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Dilution and Cannibalization

Marketers must be careful not to dilute their brands through inappropriate channels. This is particularly important for luxury brands whose images rest on exclusivity and personalized service. Given the lengths to which they go to pamper store customers—including doormen and extravagant surroundings—luxury brands have had to work hard to provide a high-quality digital experience. To reach affluent customers who work long hours and have little time to shop, many high-end fashion brands such as Dior, Louis Vuitton, and Fendi have unveiled e-commerce sites for researching items before visiting a store—and as a means to combat fakes sold online.

Legal and Ethical Issues in Channel Relations

The law seeks to prevent only exclusionary tactics that might keep competitors from using a channel. Here we briefly consider the legality of certain practices, including exclusive dealing, exclusive territories, tying agreements, and dealers’ rights. With exclusive distribution, only certain outlets are allowed to carry a seller’s products. Requiring these dealers not to handle competitors’ products is called exclusive dealing. The seller obtains more loyal and dependable outlets, and the dealer gets a steady supply of special products and strong support. Exclusive arrangements are legal as long as they are voluntary and do not substantially lessen competition or tend to create a monopoly.

Producers of a strong brand sometimes sell it to dealers only if they will take some or all of the rest of the line, a practice called full-line forcing. Such tying agreements are not necessarily illegal, but they do violate U.S. law if they tend to lessen competition substantially. In general, sellers can drop dealers “for cause," but not if, for example, a dealer refuses to cooperate in a doubtful legal arrangement, such as exclusive dealing or tying agreements.

 
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