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The market structure is changing as shares shift in the channels of distribution

Symptom: The market structure is changing as shares shift in the channels of distribution.

Implications for the market:

  • Distribution channels will continue to consolidate, perhaps at an increasing rate. Large channel customers will grow even larger, while small and medium channel customers will shrink.

  • This consolidation will change the relative profitability of the distribution channels, making large channel customers ever more important. When looked at by traditional methods, large customers tend to be unprofitable in hostile environments because they can demand very low prices. On the other hand, they provide growth as well as the base load of volume that supports the supplier's business and market infrastructure.

  • Successful suppliers will need to carry out a delicate balancing act. In hostile times, the key to good returns is the ability to become a strong supplier to fast-growing large channel customers, and then also to serve selected medium and smaller customers, balancing the better prices that they offer against the higher costs to serve them.

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

Analyses:

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

  • "Hostility in a Differentiated Market"
    A bottle of wine is surely a differentiated product. Nevertheless, the table wine industry underwent the same economic traumas faced by more traditional industries.

  • "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.

  • "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.