A new study, published in Marketing Science, found that the traditional system of selling through retailers encourages longer – rather than shorter – product lines, which could dry up as manufacturers turn to direct sales online.
The reason is pretty simple. As more manufacturers go online and cut out the middle men and accompanying price increases, they tend to lose their incentive to diversify their products.
In stores, longer product lines help manufacturers overcome inefficiencies of selling through middlemen that have profit motives of their on, according to the study. More products equal more chances to lure buyers and thereby increase sales.
But developing and producing longer product lines is costly and the incentive wanes when manufacturers sell directly, which could ultimately leave consumers with fewer styles, colors and other options to choose from, said University of Illinois business professor Yunchuan "Frank" Liu.
"Over the next few decades, we could see a revolutionary change in the retail marketplace, with less variety in certain product areas, from cosmetics to computer equipment to cars," Liu said. "So consumers may be less likely to find products that most fit their needs."
The current economic climate is fueling a growing trend toward direct sales through the Internet. Selling online is less costly for manufacturers and also attractive to buyers because e-commerce generally charges no sales tax.
"The status quo is encouraging direct sales, largely because of the tax consequences," Liu said. "But that policy has shortcomings because it could lead to less variety, so policy makers should at least consider the potential negative effects."
Shopping could change radically over the next few decades if the trend continues, he said. Manufacturers could shift to almost exclusive online sales, with retailers turning to store brands to plug the holes in product offerings.
But Liu says a universal product migration from stores to the Internet is unlikely. Groceries may always be best marketed in stores, as well as products that people want to touch or test before buying, such as clothing.
Article: Liu, Y. , Cui, T. Forthcoming. The Length of Product Line in Distribution Channels. Marketing Science