Sonite 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.
Mass Merchandisers – These stores operate on a low-price, high-volume basis and try to minimize overhead. Consequently, 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.
Pure Online Players – This category of stores includes the web-only merchants (such as amazon.com and newegg.com) as well as the websites of traditional retailers (BestBuy.com, Walmart.com, etc.). An important proportion of Sonite sales are done through pure online players, especially for highly connected consumers such as Millennials. Convenience is their key advantage as consumers may shop from their home at the time of their choice. In addition, consumers have access to an almost unlimited choice and can compare features and prices very easily. Pure online players are likely to become more important in the next 5 to 10 years.
eStore – Each firm has already developed their own eStore to sell directly to the customer. eStores can generate more profits to companies than external distribution as the unit margin is more interesting. However, customers may find that prices are higher than in channels operating discounts.
Within the Sonite market, market research studies show that all four distribution channels are important. There are approximately 10,000 specialty stores, 6,000 mass merchandisers belonging to 6 different chains, 1,000 pure online players and your company eStore.
Differences between margins obtained by the stores in each of the 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 Circular Markstrat, the distributor margins are 40% for Specialty Stores and 30% for Mass Merchandisers and Pure Online Players. There are no distributor margins for eStores (as they are the company’s own eStore), but 20% of the actual customer’s retail price are used for the eStore server management and costs.