Can direct sales peacefully (and profitably) coexist with other sales channels?

An Article Courtesy of Rush Order, Inc.

When discussing the role of direct sales in their multi-channel strategies, many proponents cite large profit margins, clear customer feedback, the ability to experiment with various product features, partial protection from shocks to resellers' businesses, and the ability to spot market trends as invaluable benefits.

However, as both a supplier and direct competitor to their own reseller partners, manufacturers must account for the resulting consequences channel conflict has on their distribution strategies.

In Rush Order's experience, several key initiatives have helped our clients minimize the negative consequences of this conflict. As a manufacturer selling direct, here are several points of reference you may wish to utilize in your own efforts to minimize conflict.

Price Point
Perhaps the single best way to reduce channel conflict is to avoid direct price competition with your resellers and other channel partners. This can be accomplished if you, the manufacturer, charge full price (MSRP) while your reseller partners discount the price by several points.

Some percentage of customers are willing to pay a premium in exchange for the quality support and customer service usually found when purchasing direct from the manufacturer. As a result, you reap the benefits of higher profit margins at full MSRP without risking direct price competition with your reseller partners. In this scenario, you help reduce channel conflict in two ways:

• You provide a competitive edge to resellers by allowing them to charge a lower price for your product.
• With a higher price, you are essentially marketing to a different consumer than that of the reseller. Consumers who pay a premium when shopping direct are part of an inherently different market segment than those who look for a price break from resellers. These customers expect a level of service that only a manufacturer can provide.

Shipping and Handling
Similar to providing a higher price point, charging shipping and handling for direct orders solidifies your stance. This approach effectively demonstrates a clear intention to only service a small subset of customers willing to pay a premium in exchange for additional benefits that only a manufacturer can provide. The additional cost of shipping and handling should further solidify your standing with your reseller partners.

Refurbished Stock
As a manufacturer selling direct, your ability to differentiate your product offerings from those of your reseller partners will go a long way to reducing conflict. Most resellers, with few exceptions, are not very interested in selling refurbished merchandise. As a result, you enjoy the following benefits:

• Adding “factory refurbished" stock to your online store is a great way to reduce inventory of returned merchandise on your shelves while simultaneously salvaging some margin.
• You reduce channel conflict by offering different products than those offered by resellers. Although the product is actually the same, the fact that it is refurbished creates a distinct difference amongst the product offerings presented by you and your reseller partners.

Bundles
Along the same lines as the refurbished stock argument, creating product bundles is another way to differentiate your offerings from those of your reseller partners.

For example, if resellers offer several different colors of the same product sold separately, you may wish to bundle all of the colors together as a single offering and name it the “family bundle". Another way to accomplish this is by bundling an accessory with the product.

As long as the combined bundle creates a noticeably higher price point than the standalone product, this may be an effective method for reducing channel conflict.

Replacement Parts
If your product requires additional updates or replacements as part of future fixes or maintenance, offering these updates and/or parts in the online store accomplishes two things:

• It supports those products sold by your channel partners. You are essentially adding value to the products sold by your reseller partners.
• Like bundles, you also differentiate your product offerings from those of your reseller partners.

You can choose to give away or charge for these fixes and replacement parts. What you charge will likely depend on a variety of variables. Just to name a few, these variables may include your cost of delivering the part to the customer, the depth of positive impact you would like these offerings to have on your reseller partnerships, your desire to affect public perception of your customer service standards, and customers' willingness to pay for the parts.

On a side note, selling replacement parts is a great way to retrieve customer contact information (including those who purchased from resellers), thus building a terrific in-house customer list for future marketing initiatives.

Free Advertising and Website Layout
Likely as important as the price point you offer, your efforts to help your channel partners sell product is crucial to avoiding channel conflict. Providing equal real estate for resellers on your website is one way of accomplishing this. Instead of touting your online store as the central place to purchase your products, you may wish to embed your online store link within a variety of options of “where to buy".

By giving customers a clear choice of paying less at a reseller website or brick and mortar store, or paying more in your online store, you accomplish the following:

• You provide a distinct signal to your reseller partners that you are only interested in the percentage of customers who are willing to pay a premium to buy direct.
• You help increase your reseller partners' sales.
• If you display the reseller's name or company logo, you increase their overall market exposure. In our experience, most resellers tend to appreciate their logo displayed, as opposed to plain text.

Try linking to your reseller partners' websites using the following techniques:

• Link directly to the reseller's home page.
• Link directly to the listing of your product on the reseller's website.
• Link directly to the reseller's “find a store near you" page if the reseller offers brick and mortar store locations. Make sure you update these links frequently, just in case the reseller changes the location of their “find a store" page on their website. Also, several third party applications are available to help you manage store finders internally on your own website. Here are two examples: www.spatialpoint.com and www.zenoweb.com.

Above all else, open a dialogue with each reseller to gauge what method they prefer.

Promotions

When running direct response promotions such as discounts, free shipping, buy one get one free, etc., try to limit your offering to your in-house customer list. Buying lists of potential customers in the general public may cannibalize reseller partners' sales.

By using your in-house list, you reduce the risk of compromising your position as the supplier to a unique market segment that would not otherwise purchase from a reseller.

On a side note, please review our past article discussing quick and easy promotion reminders.

Merge Customer Service
When selling direct online and/or via the telephone, make sure your customer service agents are well versed in the questions, comments, and issues that arise when servicing customers who purchased your product from a reseller.

As part of your direct sales efforts, customer service agents can play a vital role in the support reseller sales. Provide your agents with the normal product expertise your customers would expect, but also provide them with the ability to help customers with questions such as:

• What retail stores carry this product and where can I locate such a store?
• I am standing in line at the store. Before I buy this product, can you tell me…?
• I bought this product at my local retail store. How do I return it? What if the store does not accept my return?

Providing this level of customer support to customers who purchased your product from a reseller, clearly demonstrates that you are motivated to help your resellers.

Reseller Partner Dialogue
When in doubt, talk to your reseller partners. Open a dialogue early and often to avoid brewing problems in the future. While it is probably impossible to avoid channel conflict altogether, and while some competitive conflict may actually be beneficial, opening a dialogue with your channel partners will help you avoid situations that harm your business objectives.

Be clear in your intentions and ask for feedback from your reseller partners when warranted. Giving your partners the opportunity to provide input now will save a great deal of headaches, wasted effort, and lost sales later.

Please feel free to contact Rush Order anytime regarding our methods for managing direct sales and reducing the level of channel conflict our clients experience. We provide consultations at no charge. Our only hope is that you will keep Rush Order in mind as a resource and potential order processing and fulfillment solution for future needs.

Please remember to browse additional order management articles.