What the Internet Means for Distribution
In a conversation with Louis Coleman, sales and marketing manager at Autoquip Corporation (Guthrie, OK), we got to talking about an interesting topic, which can basically be summed up as, “What does the increasing use of the Internet for sales mean for traditional distributor territories?”
I wasn’t sure what to make of it at first, but the more I think about it, it’s an issue that should have distributors, manufacturers and end-users all reconsidering the traditional sales territory structure. As certain distributors become easier to find on the Internet, those distributors are more and more likely to be contacted by end-users who are not in the distributor’s defined territory. What is to stop that distributor (especially a distributor whose sales may be struggling in the current economy) from selling to or servicing that customer?
An ethical distributor who knows exactly where the end-user is located may have the fortitude to recommend that user to another distributor in the customer’s area. But customers who are anxious to buy don’t really want to hear “I can’t help you.” In today’s instant-gratification world, they want to buy now once they find what they’re looking for.
It’s not that difficult nowadays for a distributor with Internet savvy to set up shop with no inventory and just have the manufacturer drop ship to clients. It’s difficult to tell where those types of distributors are, and they may sell right over the top of other dealers.
The situation becomes complicated further when a lead comes to a manufacturer’s Web site. There are manufacturers out there who would love to have links between their own Web site and their dealers’ Web sites. Of course, distributors are concerned—and very appropriately so—that when they link to the manufacturer’s site, a customer can go from the dealer’s site to the manufacturer’s site and hit ‘Contact Us.’ The manufacturer doesn’t necessarily know where that person is located. If the customer is in that dealer’s territory, there’s no problem. But he may not be, and the manufacturer doesn’t know which distributor to give the lead to. I can see how this would be cumbersome and confusing for everyone involved.
Some distributors are becoming huge online and score wonderfully in the search engines. What keeps them from selling anywhere in the nation? Are we on our way toward master dealerships online? What can smaller dealers do to defend themselves? There are customers who value face time and personal contact, but are those dying out?
The answer to all these questions is, of course, “I don’t know.” It’s tough to know the right approach. Distributors often don’t want to talk about it amongst themselves because they most likely fall into one of two categories: big ones who have a strong presence already and are poised to grow their market share, or smaller ones that don’t have much of a Web presence and are upset that the other people are stealing their business. For their part, most manufacturers don’t seem have a good solution, either, so they really don’t want to address it with their dealer networks.
It’s a complex issue. Maybe all e-commerce platforms need to be ZIP code specific so it’s clear which projects belong to which distributor. On the other hand, if getting people to find you online is the goal, then it doesn’t seem fair to punish a large distributor who has the resources and skill to be featured prominently in search results.
As Coleman says, “I don’t know if all products can be sold online, but I do know that there was a time when I swore I would never use the Internet to book a flight. Now I can’t imagine using a travel agent. We may find out that the Internet selling model isn’t sustainable because the good customers really do want face time and that local service presence. I think some of that is true, but that’s what travel agents said, too.”
Time will tell. What do you think? Is the traditional geography-based model endangered? Will it go extinct?
Tags: distribution, material handling
February 1st, 2010 at 6:51 pm
The market has always had a niche for these types of sales in the old days it was the catalog that was mailed out all over the country by various companies. Today it is the internet, basically an electronic catalog. In my opinion there will always be a niche for a local dealer/integretor the boundaries are greyer no doubt but the bottom line will still be the value you bring to the table with your local market area knowledge and service.
February 1st, 2010 at 10:52 pm
This is a very complex question. Some things immediately stand out.
The web should be used as part of a distributor’s sales package to obtain customers.
Nobody ever increased their margins by putting their product onto the web and commoditizing it.
By letting a dealer take over a large part of your internet marketing then you as a manufacturer are giving up control over your product.
Those “sales” that the Internet dealer is making are not “new”sales. They are sales that the hard work has been done by another dealer and now the customer is shopping price.
