Retailer marketing mix response when launching a direct channel: Not all retailers are alike

Abstract

Many manufacturers introduce an online direct channel to create brand value that could benefit both manufacturer and retailers. However, retailers often view direct channel entry as a threat. Research on horizontal entry suggests retailers protect their sales by adjusting their marketing mix, particularly assortment and price. However, the direct channel is a vertical entry by a partner that is now also a competitor. The challenge for retailers is how to adjust their marketing mix. We employ a value creation/value capture framework to hypothesize and test how retailers contend for their “piece of the pie.” We analyze a consumer electronics manufacturer’s direct channel entry. The average retailer decreases assortment and increases price but there is ample heterogeneity depending on retailer characteristics. For example, small “mom-and-pop” stores follow the average, while large multichannel specialists increase assortment and increase price less. Manufacturers must develop segmentation strategies to market new direct channels to retailers.