Sonite and Vodite consumers tend to shop in the following three distribution channels:
•Specialty Stores – These stores are usually small and may not necessarily belong to organized chains. They are geographically close to their customers and can provide a high level of service and technical support. As they do not distribute many different product categories, Sonite products account for a large proportion of their sales. These stores usually carry a broad product line for each category, including the most expensive and/or high-performance products. Because of their high level of technological expertise, specialty stores are likely to be the preferred distribution channel for Vodite products.
•Mass Merchandisers – These stores operate on a low-price, high-volume basis and try to minimize overhead. As a consequence, the level of service they offer is lower than that of the two other channels. While mass merchandisers carry many different product categories, the depth of each product line they carry is usually restricted to a few units. They often distribute the cheaper, low-performance products. Their lack of technical expertise and the low level of service may well prevent them from distributing Vodites in the early years.
•Online stores – This category of stores includes the web-only merchants (such as amazon.com and newegg.com) as well as the e-commerce websites of traditional retailers (BestBuy.com, Walmart.com, etc.). Although only a small percentage of consumer electronic sales are done on the web, this percentage is much higher for Sonites products, especially for highly connected consumers such as Shoppers. Convenience is the key advantage of online stores as consumers may shop from their home at the time of their choice. In addition, they have access to an almost unlimited choice and can compare features and prices very easily. Privacy and security are the primary concerns of online shoppers but new mechanisms are put in place by banks and e-commerce sites so as to reduce fraud. Online stores are likely to become more important in the next 5 to 10 years.
Within the Sonite market, market research studies show that all three distribution channels are important; therefore each of them should be visited by the companies’ commercial team. There are approximately 10,000 specialty stores, 6,000 mass merchandisers belonging to 6 different chains, and 1,000 online stores.
Differences between margins obtained by the stores in each of the three channels are mainly due to differences in the level of service and volume sold. These margins are applied to retail prices and are approximately constant across brands for a given channel. In Markstrat, the distributor margins are 40% for specialty stores and 30% for the other ones.