Most Material Handling sales are an educational sell. There is a lot of discovery of customer needs and trying to align that with product features. Customers are intelligent people but not skilled in our equipment and need a lot of help. Yes we book flights on line but we don’t have to calculate the weight of people on the plane or the horsepower of the engines. You do need to do that with material handling equipment.
Some of our older well know products could go on the web, Newer more sophisticate products should be explained but not sold on the web
February 2nd, 2010 at 9:07 am
With larger companies such as Grainger, McMaster Carr, Fastenal, and others that are moving in on the traditional material handling product lines it has made overnight deliveries anywhere in the country a reality. Customers enjoy the convienience of material handling items they do not require a saleperson to come out and survey the application before they make a purchase online.
The larger material handling dealers that have relationships with Customers with multiple locations around the country have made raditional territorries with the exception of maybe forklift dealers a trend that I believe will continue. This growth of national material handling companies will probably continue to put pressure on the smaller regional material handling companies that do have the experience or desire to work outside their current state.
The added pressures of regional recession in various parts of the country makes those traditional dealers work on projects outside their territories that they may not have had to in the past because of the amount of local business available.
February 2nd, 2010 at 9:09 am
I don’t see it as offputting, but I do see it as an issue we all need to understand and participate in. I’ve never been bound by territories from manufacturers I deal with, and I’ve never had the protection of a territory either. My business focus on on systems design, automation and integration. The majority of my sales requires face-to-face interaction with customers. Every one of my customers has a stack of catalogs from C&H, Global, Grainger, etc, so I believe local distributors have always “competed” against other distributors within their sales market. If I lose a sale within my market area to a competitor across the street, country, or internet, it is because I was either unaware of the opportunity, or I blew the sales process – either way, it’s my fault. The internet is a great resource for information and communication, but I believe that personal relationships will always remain a factor in the way people do business. As for territories, I believe business will stay where it is treated best. If a manufacturer has a distributor in a territory doing an excellent job for them, I believe the manufacturer will do what they can to protect that business relationship. The internet may change the way and speed business is done, but business will ultimately always be done by people. I hope this answered your questions.
February 2nd, 2010 at 9:12 am
I don’t think it is as prevalent in the forklift segment than in the systems segment. We do not have a real issue in this regard.
February 2nd, 2010 at 9:16 am
I do not see and end to distributor territories. We are not created equal, and have much to say about how we react to these situations. Some over reaching distributors may do what is feared, yet we must all compete with the Grainger’s, Koch’s, C&H’s of our world anyway.
Relationships and great service will still be the bedrock of our business! We will go out every day and provide solutions and value to win the day.
Mike
February 2nd, 2010 at 9:18 am
In many instances, factories will opt for severing long held ties to the field support distributors in search of an easy clean sale on-line. When that happens and problems arise for whatever reason, then they will be stewing in their own juices. Those companies selling simple commodities would be doing better, however, if a distributor is a value added sales person who has the ability to “up sell” a product or learn what the customers true objective is, then those people will do much better with their customers. Factories can not be all things to everyone, where a good value added distributor can marry a variety of products together to create a solution. For those manufactures who realize this value, they will remain strong when those who have chosen a simpler route will, at some point in time loose market share to those who can create a need.
Mark Snider, Branch Partner, Indoff, Inc.
February 2nd, 2010 at 10:13 am
I do not see any indications that APR’s (Area of Prime Responsibility) will be diluted or eliminated. As gross profits on new equipment continue to erode, the top manufacturers who want to grow their market share need the commitment of their dealers to invest in the business. Remember, all that a manufacturer has to sell is equipment and parts. For a dealer to maintain the investment in an area, there has to be some protection from other dealers with the same brand from low balling the price just to move iron, because for a manufacturer to be successful in the long term, the after the sale support is critical.
Perhaps third tier and maybe even second tier suppliers will settle for mediocre performance from dealers who are not committed, but I do not see that happening with Toyota, Crown, NACCO, MCFA, or Raymond.
