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Maintaining Distributor Relationships While Introducing eCommerce

Managing the "Dealer Dilemma": Strategies for Maintaining Dealer Relationships While Introducing eCommerce

Written by: Kris Harrington

Executive Summary

When considering the addition of an eCommerce sales channel, the relationship between a manufacturer and its dealer network will likely become a challenge to navigate. While eCommerce presents a tempting revenue opportunity for the manufacturer, downstream channels will undoubtedly have an opposing mindset. Despite these reservations, the traditional business model has been altered with the advent of eCommerce. A digital sales strategy is no longer an option; it’s a requirement.

End-users do not make a distinction between dealer and manufacturer in their purchasing decision, they are seemingly interchangeable. The end-user is looking for a convenient purchasing experience that suits their individual needs. Whether that means purchasing directly from a manufacturer via eCommerce or locally from a dealer, they are looking for convenience. Traditionally a manufacturer was only expected to provide the engineering and design expertise, while the dealer provided the local expertise and service. Distribution channels have been the driving force in the creation of brand value, thereby generating market demand for a manufacturer’s products. eCommerce has opened new sales channels for both original equipment manufacturers and their dealers.

Offering an eCommerce sales channel is essential, but manufacturers and dealers must manage the evolved buying relationship together. There's still a consequential need for the manufacturer-dealer relationship, and the absence of one will inevitably lead to the irrelevance of the other. The time for considering an eCommerce sales channel has passed, manufacturers need to take action now, in order to ensure their success in the future.

Dealer Dilemma

The development of B2B eCommerce has led to an increasing number of manufacturers who distribute their products not only through dealer networks, but directly to customers through online channels as well. Manufacturers that have been successful through traditional sales channels may be undermined by their success. A reliance upon a dealer makes the manufacturer more susceptible to dealer pressure to disregard eCommerce efforts. This can be perpetuated by an exclusive focus on existing customers, with a complete disregard for the new demographic of buyers. However, an online sales channel can help manufacturers increase their market size, obtain in-depth marketing analytics which can be used to refine sales strategies, and provide an arguably better service to customers.

Offering advantages to equipment manufacturers which are unavailable in other channels, eCommerce enables closer ties to end users, creates loyalty, and offers a global reach. Direct-to-Consumer (D2C) sales will disrupt a manufacturer’s distribution channels, but the eCommerce user experience has not reached the level of expertise prized dealers can provide buyers. A level of dealer pushback should be expected because the long term relationship with the manufacturer is being threatened. The manufacturer will need to develop a strategy to dissolve the dealer’s reservations. It may appear to the dealer that they are less important to customers when they choose to make their purchases online—but they actually provide a complementary service.

The introduction of an eCommerce strategy without considering its risks can result in financial loss, reputation damage, and weaker partner relationships. Whether it be convenience or preference, there is still going to be a need for dealers in the future—regardless of the buyer demographic. Navigating this sensitive territory is the primary concern of the "dealer dilemma."

Inflection Point

Manufacturers are constantly innovating and creating solutions to serve their buyers and product development is always in a state of flux. An eCommerce strategy should be no different; it needs to evolve and adapt to buyer needs to remain competitive. Manufacturers may be motivated to build online sales channels, but the dealer still remains a critical source for product information and service because they fulfill a multitude of services on the manufacturers behalf:

• The dealer provides the service, maintenance, and repair for manufacturers equipment.


• A dealer’s physical location provides brand presence that cannot be accomplished simply through eCommerce.


• The dealer provides partial warehousing for products which allows the manufacturer to maintain efficiency throughout their supply chain and keep products moving.


• The dealer provides local customer support and a place to try before you buy. This has historically been essential when considering a larger dollar purchase.

