Think of the last time you walked into a bicycle shop. Rows of shiny new bikes sporting the best combination of components available. Did you notice how few were outfitted with parts from just one manufacturer? We’re used to thinking about bikes in terms of manufacturers’ brands. However, there’s a player that often sits between manufacturers and consumers who have a significant—and relatively unstudied—impact on the marketplace: resellers.
Bikes are just one example. This is happening everywhere end products use components from multiple sources. From consumer electronics to medical devices, from cell phones to industrial paints, more and more of the offerings you see are created by resellers using components from multiple manufacturers.
“These industries are all populated with resellers who add value to end consumers,” says Professor Mark Bergen. “And that makes them a major force.”
Bergen, his Marketing Department colleague Professor George John, and their former PhD student Sourav Ray studied how resellers shape these markets in a massive field study of the industrial paints industry. They found that while manufacturers still might be the heavyweights, they can’t afford to be heavy-handed in their dealings with resellers because those resellers control the means of access to consumers.
“If the manufacturer had its way, the combinations available to consumers would likely be limited to only its offerings, but reality turns out to be a little different because of the business practices and incentives of this guy sitting in the middle,” says John.
Bergen says manufacturers need to ask themselves how to play together in a way that makes sense for the reseller and also makes sense for them and the marketplace.
“If you’re a manufacturer, resellers are your friends,” he adds. “You shouldn’t try to jam all your components down their throats and say, ‘Sell all of my stuff or I’m not playing ball with you.’”
"Manufacturers should give up the notion that somebody is going to buy every single one of their components to create an all-Sony or HP system. Most people want some degree of mixing and matching. Manufacturers should be able to appreciate that and not use these coercive tactics.”
- George John, Professor, General Mills/Paul S. Gerot Chair in Marketing
Instead, the researchers suggest manufacturers ally with resellers by encouraging them and subsidizing them to meet consumer needs—not their own.
“If you’re a big company that’s producing innovative new technologies and solutions, you can’t only think of how they will add to possibilities for your end customers,” says John. “You also need to think very carefully about how those solutions will actually get to those customers.”
“Understanding Value-Added Resellers’ Assortments of Multicomponent Systems” Ray, S., Bergen, M., John, G., Journal of Marketing, (2016)