The Impact of a New Sales Channel

Imagine you're a manufacturer with two sales channels: a platform reselling channel and a retailer channel on an online platform. Things get interesting when you decide to introduce a third channel, known as the agency channel. This move, called channel encroachment, shakes things up in the supply chain. When this new channel appears, it sets off a competitive wave. Suddenly, both your platform and retailer channels see a dip in demand. People are flocking to the new agency channel instead. To make up for the sales loss, you drop the wholesale price. But guess who wins here? You, the manufacturer. This new channel boosts your profits, and unexpectedly, everyone in the supply chain can come out ahead.

But let's say you decide to act sequentially, meaning you make decisions one step at a time. In this case, you might focus more on the competitive side of things. This leads to less sales overall for your channels. However, your agency channel still benefits, especially when the retailer is strong in replacing your offerings. Things get trickier when substitution isn't equal. If the retailer can replace your products more effectively than you can theirs, you'll feel more competitive pressure. You'll need to raise your wholesale price and adjust your sales accordingly. Even so, your profits won't reach the levels when substitution is balanced. In the end, this new channel strategy shows that everyone can still benefit from this change, even if the road gets bumpy.

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