Home
Articles
Glossary
SiteMap
About
Email

e-comm may alienate my distributors?

Some bricks and mortar companies are Internet shy because they have existing distribution channels which they may alienate. In a b2b environment there are ways round this. There is no need to allow your ".com" enemies a foot in the door.

Start-ups can attack our end customers without delay using e-commerce!

Round the world there are a number of start-up companies using the ability of e-commerce websites to trade directly with end customers where the established companies make their sales via distribution channels such as independents or chains of distributors, in some cases commissioned agents or combinations of the two.

Using the Internet these start-ups can attack end customers with an apparent lower cost base and steal sales from the established "bricks and mortar" brands. Many "established brands" feel restricted in their ability to respond to this new threat but respond they must or face extinction "by a thousand cuts".

In the majority of cases the established company has the great advantage of brand recognition, a loyal customer base and local technical support. The ".com only" newcomers will take years to build this strength but established brands cannot sit on their hands.

Why do established brands feel restricted?

Many of the senior companies in a market will have long standing relations with their distribution chains and agents and fear potential loss of business should they rock the boat. The facts however are that once direct sales are established in a market the genie is out of the bottle. Further, established brands have more to gain from the new medium than the newcomers. Newcomers invariably must sell at a discount to persuade customers to risk their as yet unknown products.

From the manufacturers perspective:

Distribution often knows more about the end customer than the manufacturer.
Distributor reliance may have built up over many years and while the manufacturer does not want to take a precipitate step they will know that the newcomers dealing direct are threatening their and their distributors (resellers) businesses.

Manufacturers know that in many cases where goods are handled by distributors cost is added at the expense of value for money. It would make logistic sense in many cases to ship direct from the production line rather than re-handling at multiple local outlets.

Manufacturers would like end customers to be able to buy their products as easily as any other, especially as easily as the newcomers into the market with their e-commerce sites and seeming on-line stock checking and often "apparently" 24 hour ordering.

From the resellers point of view:

The newcomers can undercut their own business but do not offer value added technical support or local feet on the street.
Resellers naturally fear the risk of their manufacturers going direct to end customers because they may cut out the reseller completely from their bread and butter income.
Good resellers know that their relationship with manufacturers can only survive if both organisations bring something of value to the party.

Many resellers (this often occurs but perhaps most where the relationship is not optimal) operate a balancing act with their principles business between "doing too little" and "doing too much". The reseller feels if they do too little they run the real risk of having the franchise discount level or trading rights assigned to a competitor. If they do too much, especially in the case of a sole importing distributor they run the risk of tempting the manufacturer to invest in their own country office and direct sales staff.

A Solution is available with Information Technology:

The manufacturer can make a decision to start its own e-commerce website allowing end customers to buy direct if they wish. The established manufacturer, having already a network of local resellers can lever this into the on-line experience and build a sales proposition that is more attractive to the end customer because local assistance is available via the website or telephone in local time.

Manufacturing now has a more real order input to control production against with there being less delay implicit in a stocking sales channel. Stock overall in the process can be reduced if the company is capable of maintaining customer service with JIT or demand pull manufacturing. Beware folks there are not many companies that can do this! if you are one that cannot then at least stock will be centralised!

If the majority of stock is shipping direct from the manufacturer it becomes easier to build in value added automated services for the end customer like on-line delivery tracking, order / account status, stock availability queries.

Commercial implications?

The end customer can now order from the local distributor or centrally through the website. The manufacturer likes this because it becomes easier for customers to buy the products.
Resellers still get their commissions or territory payments because the manufacturer knows where the products are going they can allocate payment accordingly.
Logistics can be streamlined: the manufacturer can now centralise stores where appropriate and gain efficiencies (now available to end customers)
Resellers can reduce goods handling and shipping costs and focus on the business of selling and solving customers application problems.
End user prices can be reduced by the amount of the logistics savings to be more competitive with the ".com only" newcomers.
Established b2b brands can emerge stronger than their impudent competitors if they take action.
If they sit on their hands and let the impudent newcomers build up their local technical support and brand recognition then, for the inflexible corporation, the only way is down.

[Author mark@sticky-marketing.net date 20/02/01]