Big Money. Nasty Intrigue. Titillating twists. Questionable backroom deals. Sounds like a blockbuster movie trailer doesn’t it? While movie studios and theatres are indeed involved, what’s at stake is not a plot line, but real world control over where billions in moviegoer revenue is earned.
And it’s a David vs
Goliath battle pitting a small number of large, mass market theatre chains against
new independent theatre entrants targeting Hispanic and other growth segments. While
the movie studios are desperate to reach these new growth markets, they’ve yet
to stand up against their dominant channel partners who insist on exclusive
movie rights.
As it turns out,
we’re seeing new distribution battles in more and more of today’s markets. Some
of these battles are vertical in nature, such as upstream product maker Apple
vs. the downstream retail networks of the four largest cellphone carriers. Other
battles are horizontal, such as Best Buy stores struggling against showrooming
by shoppers from online retailers such as Amazon.com.
Back when Apple
introduced the iconic iPhone, the company was forced to sign an exclusive
distribution arrangement with AT&T to get the support and service levels required
by consumers. That move was a smart one for AT&T, who now gets over half
their subscribers from Apple products. But as the iPhone 6 is launched this
year, the tables have turned and Apple has diversified its distribution
channels to include all major carriers and retailers; AT&T’s protests
aside.
Today we’re seeing
an explosion of new distribution disruptions the scale of which we’ve not seen before.
Take the entertainment industry. Powerful content providers (TV studios and
sports franchises) are introducing radically new routes-to-market options. Even
as long-time distributor DirectTV renews it’s NFL broadcast license for $1.5
billion per year, the football league is introducing a new direct-to-consumer
online channel NFLnow. HBO and CBS are introducing new direct-to-consumer
distribution options that compete directly with Comcast and other dominant legacy
channel partners. Why the explosion in
new distribution channels, and why now?
As ever, it’s all
about Power. And, of course, Money.
For any successful 21st
century company, whether branded consumer product maker, software and service
provider, or industrial product manufacturer, focusing solely on what you make
or sell is no longer adequate to secure long-term advantage. In the omnichannel
age, those that rely on commoditized customer experiences from old-school
channel partners are seeing profitability sink to marginality over night.
Forward-looking
growth companies are working to influence and shape – indeed to steward - their distribution systems towards greater and
greater satisfaction of end-customers. Said another way, standing still and viewing
customer buying channels as simply “distribution pipelines” leads companies to
over-focus on serving their distributors’ needs, at the expense of end-customer
satisfaction. That’s why Steve Jobs chose instead to abandon Circuit City’s and
CompUSA’s commodity shopper experiences in favor of a new Apple retail model.
But disrupting
distribution channels on behalf of end-customers takes more than splashy
announcements and big investments. It takes real senior leadership courage and
conviction. As the saying goes, it’s easier said than done.
Here’s what the industry
experts had to say in a 2001 Businessweek article about Steve Job’s decision: “rather than unveil a Velveeta Mac, Jobs
thinks he can do a better job than experienced retailers at moving the beluga…
I give them two years before they're turning out the lights on a very painful
and expensive mistake”.
Rick
Wilson is Managing Director of Chicago Strategy Associates, a boutique marketing
advisory firm focused on distribution channel strategy. He is also Adjunct
Professor of Marketing at the Kellogg School of Management.
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