Distribution Channel Conflicts Can Substantially Diminish the Effectiveness of Product Marketing Strategies
Businesses with more than one product distribution channel need controls to insulate revenue plans from the negative impact of conflicts between distribution channels. Barnes & Noble is an example of a business in need of these controls. The company sells products through its website, and through an extensive network of retail locations. We found pricing on books through Barnes & Noble’s website to be a couple of dollars higher than the same item as priced on Amazon. The retail price for the same book, but purchased at one the company’s retail locations was substantially higher.
We think Barnes & Noble is missing a significant opportunity to take market share from Amazon as the result of the pricing difference between its online store and brick and mortar equivalents. If, for example, the couple of dollar difference between the cost of the same book on either Amazon or Barnes & Noble’s website is put together with a zero cost shipping option, then Barnes & Noble wins. The zero cost shipping option can be achieved by permitting the online purchaser to pick up her item at a Barnes & Noble retail location. But this option isn’t available.
The option may not be available as a method of protecting profitability, which is essential for retail booksellers who otherwise have to operate under substantial pricing pressure on popular titles. The cost of operating retail locations is certainly much higher than the cost of operating the online store. But when protecting profits requires a 75% uplift against the online store price for the same item, then some sort of control is required, or else plan on losing market share.
We have a call into Barnes & Noble requesting a conversation with someone in their marketing team to learn more about the rationale for the pricing differences. Macy’s, BestBuy and others are all trying to match Amazon’s prices from the retail location. We think this is a much better approach.