Hope this helps
February 2nd, 2010 at 10:17 am
As a manufacturer who receives inquiries to our website on a regular bases, I am proud to say we ALWAYS locate where the inquiry is coming from and forward to the correct distributor within that territory. We rely on our distributors to help us sale our products. We can’t possible cover the entire USA with our limited sales staff. Our sales staff is there for support to the distributor network. It has been a practice we have had in place since 1942 and do not plan on changing it.
February 2nd, 2010 at 10:42 am
Not in the Material Handling Business. I have been in this industry for 33 years and it has always been and probably always will be a person to person business. It’s difficult to buils a personal relationship with your customers over the internet.
February 2nd, 2010 at 10:55 am
I believe this process is well along, and as to be honest I do not expect leads from the companies we have relationships with and we rarely get leads from them anyways.
I see all over the country, but not simple hardware sales. I would think its tough to survive as a distributor. I work with clients in a way to the point I become their tructed advisor and they see the value in that relationship.
February 2nd, 2010 at 10:58 am
I do see a trend that territories are being overlapped so to speak. Meaning that certain distributors and/or manufactures are looking for increased volume and are at times willing to sacrafice territory bounderies to attain market share. Additionally there are more Manufactures/Distributors willing to partner with a dealer in a particular territory without a dealeship type agreement and explain to this type of dealer that should another dealer want to become a stocking dealer with a signed dealership agreement that they
would be given first right of refusal and have a 30 day window to make a decision to become a contracted stocking dealer or lose the line and territory.
However do I see territories being just tossed aside – NO
February 2nd, 2010 at 11:00 am
Interesting article. It appears to me that Chris wasn’t necessarily thinking of Lift Truck distributors when composing his thoughts. There is certainly much more that goes into a lift truck acquisition relative to service and after-sale support, than say a dock door or pallet racking, or some other type of static material handling product.
In my mind, there is clearly only one reason a consumer would “shop” the internet, and that is price of course. That’s the only reason I buy things online. In my opinion, too many distributors, lift truck dealers in particular, turn into puppy dogs when someone, anyone, asks them for a price quote, no matter where they happen to be located. The distributor gets all excited and just can’t wait to accommodate his requestor, not giving any thought to the perhaps irreparable harm he is doing to our industry by fostering price erosion and furthering the disrespect for dealer territories as established by the manufacturer. I have little tolerance for distributors who quote pricing to potential customers outside of their area of primary responsibility (APR) with whom they have no long term legitimate business interest.
If there is a trend toward obfuscation of territorial boundaries, we are propagating it ourselves. Unfortunately, as Chris says, this economy has got many in our industry scared about the future and, although unfortunate, this tends to increase desperate behavior, which is never good for business. The above comments not withstanding, I am more concerned that some enterprising young attorney will put forth a case on behalf of a dealer(s) suggesting that territorial boundaries are an unfair business practice because of their implied restraint on free trade. I don’t agree that there is anything negative regarding distributor territories in terms of fairness to the consumer, but nevertheless, the argument can be made. We have already seen some effect of this with regard to distributors’ claims to certain “National Accounts” with which they wish to receive ‘protection’ from other potential distributors. Cooperation with these types of agreements can only be “suggested” or “strongly recommended” by the manufacturer to their dealer group, as their basis in legality is tenuous.
February 2nd, 2010 at 11:03 am
yes, I am seeing evidence that territories are being set aside for the best interest of the company. If a salesperson in a territory cannot reach out to his or her clients/prospects within their territory, the company is assigning help to that person to meet the expectation to keep the territory active. No one can afford to let any client or prospect slip by and the company understands that. That being said, I would not say that territories are being cast aside so much as a shift in the role of the company to maintain its interests is being activated.
February 2nd, 2010 at 11:05 am
This is an interesting topic and as a purchasing manager, I can relate to the topic form the customer’s view.
