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Channel Matters Blog > November 2012 > Consumers gravitate to the most effective channel

Consumers gravitate to the most effective channel

by Geoff Wright
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Have you purchased a product or service online recently? In the past would you have purchased this from your local retailer? Buyer behavior is shifting as business becomes more global and new routes to market more accessible.

One of the axioms of indirect channels is that consumers will always gravitate to the most effective channel-to-market over time. The most effective channel will be the one that delivers the most complete solution to their need at the lowest possible cost.

The pace of this change puts pressure on traditional go-to-market models and pricing practices. The current shift to online sales in Australia is a great example of this. An almost 'perfect storm' has developed as several factors come together at the same point in time
  1. Australia has a value added tax of 10% (GST) which does not apply to products less than $1000 ordered from overseas
  2. Most major vendors are placing an uplift of up to 20% on product prices in Australia compared to the US
  3. The average person is now comfortable buying online
  4. International freight is as quicker and less expensive than ever before
Unsurprisingly, local retailers complain they are at a competitive disadvantage at a time when on-line commerce is growing, and many blame this for a sharp reduction in sales revenue.
Such dramatic shifts in consumer behaviour can have far reaching and enormous effect, even on an economy as a whole. The Australian Financial Review newspaper reported this month that "Companies like Apple, Microsoft and software vendor Adobe are the targets of a parliamentary inquiry investigating IT pricing discrepancies. The committee is looking into whether to introduce regulation or change legislation to force down local pricing for technology products, which consumer group Choice says can exceed equivalent US pricing by as much as 50 per cent."

Why is this? Taking a longer term view, we have seen channel changes like this before. When routes to market that have different cost structures begin to compete head-on, channel conflict is inevitable. Many of the products and services sold by the high-tech industry are now perceived as commodities by tech-savvy consumers who value low-price over high-touch local support and presence. The 'whole product solution' has changed, and channels must change and adapt to stay relevant to what the end-user customer wants to buy.

Many of the current news stories are about the impact on business-to-consumer channels, but we can anticipate that these changes will spread to business-to-business channels too. Many vendors have created artificial partner-program rules to prevent products from moving across borders, or indirect channel partners from selling to other geographies. With increasing globalisation and the move to the cloud these structures will come under pressure, business customers will choose the best location to license products, and in the cloud no one cares where you are.

Last modified on 6/30/2013 10:11:17 PM
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