportunity.

  • "Which Customers Matter Most?"
    Average customer profitability differs dramatically in non-hostile and hostile markets. Does the relative importance of one customer versus another change as well? The answer is less evident than many business leaders believe.