This portion struck me as especially interesting:
“Some distributors are becoming huge online and score wonderfully in the search engines. What keeps them from selling anywhere in the nation? Are we on our way toward master dealerships online? What can smaller dealers do to defend themselves? There are customers who value face time and personal contact, but are those dying out?”
I have my own consulting business and feel that all customers from anywhere in the world deserve “world-class” service. This makes me as a service provider feel obligated to know as much as possible about as many territories, and service providers as possible. While the idea that a local distributor may know the customers business needs very well and they may know each other on a personal level…the competition is learning about all of those territories in order to be more competitive and can usually buy wholesale quantities which means more $ in the customer’s pocket. Some, if not most, service providers are even learning multiple languages (as am I) to provide better service to a globally expanding economy. I don’t see this stopping.
Face time can now be done through a conference call and with the introduction of Twitter, Facebook, MySpace, LikedIn, and others, the chance for local territory managers to get found through the phone book (or phone books in general) is virtually gone.
I am a proponent of new/small business and believe that they are good for the economy, provide world-class service, and foster a relationship that can last years instead of minutes, but most corporations are looking at the bottom line. Especially in times like these, I think everyone should be working on promoting their customer service, quality of service and, maybe most of all, their global presence. Communication has been expanding exponentially for many years and I don’t see it stopping (or reversing) anytime in the future.
My two cents…
February 2nd, 2010 at 11:06 am
One other note…
I shop at my local grocery store, get my hair cut at my local barber, get my landscaping done locally, and the nanny of my children lives next door ($14,000 a year and she is not family). There is a lot to be said about local retailers and service providers. The awesome quality about humans is that we still crave HUMAN interaction. A smile, handshake, a story, and meeting another’s children are all wanted/needed interactions. I hope that never changes. I am a people person and I LOVE human interaction. It is evident in our children…they all NEED human interaction. I can’t imagine a world without it and don’t want to live in one that doesn’t require it….
I do not aspire to be a part of a system not created or inspired by God himself.
February 2nd, 2010 at 11:17 am
Yes the time is coming. This has been a discussion point our our company for more that 10 years. The internet became more than an information source, it has become a marketplace. Depending on the industry you are working with, the client may no longer have the time or budget to go for value added. This does not mean that we should not still build a relationship that demonstrates value added. I have loyal customers that go online, find what they are looking for and then ask me to match the price. This is not fun. It is business in the 21st century.
New engineers and procurement officers find it easier to write their specs and make their purchases based on internet influences. If we do not have
some presence on the internet, market share will drop. Are there still business people out there that look forward to a weekly or monthly visit?Most certainly. These seasoned soldiers are rapidly becoming the minority.
In material handling, there are still many times when local service and field visits are required. ACAD drawings are only so accurate. When my installer arrives, I do not want surprises that will delay or detract from the job.
Do I sell online? Yes. Do I market online? Yes.
Will I sell to a client outside of my traditional area? Most certainly.
Do I find this to be unethical? No, this is a new era. If I do not accept this new client base, I lose my market share and become less valuable to my suppliers.
Do I share knowledge with distributors in other areas? Yes. If the inquiry is regarding products or services that require local contact. I will develop the project and thenfind a dependable partner in that geographical area. This is a new era, with straight forward ethics. We are redefining professionalism and ethical standards to alighn with the new, modern state of technology in the material handling industry.
February 2nd, 2010 at 11:44 am
It is a good question. Unfortunately, our own distributor network continue to try and commoditize lift trucks as if they are white rice. My belief is quite different and whether a distributor and or customer want to commoditize the capital equipment, the dealer is still very much in need for the parts and service. Look, we will give the razor to you with little GP, but we make our money on the parts, service and rentals (razor blades).
With the cost of properly staffing, training, parts inventory etc., I truly believe the OEM will need to preserve that relationship for as long as possible. With that said, the day of weak (financial and size) dealers is dying quickly. I believe we will see narrowing of the OEM lines continue…we are already seeing this at the distributor levels.
