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“Selling Direct” Different Ways
Different Ways To Sell Direct….
The
idea of “selling direct” is relatively new in many industries. The mere
mention of selling direct can result in some lively discussions with
your sales and marketing folks….and even more lively conversations with
your rep groups, distributors, and dealers. In just a few minutes you
can hear hundreds of potentially disastrous outcomes, limited potential
benefits, and suddenly you realize why you are doing things the way
everyone else is doing things….
Frankly, there can be risks involved in selling direct – but there are
also risks in doing things the way everyone else is doing things….
Hopefully, this seminar will help you evaluate those risks
realistically.
The
first thing to recognize is that “selling direct” doesn’t always mean
selling direct from the factory to the consumer – there are many other,
less radical, ways to make your distribution more direct than it
is now – gaining efficiency and reducing costs.
When Dealers Are Valuable
Dealers are more important for some products than others – and at
different times in a product’s life cycle than other times. The first
time a dealer network makes sense to a manufacturer is when the company
is just starting out
New
Manufacturer
You
are a young company with a great idea and a bunch of debt – you need to
sell some product! You retain a rep group, they get your product in
catalogs for a number of distributors, and almost overnight you have
hundreds of dealers carrying your product – you just might survive after
all.
Not
all manufacturing companies start out this way, but you can certainly
see how “traditional distribution” makes sense in this scenario. The
new company’s volumes are too low and the customers too widely
distributed to make it practical to have a sales and marketing
department handling the sales – traditional distribution is lower cost
and much faster.
After
a while that small company may grow to have the volume that would make a
sales and marketing force a reasonable choice – then some tough
decisions need to be made about the role of the traditional distribution
network that is in place.
Product needs service/support
Some
products, by their very nature, require relatively frequent “tweaking”
in order to operate well. Unless your customer base wants to acquire
the necessary tools and knowledge to do the tweaking themselves, good
dealers are a necessity.
You
can no doubt remember when this was true of automobiles, personal
computers, and office software. What changed? The products became
better and/or the consumers became more familiar with the products,
requiring less product support. Price increased in importance as the
dealer decreased in importance. Consumers find that they would prefer
to talk to a highly trained manufacturer’s support person than the
(frequently) less informed local dealer’s support person.
“High
Touch” Products
Some
products need to be touched. If how the tool fits in your hand is
important, you want to go someplace where you can hold several models
and compare them before you buy. If you are buying wine, how it tastes
is more important to you than the cost per glass – you want to taste it
before investing in it. The specs on the motorcycle are impressive, but
you want to “see how it feels” before you write that check. The dealers
are necessary.
At
least, they are necessary at first. After you know exactly what you
like, ordering it the next time over the internet and having it
delivered to your door may be your preference – particularly if you can
save 20% in the process!
Infrequently Purchased/Used Products
Sure,
you manufacture widgets, and the differences in various widgets concern
you….I don’t care. I don’t buy enough of them to bother knowing one
from another. I never will. All I need is a widget dealer I can
trust. My dealer will ask me a few questions about how I will be using
the widget, recommend the right one for me, and I will leave, happy.
The next time I need a widget I will repeat the process. My dealer is
secure – I don’t want to know enough to buy direct.
Paper
Clips And Concrete Blocks
Some
items, by virtue of their size (small or large) just aren’t practical to
buy any way except through a dealer. I use paper clips every day, but I
have no intention of opening an account with the manufacturer – neither
of us has an interest in the hassle – we both like having the dealer
doing their job.
Why
“Going Direct” Makes Sense
Two
words – “preemptive strike”. Going direct, in whatever form you choose,
typically takes some time to set up. Let’s say that going direct really
does make sense in your industry right now, and it makes sense for your
company right now. No one else in your industry is selling direct,
however, so there’s really no need to jump into it….. Wrong!
Because selling direct isn’t like flipping a light switch, when one of
your competitors does make the move, you could find yourself a year or
more behind. During that year your customers are wondering why you are
charging so much more, and many are defecting. Your revenues are down,
but you still have to cut your margins in order to reduce the price
spread between your product and the competition’s. Meanwhile, they are
operating with higher margins than ever before and increasing their
market share. Someone is going to do it – it’s them or you.