Dealer interaction can reinforce a customer’s understanding of a product and reduce buying uncertainty. A dealer will identify the best products and solutions to address a customer’s unique needs when they have complex information or questions. Manufacturers should determine a digital strategy that adds additional value to customers, dealers and their product offering.

eCommerce Strategies for Manufacturers with Distribution Networks

In this age of digital transformation and changing buyer preferences, information about equipment and products needs to be readily available for consumption. Traditionally, the local dealer has been the most convenient place to acquire needed product data. With the availability of pricing and product information growing online through eCommerce, the dealer may no longer be the single face of the manufacturer, but they certainly can remain the customer support that helps buyers in making their final decisions. Many transactions begin online as a preliminary source of buyer research, and partially because it enables potential buyers to get in touch with dealers near them. With this in mind, the value proposition of eCommerce moves beyond a revenue opportunity for the manufacturer, but the dealer as well.

To achieve dealer-adoption, the online sales channel will need to be presented as an opportunity for growth and future relevance. We recommend manufacturers review the following dealer strategies when considering an eCommerce plan:

Strategy 1: Dealer Access (B2B)

Manufacturers can work towards dealer adoption by opening an eCommerce store for the dealer only. This would require access to the store to be limited to a dealer login and is often referred to as a dealer portal. This would make the store a strictly B2B eCommerce website that is not open to the public. When introducing an eStore in this way, manufacturers benefit from the dealer feedback on the store’s ease-of-use, relevant product content, and overall functionality.

The manufacturer can take this feedback to make future content and user experience improvements. It won’t take long before the ordering and distribution processes likely become more efficient, and manufacturers see a significant reduction in call volume to the customer service team. This will free up customer service teams from managing more of the routine activities to focusing more on strategic activities. The number one benefit of starting with this strategy, is that there would be zero disruption to the existing sales channels.

The disadvantages of this option are relatively minimal for the dealer network, but can have a sizable impact on the manufacturer. There would be no initial revenue or margin gains from new users who are looking for online self-service options, and therefore manufacturers would be required to absorb the cost of the eCommerce integration initially.

The existing gaps within the distribution network would still remain because the eShop would not be open to the public. Customer overall satisfaction may not go up, given they are still not able to shop directly with the manufacturer. However, this option is a low risk strategy for manufacturers to begin the transition to eCommerce and could be considered a very good phase one approach. A manufacturer is likely to gain dealer adoption by utilizing this strategy because it poses no threat to dealer revenue.

Strategy 2: Dealer Access and Restricted Consumer Access (B2B +/- B2C)

Another way to navigate this relationship would be for the manufacturer to open an eCommerce store for the dealer as outlined in strategy one, and additionally permit anonymous users to view the site, but restrict purchasing for anonymous users. Under this scenario, dealers would enter with their login and anonymous users would enter the site as a guest. With this alternative customers would be able to find the products and information they need, but still be required to purchase through the dealer.

This could meet the customers self service preferences and potentially bring small revenue gains to both the manufacturer and dealer, so long as the end user makes their purchase through the dealer. This option could also cover existing gaps in the dealers service and support by providing relevant information to end users. The combination of eCommerce and dealer contact will result in a more informed customer.

The dealer's adoption of this approach is not guaranteed, and can vary dramatically depending on the industry and products being offered. Manufacturer’s competitors that sell direct-to-consumer (D2C) will likely have an advantage over this approach if the buyer is looking for an online purchase option. This option is not highly recommended because the benefits are inconsequential. While the eCommerce presence would benefit the end user in identifying products and information, they would still be required to go to a dealer to place their order. Given the lack of convenience that this provides the end user, they are more likely to utilize an alternative online provider that allows them to make purchases as well.

Strategy 3: Dealer and Consumer Access With Dealer Compensation (B2B and B2C)

An eCommerce store allowing both the dealer and end user to make purchases would likely yield higher gains in revenue due to its omnichannel approach. This approach allows brand exposure to all available segments of the market and creates the greatest brand awareness. Essentially, dealers would be compensated a percentage of what anonymous users spend within the eCommerce store. There are many benefits to this option, which includes an increased convenience for end users—which is important, because the end user is the most important part of the equation. This would incentivise creating an enhanced customer experience because dealer channels are more motivated to push sales.

