Getting the Product from the Manufacturer to the Consumer in an online world
Historically speaking, most of our industry’s manufacturers sell through wholesale distribution who in then turn, sell to a local retailer. (Retailer should also include the local dealer/installer.) There are and have always been a few manufacturers who create their own channel and sell direct to large retailers or buying groups. Industry participants just accepted it and moved on, as it was not a “thorn in the side”. From a manufacturer’s point of view they are just simply cutting out the middle man and getting their items to the consumer at what is believed to be a better price, while allowing the retailer to make better margins.
In an effort to help appease the local retail marketplace many manufacturers came up with various marketing programs allowing the local retailer to feel they are all on the same level playing field. This was done through some variation of consumer direct marketing information or rebates back to the local retailer after selling a given quantity of their product(s).
While selling direct in this manner, some manufacturers would enact and effectively enforce MAP pricing
[retail.about.com]. With the recourse being that if said retailer didn’t follow the MAP pricing guidelines, they were not allowed to purchase from the manufacturer any longer.
Then a paradigm shift occurred which gave consumers the ability to reach out across the country and buy these same products online from anywhere through the web. At the same time the web has allowed local retailers to sell to a wider customer base, while still buying through the traditional product channels.
In keeping with a long standing business practice some manufacturers try and enforce MAP pricing on these products. This continues to work for those buying direct from the manufacturer but what happens when a manufacturer tries to enforce MAP pricing on a product sold through the traditional distribution channel? It becomes more difficult for the manufacturer to enforce because they in turn have to have the distributor enforce their MAP pricing guidelines. Which is easier said than done and still has further to go before there’s a viable conclusion.
It’s understood, the manufacturer not wanting their “brand” to be devalued. When in reality they are not being devalued, just sold at a lower market price, which in and of itself does not mean devaluation. Most items of this nature are simply and truly commodity items
[en.wikipedia.org]. Take swimming pool pumps for example, a pool pump, is a pool pump, is a pool pump….a commodity item.
So we go from the traditional means of getting a product from the manufacturer to the consumer, next comes the web. With this the consumer can “get closer” to the manufacturer, which is not a bad thing. This advent does not in any means “bypass the retailer” but should further enrich the dealer with greater opportunity.
Some manufacturers and distributors have even seen this as an opportunity to either sell direct to consumers and/or broaden their customer base. “Whoa, you can’t do that”, said many retailers. “You’re cutting me out of the picture and taking away my business so I’m not going to sell your products any more.” Comments like this are all good and fine if you’ve got another means to by an equally alternative product and sell it at a profitable margin.
As a local retailer and an internet company we see both sides of this more pronounced phenomenon. How do we address manufacturer’s selling direct to consumers or even our wholesale distributor selling direct to the consumer? While we don’t have the exact answer to that at this point, we do know that it is and will be something we will face a lot more of in the days and years to come. The first thing we won’t do is have a “knee jerk reaction”. There are ways to improvise, adapt and overcome these issues. The best thing we can do is be a participant in this process and not someone on the outside distracting the process, as it’s not good for the industry.
Let’s try and think about it from a different point of view rather than our own. Let’s back up from the trees so we can see the forest. We are trying to come out of a recession, which our industry has been hard hit from because let’s face it, we don’t sell staple items. We sell leisure products bought with discretionary income. Now that there’s not as much discretionary income, everyone is looking for a profitable short term means to turn a profit while moving toward a long term solution. Will this upset some along the way? Sure it will, but it will not hurt the whole.
Will manufacturers be selling their products on the web? Some will, some will not. Why? Quite simply, profitability. The expense of setting up and performing this service to some manufacturers does not give the ROI when it is compared with the traditional means of distribution. For those manufacturers who are able to cut out the middle man and either sell direct to the retailer or consumer, great. That’s business and the inherent life cycles of it.
Will distributors sell their products direct to consumers on the web? Some will, some will not. Why? Quite simply, profitability. The expense of losing their local customer base may be more than they can withstand. On the other hand, it may be just what they need but their should be balance and have a deliberate understanding of how this will effect their role in the product channel.
Again, as a local retailer and an internet company we see the day quickly coming where there is a “certified network” of dealer/installers who will address installation and service of products purchased over the internet at fair and marketable pricing levels. Currently we are trying to get something working with ServiceMagic
[servicemagic.com]to do this very thing. This is an opportunity to both pick up business in our local market place, through the service/installation side while also having access to a nationwide network of service/installers like us.
For our industry, it may be a very profitable business model enhancement for the wholesale distribution market if they were to do this. Let’s face it, they are one step away from the dealer and would better know who would be qualified through. Match this with an industry wide, nationally accepted certification program and it’s a homerun for the industry.
Concerning those selling on the web let’s stop belly aching and stop asking the question “Who Moved My Cheese?
As a father, one thing I’ve learned is that what one generation accepts, the next generation will embrace. This logic too, is appropriate for the web.
I know that was long winded but, I was wondering how others in other industries might feel about these issues and how they've been handled too.