Kathleen Cleeren

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.