Apple iPad Heads to Walmart -- Does It Have Too Much Distribution?

Walmart (WMT) will begin to sell the iPad on Friday, a deal that puts Apple's (AAPL) tablet in the top names in electronics retailing, including Best Buy (BBY) and Target (TGT). It's an everywhere type of approach, and one that Larry Dignan on our sister site ZDNet suggests is an advantage the company didn't have with the iPhone given its exclusive availability through AT&T (T).

But distribution is a funny thing and strategy involves far more than making a product widely available. Although Apple probably hasn't hit the danger point yet, its managers had better think twice, because more availability is not necessarily better.

Any distribution strategy balances a number of considerations:

  • Products must have enough physical availability so that consumers can purchase them. If people can't find something, they can't buy it.
  • Retailers generally demand that product vendors provide financial support for marketing programs above and beyond purchase discounts as a way to effectively increase margins. The vendor must balance this against budgets.
  • Many vendors want perceived scarcity as well as availability. Consumers react positively when they think that everyone wants a given product. Just look at any holiday season when there's a particularly hot toy and long lines of parents waiting for it -- or queues for new iPhone models.
  • Prices can quickly plummet when multiple retail chains compete with each other to sell the same item. The lower prices go, the fewer margin dollars are ultimately available to the vendor.
  • The more retailers you use, the harder it is to maintain your inventory as you contend with multiple sales forecasts.
To some degree, Apple is insulated from these issues. The company has always offered thin margins to retailers, so price degradation is less likely. Given the degree of consumer demand it can generate, and the company's size and leverage, I would be surprised if Apple paid much (assuming it pays anything at all) in co-op marketing funds. And yet, the broad availability could eventually hurt Apple's traditional focus on premium products.

Given the new Apple TV at $99 and iPhone prices as low as they are with contracts, perhaps the company has made a deliberate decision to gamble that it essentially faces no serious rivals. Yet the price differentials it used to enjoy have largely disappeared on the consumer electronics front, and many competing products, at least in smartphones, have done pretty well in the market.

But that's Apple. Most companies don't have those advantages and must undertake a more nuanced blending to keep distribution from pushing some other strategic issue out of whack. As Mae West said, too much of a good thing is wonderful. Just make sure that something large and unpleasant doesn't come along for the ride.


Image: user ba1969, site standard license.