P>In another big idea we talked about supporting dealers, and I said that disintermediation thing didn't work most of the time. Am I contradicting myself?
Nope. That disintermediation doesn't work most of the time, but several manufacturers are finding ways to take orders directly and support dealers at the same time.
Of course, some of them are finding that they can take orders directly and cover the service. They can do this because there aren't high service, installation, or other components that require local handling from distributors and retailers. They can do this, often, because the sales, which they get over the Internet don't begin to make a dent in the sales of their products that go through standard retail outlets. So, some folks are selling direct because it works for their kind of product.
What if you've got some other kinds of products? Then there are still some interesting experiments out there that seem to be working out.
All of the major automakers, Ford, G-M, and others are experimenting with how they integrate their big manufacturer's Web site with the Web sites and physical distribution and service locations of their dealer network. Here's the way it seems to be shaking out.
The automobile manufacturers will have a major site with major tools to help people select a car. Youâll be able to put it together with the kinds of features and colors and things that you want, and get a good price quote on it. Youâll get it through a local dealer.
In the automotive business, this is almost necessary because there's preparation and service that has to be done locally before you take delivery of your car.
This is likely to also work from the dealer's perspective. The economics of the automobile retail business has been changing dramatically in the last ten years. Today most automobile dealers lose money on most new vehicle sales. They stay in business because they're still making money in other places. They're making money on finance and insurance. They're making money on used vehicle sales. And they're making money on service.
With the manufacturer's site acting as configurator and order taker, dealerships will be able to pick up revenue without risking the inventory cost that goes with new vehicles. It should be a win for everybody.
Sucking that inventory out of the chain and keeping it away from the retailer or distributor is one of the ways that some manufacturers are looking to go for win-win solutions. Consider Bayer Agricultural Products.
Bayer is a huge corporation both worldwide and in North America, but it's a fairly small player in the world of agricultural chemicals in the United States. Even so, the company has embarked on a bold initiative to sell agricultural chemicals in ways nobody else is doing.
What Bayer has started is a program called BayerValue, where they own the inventory in things like pesticides and crop protectants all the way to the grower. For Bayer, the big advantage here is trackability, which is becoming more of an issue in agricultural markets, and greater control over how products are marketed.
But what about the dealer? The dealer suddenly doesn't have major inventory costs. Since inventory cost is a huge component of a cost structure for many agricultural chemical dealers, this should be a big boon to them, as well.
And the ultimate consumer, the grower benefits, too from better and more consistent packaging and from the ability to track chemical inputs all the way back to the manufacturer.
There's one more model out there that's kind of a cross between that automotive model and the BayerValue model. That's the one being pursued by a company called Voodoo Cycles.
Voodoo Cycles are high-end custom-built bikes. The company takes orders direct, builds the cycle, and then delivers it through a local dealer. This gives Voodoo some ownership of the basic customer relationship and certainly some information about direct customer demand and what features matter most.
Delivering through the dealer has a benefit for both Voodoo and the dealer, as well. When Voodoo delivers the bike through a dealer, it doesn't have to worry about the basic installation and fine-tuning issues it would have to otherwise. It doesn't have to be the one answering questions about how to use certain things or maintain them. It doesn't have to have staff on the ground, locally, to deal with warranty issues. The dealer handles that.
Is there a benefit for the dealer? The dealer gets a shot at owning the long-term customer relationship. Folks who buy bikes like this buy lots of bike-related stuff. They develop a relationship with other bicyclists and with the store that helps them come together. It's a win for everyone.
Making It Work
If you're a manufacturer and looking at selling direct, make sure that you can handle the load normally handled by wholesalers and retailers. That includes product and usage questions and all kinds of installation, maintenance, repair, and service issues.
Even if you can sell direct and handle the load, be careful. Loyalty is built most of the time at the local level where there is direct person-to-person contact. Cutting out the people that build loyalty might also cut out the product loyalty you crave.
Created/Revised/Reviewed: 30 July 2002
This is only one Big Idea. You'll find more in Wally's book, What's the Big Idea? and in his Big Idea column. There's a complete list on the Main Big Idea page. You may also order the book by clicking here.
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