Implications of Broad-Based Distribution for Your brand on Amazon

Brands put significant effort into establishing diverse points of distribution such as large-scale retail, wholesale, niche, chic, and unauthorized sellers, motivated by the prospects of maximizing earnings. However, this broad-based offline distribution model presents unique challenges on Amazon, potentially leading to price depreciation and unfavorable competition within the marketplace.

Pathway Products is a seasoned ecommerce seller and brand manager with proficiency in curtailing this Profitability Pitfall. Our collaboration with brands involves pinpointing, cultivating, and steering their distribution tactics to generate success in marketplaces like Amazon and more.

Let’s delve into how you can enhance your retail distribution to gain control on Amazon.

Understanding Selective Distribution

Often, the objective in retail is to have your items featured in as many stores as possible - a broad-based distribution. Selective distribution, on the other hand, involves fewer sellers who adhere to specific pricing strategies and promotional activities. With this strategy, a brand partitions all sellers based on their geographical location, facilitating control and profitability enhancement.

Broad vs Selective Distribution: An Illustration

So why would selective distribution be superior to the generally adopted broad distribution strategy for physical stores, where more visibility should theoretically translate to increased sales? Surprisingly, the reality may be different due to intensified price competition.

Consider this example: suppose Toyota decides to place all its dealers in a single town on a single block. A potential buyer starts at Dealer A to get a quote and then proceeds to Dealer B, C, and so forth, simply inquiring, “What’s the cost?” Dealers are compelled to outbid each other to secure the sale, consequently diminishing profitability. Sold.

In the case of broad distribution, where everyone competes based on price, the buyer emerges victorious.

Online Pitfalls of Broad Distribution

The broad distribution approach is equally problematic online, where consumers have complete access to price comparisons across marketplaces. How often have you compared prices online before finally making a purchase?

In a scenario reminiscent of our Toyota example, the only competitive factor available to marketplace sellers is price. This creates a natural incentive to slightly undercut prices to boost sales, inadvertently triggering a cascade of price reductions. In this digital environment, if one seller reduces their price online, it invariably triggers a matching reduction from another seller. Hence, brands must opt for a selective distribution strategy to prevent sales loss and overall price depreciation across marketplaces, including Amazon.

Securing the Amazon Buy Box with Selective Distribution

In traditional retail, the trend is to go broad, but on Amazon, the optimal strategy is to focus on a single or limited amount of seller(s). Amazon encourages a single seller strategy by granting them control of the Buy Box and product listings. The victorious seller of the Buy Box is determined by the Amazon algorithm, which factors in price, consumer reviews, and customer service.

Pathway Products collaborates with brands to craft and implement a selective retail strategy on Amazon and other marketplaces, enabling brands to identify the primary seller of their products and who should dictate their product listings and brand image on Amazon.

Get in touch with us today to explore more about selective distribution with a 3P seller on Amazon.