A potential win-win-win strategy when pruning the direct channel: Motivating retailers to migrate to a designated intermediary

Abstract

Many retailers prefer to directly purchase from manufacturers, yet cost concerns motivate manufacturers to periodically prune their channels by cutting off direct customers or nudging them towards intermediaries. One frequent divestment strategy is involuntary intermediation wherein the manufacturer eliminates a retailer's option to purchase directly, while steering it toward a designated intermediary. Using enactment theory from supply chain disruption literature, this research examines this strategy and customers’ subsequent decisions when facing involuntary intermediation, specifically: (1) whether or not to migrate as suggested by the manufacturer and (2) for customers that choose to migrate, how much to purchase subsequently from the intermediary, including both the manufacturer's products and other brands. Analyzing unique data provided by both a manufacturer and its designated intermediary, the authors find that although only 80 % of the customers migrated, usually all parties—the migrating customers, the manufacturer, and the intermediary—benefitted from the changes. Interestingly, purchasing increased most among the types of customers least likely to migrate, indicating that resources devoted to persuading such customers are worthwhile and can pay high dividends for both manufacturer and intermediary.