Information
You
can love the internet or hate it, but it has definitely changed how
information flows, making it easier for people to let each other know
that a better/less expensive alternative is available. That’s
important, because many companies have survived, not because their
product was the customers’ best choice, but because the customers were
unaware of the other options. The formerly small competitor serving a
geographic niche can now be a national player. Interestingly, even if
those companies choose to remain regional (but have a web presence),
their pricing will still affect how happy YOUR customers will be with
YOUR pricing….and if those regional players are selling direct, your
customers may want to buy the same way, at the same prices.
Of
course, information can work to your advantage, too. If you become the
low priced provider because you are selling direct, the fact that the
word can spread quickly is good news for you – and bad news for your
unprepared competition.
Niches, Chunks And New Markets
Let’s
say that for some reason you decide it is not practical to sell direct
right now in your principle market. None the less, you have excess
production capacity and a desire for improved margins. How about
messing around in someone else’s market?
Selling direct, you can cut a small piece out of a big market (price
buyers), or become a major player in a fragmented market (by offering a
better deal that makes the “local” or specialty advantage not worth
paying for). Let’s look at these one at a time.
Let’s
say there is a large market with national and regional players. They
offer lots of support and “touch”. You offer a good reliable
alternative. VERY reasonably priced. Their salespeople remind their
customers that you don’t offer as much service or support. Some
customers don’t care. They buy from you. Your new competitors aren’t
prepared to compete on price, because they have built their customer
relationships around service – that leaves the price customers for you.
Automobiles used to be made by hand, tailored to the buyer’s specs.
Then, along came the assembly line. Any color you wanted, as long as
you wanted black. One model. Great price. Game over. You can do that
in markets that are fragmented – find what most of the folks want and
offer that one direct. Executed well, we call it “Eating The Heart Of
The Watermelon”.
Heart
Of The Watermelon
So
many manufacturing companies take pride in being “full line”
manufacturers, even when only a portion of the line is really
profitable. In so many cases a few products are actually subsidizing
the others. Lots of models means lots of parts to keep in inventory,
complex service calls, and a host of other costs of doing business.
Occasionally a new competitor enters the market with no intention of
being respected as a “good competitor” or a “full line” producer – the
new kid on the block just wants to make some money.
The
first thing they do is see what is selling, and “knock it off” – no need
to reinvent the wheel. They keep their product line simple, which makes
it easy to keep units and parts in stock. Long production runs of
identical units keeps costs low, and selling direct keeps the selling
price low. If they just sell to the customers who are likely to pay and
easy to get along with, their cost of sales is low. What’s even better
is the knowledge that the proud full line manufacturers are working with
an increasingly large percentage of the customers they don’t want – slow
pay customers with very unusual preferences – slowly driving their costs
up.
Feedback from actual customers
When
you sell direct you get feedback from end users. Their input makes you
better able to fix problems and develop new products. If your
competition is getting feedback filtered through dealers, you have a
significant product development edge. Moving quickly to meet consumers’
wants and needs determines who wins – having a better answer after the
game is over just doesn’t matter.
Mission critical – Vs – Convenience
You
make a product and it gets sold to “your customers” – you are thinking
of all the folks who bought your product. The funny thing is, your
customers are very different from each other. For some of them, your
product is “mission critical” – if it quits working, their business is
seriously hurt. In other cases, your product is nice to have around –
if it quits working they are mildly annoyed.
Customer acceptance of a product that does not have local support will
be low among those folks who consider your product to be “mission
critical” – but it could be very well received by the customers who do
not view it as essential, especially if it is offered at a better
price. Why should your price be better? Well, you are selling direct.
Also, you aren’t pricing it to cover the costs of great sales and
service people – your competition gets the customers who need a lot of
support, but they can’t compete with you when price matters more than
support!
Newness of the product
When a
product is first introduced, the customer wants a skilled salesperson to
help them make the right decision, and then wants local support to keep
the product functioning properly. As the customer becomes more familiar
with the product, his or her need for local support generally
diminishes, and soon the price increases in importance, and customers
are increasingly willing to buy direct from the manufacturer rather than
a local retailer.
How
“Brand” Impacts Going Direct
Numerous books have been written about “brands” and “branding” – but
when all of the hype is over, “brand” is a fairly simple thing. It has
a lot to do with “owning the customer” – when products similar to yours
are offered by other suppliers, but customers prefer to buy your
product, you have a strong brand. At that point, you get to choose
which dealers can sell your product. When you have a weak brand, the
dealers get to choose which lucky supplier they will deal with.
If you
have a strong brand and decide to sell direct, your dealers are in the
position of sticking with you and selling their customers the product
they want, or switching suppliers and potentially losing business by not
carrying the preferred brand.