The internet has been pertinent for over 10 years. I personally don’t believe it has helped or hurt us in many deals. We try to be very intimate with our customers and our service in an effort to reduce customers insistence on using the web.
If there was ever a KBB or an Edmunds for lift trucks, now that would change the game dramatically in my opinion.
John Paul Turcich
Apex MHC
February 2nd, 2010 at 12:41 pm
Thanks to everyone for the great responses! This post has generated more feedback than anything I’ve ever written. So far, many of you agree and many of you disagree. That’s OK. But I do think it’s an interesting thing to consider.
February 2nd, 2010 at 2:01 pm
Absolutely yes. The internet actually levels the playing field so that the little guys can look bigger than they are. Another new phenomenon are websites that are virtual warehouses. Consider Reidsupply.com. They sell everything and stock nothing. They simply take orders and have them fulfilled by stocking distributors or manufactureres. Drillspot.com is another such virtual “stocking” distributor.
Chris Powers states: An ethical distributor who knows exactly where the end-user is located may have the fortitude to recommend that user to another distributor in the customer’s area.
His wording implies some moral boundary restriction. Unless there is some contractual arrangment, I don’t think boundaries exist anymore. The model is clearly extinct.
Maybe we’re out front on this issue because we sell casters and wheels–which can be purchased through so many different channels. The converyors and forklifts might still be a regional game. But, if it hasn’t changed yet, it will.
Fortunatley for the local dealers, the big dollar deals usually have some significant service issues which only a local dealer can economically furnish.
February 2nd, 2010 at 2:05 pm
I think he is full of you know what..this is total BS today..may change in the future but not now…the dealers have contracts with the OEM that prohibit this and if a dealer does violate the agreement they will be financially penalized by the OEM as well as have to deal with the other dealers in the group…I am sure some try and succeed but very few….where did he get his info or is he just trying to stir the pot??
February 2nd, 2010 at 2:06 pm
I believe it’s all product dependent. No one is going to buy a million dollar conveyor system over the internet. 6 frames and 12 beams, sure, but a complete storage system, no. For us, we sell products that require someone to meet with the customer, assess the need and make recommendations. I am not willing to sell to customers if they are not willing to take the time to meet me.
Strict geographic territories may be a thing of the past, but it’s pretty rare that a dealer in New England is able to sell to a customer in California, unless there is already a head office type relationship in New England.
February 2nd, 2010 at 2:47 pm
In response to Charlie’s comment above, I am not just trying to stir the pot, though it appears I have done so. These were legitimate thoughts that I had after a conversation with a member. I’m glad that I’m not the only one having these thoughts, and I also appreciate the other perspectives I’m reading. As I said, “it’s a complex issue.” Little did I know that I was barely scratching the surface!
February 2nd, 2010 at 2:49 pm
Geography is being tossed aside in many industries. It can happen anywhere. The underlying question will always be: What value does it add? The answer determines the action.
February 2nd, 2010 at 3:33 pm
I wrote an article a number of years ago talking about how some Clark dealers would survive the bankruptcy of Clark, and others would disappear. If you went back 10 years and looked at the list of Clark dealers then, you would find that I was correct. No crystal ball was involved.
Good dealers will survive, most will struggle on the edge, and some will collapse (as they should). When dealers are so good that customers pay for service and face time, they will survive because basically they are providing what the customer really wants. Generally these are also dealers that are paying attention to their customers and they are looking at what is happening around them, they are on the internet, they are using CRM, they are managing the accounts instead of waiting for business to come to them.
Having a CRM does not make you a progressive dealer or sales organization. Having a website does not mean customers will flock to it and order from you. Even having a good product line (top tier brand), will not bring the customers to your door unless you understand and do the really essential things that are required inside of all those tools. Just because I have Microsoft Word, and type very fast does not make me Hemmingway, Poe, Melville or Faulkner. You have to know how to relate to customers.
