A story in today’s WSJ highlights Dell’s rather slow move into retail distribution of its PCs. The delay has been, at least in part, calculated to control the image of Dell’s products with its customer base. For example, Dell’s new arrangement with Best Buy is designed to restrict Best Buy’s product line on some margins as part ofan effort to Dell sales from cannibalizing its Web customers. Like with most distribution restraints, the manufacturer and retailer attempt to align incentives and facilitate performance. In thise case, Dell was apparently concerned with Best Buy’s incentive to alter its product line up in a way that would harm Dell’s image and so included contractual restraints to reduce this incentive:
Dell’s biggest concern was that its products be positioned among the higher-end PCs in Best Buy stores, say executives from both companies — a must for Dell since Best Buy hosts more affluent electronics shoppers. The discussions became so detailed that executives from both sides even homed in on the colors of the notebooks that should be sold at Best Buy.
I wonder if Dell’s contracts include shelf space provisions.