Apple's distribution channel partnerships and partner motivation strategies

Marketing

Apple uses several distribution channels. For many of its software products and applications, the company prefers digital distribution, typically through its iTunes architecture. For physical goods, such as desktops and laptops, the company uses multiple channels. It operates Apple stores, it is partnered with FedEx for direct delivery and has established retail partnerships with Best Buy. For other resellers, Apple runs its own distribution warehouses, eliminating the need for third-party wholesalers. Managing these different channels poses many challenges. Apple must ensure that product is available for each of its partners. This involves not only sales forecasting but the ability to get product through the channel quickly. Another challenge is to keep costs down. Apple also needs to manage the service levels of their partners, to ensure that the service level delivered is consistent with the service level Apple provides their customers directly. Lastly, with the FedEx partnership Apple must also ensure that the packages are guaranteed delivered to the customers, as a failure to do so may require Apple to replace the package, eliminating their margin on the sale entirely.

The most important channel partner is FedEx, since that company handles not only direct delivery but delivery to Apple stores as well. Apple is able to leverage the size of the account in order to extract the terms and performance that they require. Apple's size and brand loyalty both assist the company in managing its distribution partners - it would be difficult for those partners to replaces Apple's business. With both FedEx and Best Buy, Apple forges direct partnerships based on mutual interest. This gives partner firms increased motivation, beyond the basic financial terms of the contract. Best Buy, for example, gives up floor space, motivating them to help make the arrangement work. The closeness of these partnerships ensures that each party is equally motivated.