We often talk to manufacturers who want to sell their products online to retailers or end-users, but are reluctant to use eCommerce because they don’t want to bypass their existing distribution channel arrangements. These manufacturers face a conundrum. On one hand, if they sell direct there’s the potential to increase margin – and on the other, there can be a big risk attached to alienating distributors, who may be your largest source of revenue and usually have the strongest relationships with end customers.
As manufacturing companies fight for competitive advantage, increasingly they are reviewing and adapting their relationships with distributors to optimise operations. As part of this process, manufacturers are taking a closer look at factors such as how the relationships work, how much revenue comes from distributors and how it’s broken down, and the nature of services provided by distributors and the sales channels they’re using. Manufacturers can then be better informed about the value of distributors to the business, and better able to establish a more mutually beneficial online commercial arrangement.
Perhaps the simplest form of arrangement is for the manufacturer to create their own eCommerce site and simply sell products for a higher price than their distributors. Although sales volume may well be lower, some customers will prefer to buy direct from the manufacturer, especially if there is some kind of additional benefit involved, such as superior customer service. And even if sales are lower, margin will be higher – and the manufacturer will still be earning revenue from sales to its distributors.
Another arrangement is for the manufacturer to process orders through an eCommerce website, and then fulfil them using their distributor network. In this scenario, distributors would normally be remunerated on a commission basis. It can be a sensible way to reduce operational costs, maintain good relations with distributors and ensure that retailers or end-user customers remain happy (especially if distributors are providing them with additional added-value services). Where an eCommerce customer is not served by an existing distributor, there needs to be a system in place for fulfilling the order. You could rotate orders around distributors, for example, or assign according to geography or customer service performance.
An alternative commercial arrangement is for the manufacturer to create an eCommerce website for distributors that features its products and enables the distributor to take payments into their merchant account. If the manufacturer is responsible for delivering orders, they can automate the process from the distributor’s site and integrate shipment tracking. Distributors would be charged a fee for setting up the site, and if it’s their first venture into online selling, the manufacturer could also allow competitor products to be added, thereby removing further hassle for distributor partners and accelerating their transition to eCommerce.
Another option for distributors that are already selling online is for the manufacturer to provide specialist technology tools and integrations that enable easy access to data streams and other information such as stock levels, as well as the ability to place an order. Alternatively, manufacturers could use their websites as product catalogues and resources for buyers, with the purchasing process completed on a distributor’s site. However, this process inserts more steps into the buying process and removes much of the convenience of purchasing online.