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The Distribution Trap

The Distribution Trap

Andrew R. Thomas, Timothy J. Wilkinson
2010
T4 174 pages · about 2h 54m to read Open Librarygoodreads

The case against surrendering the channel to big retail.

Summary

The reference has not verified this book in detail; the summary states only what the title, author and subject establish.

Thomas and Wilkinson argue that pursuing the widest possible distribution damages innovative products, and that companies should be selective about where their products are sold.

The reference has not verified the book's detailed contents. The argument as stated in the title and as the authors have presented it elsewhere runs as follows. Manufacturers treat access to large retailers as an unambiguous good, since it delivers volume. But large retailers demand price concessions, slotting fees, promotional support and packaging changes; they position products against private label alternatives; they use the manufacturer's sales data to develop competing products; and they set the terms on which the product is presented to the customer. A manufacturer that becomes dependent on a small number of large accounts loses pricing power, loses the customer relationship and loses the ability to sustain the margin that funds product development.

The authors argue that innovative products in particular suffer, because innovation requires margin and because mass retailers optimise for volume in established categories rather than for building new ones.

The prescription is to select distribution channels deliberately, to preserve direct channels, and to accept lower volume in exchange for control of price, presentation and customer data.

The argument has been substantially borne out by the subsequent decade of direct-to-consumer brand building and by the experience of brands dependent on platform marketplaces, though the book predates most of it. Readers should verify the specific cases and evidence the authors present.

Key takeaways 7

  1. Large retailers extract concessions on price, fees and promotional support that erode the margin funding product development.
  2. A manufacturer dependent on a few large accounts loses pricing power and the ability to set its own terms.
  3. Retailers use manufacturers' sales data to develop competing private label products in the same categories.
  4. Mass retailers optimise for volume in established categories rather than for building new ones, which disadvantages innovative products.
  5. Distribution reach and profitability are separate objectives, and pursuing the first can eliminate the second.
  6. Preserving a direct channel maintains the customer relationship and the data that come with it.
  7. Selecting channels deliberately, and accepting lower volume, is a strategic choice rather than a failure to scale.

Who should read it

Founders of consumer product companies deciding whether to pursue mass retail or platform distribution, who should verify the book's specific evidence.

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Where it sits in the reference 4

Business models
Business models
Business themes
Business themes

Topics

Sales and MarketingBusiness and ManagementGrowth, pricing and channels