As I said in my reply to Chris some of the essentials are: Take care of customers, employees and make money. When sales people, or anyone from the company talks to, or has any communication or interaction with the customer, are they thinking about how they can help the customer do better business, make more profit or generate better productivity? This is caring for the customer, not taking them to lunch, giving them the lowest priced quotation or sending them Christmas gifts. Now, couple that with CRM and a good Account Management philosophy (well executed) and you will have great sales people and good business.
Chris’ comments in the blog about the ability of customers to find other dealers or the manufacturer directly are very timely. But this is not a zip code war; 10 years ago I was sitting in the corporate parts manager’s office in Texas of a dealer with 35 branches, and he received an email offering to sell him a certain brand of parts from Germany (which he happened to be the authorized dealer for in the USA for his territories). One forklift manufacturer told their dealers that they could only sell parts in side their AOR or they would start limiting their “benefits” extended from the manufacturer to the dealer, other dealers had complained about territory infringement. But couldn’t the manufacturer actually sell equipment and parts easier on the internet? There would be savings for the manufacturer!
But the manufacturer can’t have stock on the shelf 5-40 miles away from every customer, the investment would bury most manufacturers. But they could have it centralized, deeper inventory, broader inventory and deliver it over night freight free (with their savings in not having to split the profits with the dealers). Here is some of the dichotomy that all major distribution organizations struggle with. Dealer/distributor organizations have been the solution of choice for many years. Manufacturers (most of them) have not wanted to get into the messy business of distribution.
But they are also finding it is more expensive for them to handle the number of dealerships they have had. Look at what NACCO and John Deere have been doing the last couple years. They would prefer a few good, large dealers and hold them accountable for marketshare and coverage, than having 3 times as many dealers and having to call on each of them, monitoring their credit and levels of service to the customers.
So will there be large “Internet-based” distribution or dealers in the material handling industry? I believe the answer to that is YES! But will the traditional dealers continue to exist? YES I think we are seeing a morphing of distribution. Will it change as fast as the travel agents to the only airline booking? Again I don’t have a crystal ball. But yesterday I saw a person spec out a tractor for an agricultural customer that was more accurate than most sales people in that industry could do, and the spec was guaranteed correct with the manufacturer, while we were on line watching. Life and methods continue to change.
I now use a Word Processor – not a typewriter; a cell phone – not a land line; LinkedIn and Facebook – not post cards; and this is not the end of evolution. As Dee Hock said many years ago “Banking is necessary, banks are not!” (Dee Hock – inventor of VISA credit cards http://www.focusdep.com/biographies/Dee/Hock/start/32)
February 2nd, 2010 at 3:53 pm
We have seen some evidence of the traditional sales/distribution territory going by the wayside. Especially during the current economic downturn, many dealers/distributors had to expand their reach to maintain market share or simply try to stop the bleeding. The internet was the most cost effective way of doing that. The best way of controlling this transformation is by being very selective in choosing a distribution partner and limiting the total amount of distributors of Excel’s products. In this way, the core group of distributors are very familiar with each other and the territories and business models of their fellow distribution partners. This enables clear communication and open discussion when possible territorial conflicts arise.
February 2nd, 2010 at 4:27 pm
Chris has presented us with a very interesting topic. Yes, I agree that this is an old topic with a new on-line face but what makes this different is the ease with which end users can self-educate and shop for products.
I think that this topic will be exacerbated by the rise of online comparison shopping sites like Google shopping. http://www.google.com/products It is easier than ever for an end user to shop for the lowest price on a given product.
Nathan Andrews
Morse Mfg. Co., Inc.
February 2nd, 2010 at 4:39 pm
While many of the manufacturers still recognize geographical marketing areas or territories, the lines are very blurred. We are still recognized as the authorized distributor in a specific area however in most cases other distributors can and do come into our territory to market and sell the same products that we are considered the authorized distributor for in that area. Protected territories are quickly becoming a thing of the past.