Greater brand loyalty would result from the added customer value and experience. An added benefit of an eCommerce store is the analytics that it is capable of providing. For example, metrics that measure how often a specific category is visited, or the number of times that a shopper views a particular item can be invaluable information to refine marketing campaigns. The direct business margin would increase as a result, and the dealer would no longer be in competition with the manufacturer.

The drawbacks are minimal, but are still something to consider due to the impact on the nature of the dealer-manufacturer relationship. For example, the dealer may still be reluctant to adopt the strategy initially, the existing supply chain would require an overhaul to accommodate the higher demand in orders, and there would be a need to clearly define dealer products/territory agreements. Preparing the dealer to adopt this strategy would be necessary before its full implementation. Clearly defining the partnership between the dealer and manufacturer would also be essential for an overall benefit to the end user.

This strategy has the potential to benefit the dealer beyond the manufacturer compensation. The dealer could collaborate with the manufacturer on providing inventory data to make potential buyers aware of local availability. Availability is often more important than price for buyers that need a product quickly, such as a product required for equipment that is out of service. This is a valuable opportunity for both the dealer and the manufacturer to maintain customer loyalty and ensure business long into the future. There does not need to be 100% dealer adoption for this strategy to have a positive effect, but those that do should be prepared to meet the manufacturers standards.

Strategy 4: Dealer and Consumer Access Without Dealer Compensation (B2B and B2C)

The fourth strategy is potentially the least beneficial for healthy dealer relationships, but a strategy regardless. This approach is similar to the third option, but rather than compensating the dealer for purchases made on the manufacturers eCommerce site—they receive nothing. Dealers would still have a login to the store to buy products with their current contract pricing and could support and maintain current customer relationships, but they would not be compensated for OEM eCommerce sales completed to customers in their territory.

This is clearly an issue in terms of benefits for the dealer, but the manufacturer would achieve the same benefits as outlined in the third option, with the added bonus of not compensating the dealer. While this may seem appealing in terms of revenue, this is by far the riskiest strategy to apply. Not only does this option cut the dealer out of the benefits, it also is likely to cause a dealer to default on their loyalty to the manufacturer. This means of course that the dealer would be far less likely to recommend the manufacturers products due to a disruption to the distribution channel.

A thorough review of a manufacturer's current go to market strategy is important when considering this option. If dealers are truly not advancing the business and have not been a strategic advantage for some time, then maybe it is time to move to a direct business model. In that case, eCommerce can be a strong foothold on helping the manufacturer get started.

Conclusion

While there is an urgency for manufacturers to implement a digital sales strategy, those that have a dealer network need to plan carefully. Introducing the strategy to downstream channels before its implementation should be a manufacturers primary concern because gaining dealer acceptance is critical for its success. In its essence, this is the basis of the "dealer dilemma." What needs to be understood, is that traditional sales channels (i.e,. dealers) still play a role in the success of a manufacturer.

The benefit of a digital sales strategy is the wider reach that it provides for manufacturers to remain competitive. For a dealer to succeed, their manufacturers need to succeed. An eCommerce strategy is more than a revenue opportunity, it’s an opportunity to invest in the customer relationship. Manufacturers with strong dealer relationships have what is required to take their business to the next level, but doing so will require cooperation. An effective strategy should be mindful of the relationship between dealer and manufacturer. A compromise can be possible if the proper measures are taken beforehand, in the end manufacturers, dealers and customers all win.

Kris Harrington is the President and COO of GenAlpha Technologies. Kris spent the larger part of her professional career in global aftermarket positions for leading manufacturers in the mining industry. She spent the past seven years using her aftermarket knowledge and experience helping manufacturers transform their parts and service business online.

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