Article Supply Chain Synergies

Is it possible to preserve your dealers and distributors in the age of the Internet?

A recent article I wrote, “Satisfying Your Sales Channels with Collaborative eCommerce” generated numerous requests for more ideas on how the Internet can increase efficiency in distribution but also how can these increases in efficiency enhance the role of local distributors?

Let’s look at how the Internet actually increases the importance of distributors. Some manufacturers think that building one big website will be an effective way to bring customers and potential customers to that website. Unfortunately, this style of website design has been shown to be both costly and ineffective. Relying on a single website to reach customers will necessitate spending a lot of advertising money to bring customers to that site and a lot of money updating the site frequently to keep customers coming back.

Once customers have been attracted to that site, as a manufacturer you would have to ensure that the site is very informative and interesting so as to prevent customers from clicking over to reach a competitor. Both the advertising to drive the site and the functionality required to make the site sticky are expensive. Estimates are that converting from selling through distributors to going direct necessitates an increase in marketing expenses as high as 30 percent.

Having a website from which customers can order and from which potential customers can learn about your products and services stops well short of establishing a business relationship with those customers and potential customers. It certainly ensures the destruction of your dealer network.

The best scenario is one in which the customer has the convenience of ordering over the Web and the support of a personal relationship. This is where the combination of the Internet and local distributors significantly increases the value received by the customer.

As a Manufacturer you sell through distributors for a reason. Selling through distributors lowers marketing and selling costs. It makes sense to maximize the leverage of your marketing dollars. If a company sells through distributors and each of these distributors has a website, the company’s marketing presence is greatly enhanced.

This is how the Internet can work to provide your end customer with a great buying experience that emphasizes your customers’ relationships with their local distributors.

For you the manufacturer, there are many advantages to utilizing local distributors. One is that the service to the end customer can truly be customized. For instance, your local distributor can take advantage of product synergies and increase market share for each of several manufacturers by showing the customer how a combination of products (including yours) can do a better job of solving the customer’s problem. The knowledge of the customer that can only be gathered through a personal relationship lets the distributor create a better buying experience for the customer, which leads to a more satisfying, and a longer lasting, buying relationship.

The Internet and the kind of relationship described above have another set of advantages that can help both you and your distributors increase market share. When you both realize the unique way that each of you adds value for the ultimate customer you can combine knowledge and pursue business jointly.

The two keys to successful marketing in the information age are mass customization and customer relationship management. We all have to understand what our customers need and give it to them when and how they want it. Local distributors play a very significant role in ensuring that the customer continues to receive this kind of service.

The power of the Internet can and should be used to cut out unnecessary costs and keep the marketplace competitive. As we use the Internet to bring us closer to our customers we should take advantage of the unique capabilities of an integrated supply chain using an integrated Web presence.

However, as you go about this process you should make sure that the part of the supply chain closest to your customer remains closest to your customer. People will always prefer to buy from people. – John Shenton – August, 2002