eCommerce and eDistribution: Understanding The Role of Power When Selecting Alternatives Channel Strategies1

In a wide range of industries alternative electronic distribution channels may permit customers to deal directly with manufacturers and primary service providers, effectively disintermediating wholesalers, retailers, and agencies. In some cases manufacturers or primary service deliverers will be able to implement strategies to interact with and sell directly to their customers, while in other industries existing intermediaries will be able to withstand attempts to bypass them. Two illustrative industries — consumer packaged goods and air travel — are compared. Simulation models are used to examine alternative strategies for channel participants in both industries. Simulation, particularly the philosophy of Industrial Dynamics, is employed in order to observe the dynamic behavior of complex systems, where the strategies of consumers, producers, and intermediaries interact in complex and non-linear ways. The critical aspects of the system, including consumer preferences and brand strength, channel power and channel conflict, and the role of customers’ speed of adoption, are borrowed from the marketing literature. We conclude that consumer packaged goods manufacturers will for a variety of reasons continue to find it difficult to disintermediate major retailers; in contrast, airlines have found that the power structure of their industry supports either disintermediation of agencies or dramatic reduction in commissions paid to them. Strategic responses for the weaker channel participants in both industries are explored. While we focus here on exemplars where the endconsumer of the good or service is an individual, this does not mean that the analysis applies solely to business-to-consumer channels. Indeed, the most attractive customers sought by airlines were corporate travelers, and the attempted disintermediation of retailers and of wholesalers of industrial components can be addressed with the same simulation models.