Research: Direct Sales Mean Lower Cost, Less Choice
Stan Gibson | Date: 11-05-09 | Comments: 0
- Lower prices equal less variety – that’s what happens in online sales when manufacturers sell directly to consumers, according to a University of Illinois business professor.
Lower prices equals less variety – that’s what happens in online
sales when manufacturers sell directly to consumers, according to a University
of Illinois business professor. Yunchuan
“Frank” Liu, assistant professor of
business administration, conducted research based on game theory to uncover his
findings, which run counter to earlier research.
Eliminating
the retailer’s price markup apparently curbs the manufacturer’s incentive to
provide an extensive product line, yielding fewer choices for consumers, Liu contends.
In using game theory, Liu pitted the competing interests of manufacturers and
retailers in achieving profit. The consumer, meanwhile, decides whether to buy
and which product to buy.
Liu pointed
to the limited cosmetic varieties provided by direct-seller Avon
in contrast to Estee Lauder, which markets a vast line of in-store products
that offer sometimes subtle differences to match buyers' individual tastes.
"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."
Liu cited apparently
contradictory 1998 University of California
at Berkeley research that showed
manufacturers providing longer product lines when selling directly over the
Internet. He said those results were valid under certain conditions such as in
a growing industry in which consumers have not yet bought products. A mature
industry, he contents, would produce different results.
Product
customization may tend to create more consumer choices in direct sales if the
customization technology is available, he said. However, customization of a
single product is not the same as a long product line, he said.
