E-Commerce, channel conflict and at least one solution
Let's say you're the “big cheese” at a company that sells consumer products mostly through an independent dealer channel, not unlike car manufacturers.  These dealers are scared you may one day decide to cut them out of the sales loop.  Maybe you'll start your own stores ala Apple or maybe you'll sell direct via the web.  Your policy is to support the dealer channel and try to avoid as much conflict there as possible.  You tell your dealers they cannot sell your products online, in return you don't sell most of those products online either.  So you run an ecommerce site but you only sell a small number of items.  Items most dealers won't carry but you can charge a premium for.  The store does extremely well, especially when you consider its low profile, limited selection and above retail prices.  But, you still aren't maximizing your revenue stream to its fullest because you aren't offering your entire product line online and neither are your dealers.  People are obviously willing to buy your stuff online as your limited e-store proves and dealers are starting to break their agreement with you (concerning online sales) and hawking your products on eBay and other auction sites. So, you decide you're leaving money on the table by tying your hands and your dealers' hands when it comes to online sales.  What do you do?

I suggest you syndicate your e-store out to the dealers similar to how Amazon and others do affiliate sites.  The dealers get their own e-store with about 90% of your product line that you can realistically sell online.  You'll provide fulfillment, customer service and all the technology for this.  You will increase the sale price to the dealer for all e-store purchased items since you're providing the entire infrastructure and taking on all the risk.  A dealer might normally buy a product from you for $50 and sell it to their customer for $100, but with the e-store you would charge the dealer $65 and the customer would pay $100 online.  All the dealer has to do is sign up and link to the store from his web site.  You take in an additional $15 on the sale, the dealer takes in $35 with almost 0% overhead and the customer is happy to finally be able to order your products from the comfort of her home. Your company takes down its e-store in order to push sales to the dealers.  Now you heavily promote the sales of products online by directing potential customers to the dealers' sites.  You no longer have a channel conflict and now you're taking full advantage of the potential ecommerce has shown for your company.  Sounds rather reasonable, no?

The company I work for is faced with this very dilemma and the solution I presented above is what I'm starting to promote to everyone who has anything to do with the company's sales, especially e-sales.  No one has shot a hole through this plan yet.  It's the only plan that makes both us and the dealer fairly happy with the least amount of operational/logistical changes to make things work.  We've tossed around numerous other scenarios and they all have a lot more downside than this plan.  I don't really care if my plan gets implemented as much as I want us to implement a plan.  By not doing much of anything and not allowing our dealers to do a single thing concerning ecommerce, we're leaving the door wide open for our competitors to walk in and fill the gap.  I believe management is smart enough to see that and will act accordingly.  I just hope its sooner rather than later.
Posted on 07/20/03 - Category: General

Track Backs
No trackbacks for this item. Use this trackback url to ping. (right-click, copy link target)


No whispers yet

Whisper (The Colonel is listening)...



The Colonel