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What are some advantages of a manufacturer negotiating a deal where it will create a...

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yacel0762 | (Level 1) Valedictorian

Posted May 19, 2013 at 7:29 PM via web

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What are some advantages of a manufacturer negotiating a deal where it will create a line of products that is exclusively for a big box store that is a new customer.  Imagine that the manufacturer has small local stores that are longtime customers and will continue to sell them a line that is not far removed from the big box's line.  The big box store has a different target market from the smaller local stores.

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted May 19, 2013 at 7:45 PM (Answer #1)

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The major advantage here is that the manufacturer will be able to continue to sell to its small, local stores while still getting a big new account with the big box store.  Ideally, the two will not even be competing with one another so there should not be any problems.

A potential problem in such a situation is that big box stores generally drive small stores out of the market.  They are able to undersell them and thereby drive them out of business.  The deal that you describe in this question would make it more likely that both big and small stores would survive.

With the two stores selling slightly different products to different target markets, the manufacturer should be in a win-win situation.  It is able to sell more of its product because it is now selling to the big box store.  At the same time, it retains its ability to sell to the smaller stores.  This should be perfect for the firm because it will sell more units and it will have a presence in both the target market for the big box store and the target market for the smaller stores.  More sales and a presence in all market segments are good things for a manufacturer.

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