Leverage Ecommerce to Eliminate Channel Conflict

Nov 18, 2013 3:55 PM  By

The ecommerce relationship between manufacturers and their resellers/distributors has traditionally been tricky. Resellers are typically smaller in nature with limited resources and typically sell other products from other complimentary vendors. The manufacturer, in turn, cannot sell online, because of channel conflict with the reseller.  That is, the manufacturer does not want to be in competition with the same companies who are selling their products.

But what if the win-win solution was leveraging the resources and power of the manufacturer to set up ecommerce sites for the resellers?

Here’s what it would take:

The Components
The new world scenario would look something like this. The manufacturer has clear ownership of the product information and all branding of the product line. The manufacturer creates an ecommerce site for their key resellers, “borrowing” the brand of each reseller. The reseller then sells the products, generating revenue for themselves and in turn, generating demand for the manufacturer.

Sounds simple, right? But there are some pieces to figure out. For example, the reseller may want to place additional items into the online catalog. To determine the right approach, both companies will need to review their branding policies, and the reseller will need to add some eCommerce expertise to their organization.

In addition, the site generally will be tightly integrated to the manufacturer’s back end systems.  This can cause some branding issues, specifically when dealing with customer facing shipping documents. To determine the right approach, the parties need (again) review their branding policies, and clearly define the customer touch points and the required branding standards.

The hardest consensus to build may be around the pay to play model.  Several options are available including a simple monthly rental, a commission based on revenue, or a complex profit share model.  Which option used will depend on the relationship between the manufacturer and the reseller.

With the joint ecommerce effort, the manufacturer and the reseller work together to drive traffic to the sites, generating more revenue for both. Working together, towards a common goal (increased sales) helps to grow a stronger relationship between the two organizations.  The manufacturer can also recoup their costs by spreading the total cost across all resellers, and the resellers gain a valuable online presence at a dramatically reduced cost.

What’s in it for the manufacturer?
Even though it’s an investment of resources, there’s much to be gained for the manufacturer, including:

  • Increased revenue and an entirely new sales channel
  • Broader reach of customers and geographies
  • Branding control within the digital / ecommerce world
  • Economies of scale to keep the costs down across the multiple sites
  • Product inventory control with better visibility into product demand and forecasting
  • Closer relationship with resellers

 

What’s in it for the reseller?
The bottom line is that many resellers cannot afford to enter the ecommerce world with a strong presence. This approach offers:

  • Reduced costs to enter the ecommerce landscape, leveraging a pay to play model
  • A new revenue channel allowing a broader reach of customers and geographies
  • Reduced overhead, compared to standing up a stand-alone ecommerce site
  • Reduced load because the larger (more sophisticated) manufacturer manages the ecommerce project and site maintenance
  • Closer relationship with the manufacturer

It’s rare to find such a clear win-win when navigating such a complex scenario, but truly, there’s no real downside to this approach. It allows the manufacturer to connect directly with the end consumers of their products. It also allows everybody to enter the ecommerce market, sharing the cost across multiple entities.

I expect to see many companies get wise to this solution and adopt this approach in 2014.

Bill Onion is managing director of Briteskies