Direct To Distributors
Many
manufacturers sell through rep groups. The reps have access to buyers
who may be too busy to give attention to every new product that might
potentially interest them – reps learn what interests the buyers, and
filter available products to show the buyers the right products. The
reps may also stock shelves and perform numerous other functions that
ensure buyer loyalty.
One
consideration is consolidation – in the last few years it is very likely
that the number of significant distributors has declined, making it less
necessary to retain a group of reps to maintain contact with
distributors.
As
previously mentioned, brand matters. If you once needed reps to reach
buyers, you may find that buyers are now used to purchasing your
products, and brisk sales of your product ensures that even without
reps, buyers will continue to order your product. If so, it is probably
time to consider cutting reps out of your distribution channel – while
potentially useful, they inevitably cost more than they are
contributing.
Direct To Dealers
As in
the previous discussion, in many cases dealers’ need for their
distributors has diminished, especially if your product line represents
a sufficiently significant portion of their business….suddenly, ordering
direct from the manufacturer makes sense. If you are an insignificant
part of their business, they will prefer to deal with their
distributor….dealers will do what makes the most sense.
“Sufficiently significant portion of their business” is the crucial
issue. Their distributor is of value to small dealers who want to order
small quantities of your product, perhaps combined with small quantities
of several other products, and needs fast delivery. Dealers selling
much larger quantities of your product will be stocking larger
inventories of your product, and can better accommodate the quantities
and delivery times that normally make the most sense for manufacturers.
Direct To End Users – “Dealer” Service
Let’s
say that your product needs, at least occasionally, some “tweaking” that
is more than most end users want to deal with. It would appear that you
still need local dealers in your distribution channel.
An
alternative is to designate local companies who provide service for your
product, but who do no sales. If you only need service, just pay for
service! You still maintain the closer contact with the end user and
the larger margins associated with selling direct, but you also get to
offer local support without investing in “company stores”.
Direct To End Users
The
“Holy Grail” of selling direct, straight from the manufacturer to the
end user. As the previous examples have shown, there are a lot of
alternatives that may be your best choice, but manufacturers are
increasingly discovering that improved communications and delivery
options make it possible for them to actually sell direct to their end
users.
In
industry after industry, and market after market, it is happening.
Sometimes it is a gradual transition, but increasingly it is occurring
suddenly, as an old and established company sees it as a way to compete
with a fast growing new rival. Of course, sometimes it is the fast
growing young company that has no strong ties to distributors and
dealers who decides to try something new. Either way, companies that
are unprepared to follow suit are finding themselves suddenly watching
market share rushing away.
Some
products are, by law, distributed through specified channels.
Increasingly, we are seeing lawmakers willing to look at upsetting the
applecart if they are convinced it will benefit the consumers. The
resulting changes in the competitive landscape can occur suddenly.
Similarly, changes in technology can suddenly make it possible to sell a
product direct that formerly required a massive support network. You
may wait for that innovation to occur, and trust that it happens in your
company before it occurs for one of your competitors. Another choice is
to make it a priority to develop a product or product line that is
suitable for direct sale. Especially in mature markets, this type of
innovation can have a significantly greater impact than the minnow
product improvements that become the norm.
Trashing The Neighbor’s Yard
You
may be thinking that for a myriad of reasons, you just don’t want to
upset your current market by going direct, and you are confident that
your competition shares your view. Still, you need to find a way to
expand sales, and the idea of selling direct appeals to you….what
choices are open to you?
I used
to think that until a company was successful in their “home” market,
they had no reason to believe they would be more competitive in a new
market, one where they will face greater unknowns. I have been forced
to change my position on entering new markets. The manufacturers in any
market tend to get used to the distribution norms of their industry, and
they share a vested interest in maintaining their existing distribution
network. Sometimes only an outsider with no investment in
“conventional” distribution is in a position to make a significant
change.
While
the existing manufacturers are looking at the risks associated with
change, you are looking at the opportunity that change represents – a
very different perspective! If you would prefer not to upset your home
market, you may want to seriously consider offering a different market
the opportunity to buy direct from the manufacturer. Of course, it is
worth remembering that there are companies in other markets looking at
your industry from that same fresh perspective….
Conclusion
Let
the end user have the product they want, through the distribution option
they prefer…. Winning companies are the ones that help consumers have
what they want, the way they want to buy it. If you refuse to let the
consumers have what they want, someone else will eventually find a way
to satisfy those consumers. |