February 3rd, 2010 at 9:00 am
As a distributor for 30 years, I do not agree with Powers’ supposition. Perhaps in Material handling, people sell across boundaries and it may be tough to tell one truck from another, but in Machine Tools the manufacturer requires the dealers to say where the machine is located so he can track the user, spare parts, etc. and he better have a strong reason for selling elsewhere (like a central purchasing deal). If dealers are found doing this, they are penalized or fired and the contract states this.
Web 2.0 tools are very cheap and easy to install so in fact I think small guys can look as strong as big ones!
We are seeing territories change and some small commodity machines like a small drill press, for example, sold but the situation he describes is not a problem in Machine Tools Distribution.
Pete Borden
President AMTDA
February 3rd, 2010 at 9:37 am
The web is the Great Equalizer. One distributor could appear to be a powerhouse and another appear to be a small player, regardless of size or capabilities. It’s all in the eye of the viewer. I worked for a small company and purchased a used trade show display, refurbished it and brought it to the next show. I must admit it was an impressive exhibit. The important thing is the customers thought our company had tripled in size! Suddenly, we were a major player.
On the web, a positive first impression is easier and cheaper than ever to make. Dealers should observe other web sites and emulate them. Get the customer to see you as a top notch supplier and then prove your worth.
The value a distributor brings to customers and manufacturers is a key to successful selling. Product features and benefits can be found anywhere on the internet. That type of content is not that important. What’s important is getting customers to the dealer’s site and selling the dealer’s differentiation.
If the dealer chooses to only sell in their territory, so be it. But they should not spell out a specific geography in their site. They should tell everyone what they do. Once the customer gets hooked, then the dealer can decide if it’s a good fit.
The distributor should not let the Great Equalizer equalize them out of business.
February 3rd, 2010 at 9:43 am
It sounds like the machine tool industry is a little farther along on this discussion than material handling. Good for you. Keep the interesting perspectives coming! I’m learning a lot!
February 3rd, 2010 at 9:45 am
My guess is that in the future there will be changes in territories. Just like the consolidation of distributors selling multiple brands of products through one channel.
February 3rd, 2010 at 10:06 am
Chris is not very knowledgable in the arena of Manufacturers’ agreements with their respective distributor network………and that is in reference to OUR industry only.
With 14 years in traditional carbonated beverages before my 15 years in materials handling………I’ll just say this:
Chris may turn out to be correct in the long run, but you and I will never live long enough to experience the free-for-all that he envisions…where no distributor shows loyalty to any manufacturer and every manufacturer has no practical use for distributor networks.
Local distributors bring things to the party for end users that the internet cannot provide:
1) A local, skilled team of sales and service professionals willing to work irregular hours and go the extra mile for the end-user.
2) Knowledge of the industry – sometimes hundreds of years of cumulative experience under one roof.
3) PARTS NOW – It’s 3am and your widget line just went down – do YOU want to fix it by using the internet? Oh, by the way, each hour of downtime = $20,000 of profit lost.
4) Who is the person responsible at an electronic-only entity? What if you have a warranty issue? It is usually the local distributor that steps up and provides fast spares installations, and they will usually take care of any returns for the end-user, as well as dealing direct with manufacturers.
The above are but a few foundational facts……..you can take it from there.
February 3rd, 2010 at 10:11 am
No, I do not see Distributor Territories being tossed aside, however sales transactions via the internet are for sure “real” in many products that the typical Distributors in our Industry are involved with in their local territories. The type of product being sold via the internet tends to be more of the commodity type product, and not product that requires technical and service support. Of course there are exceptions and some end users just want the “cheap deal”, and are not concerned with the technical or service aspect. The larger Manufacturers in our Industry will continue to have some control over Distributors selling outside of designated territories and will be able to maintain some discipline in this area. However, the reality is that internet sales will continue to grow and prosper and Distributors must adjust to this new channel of sales. The internet sale does not require a relationship and many buyers prefer this non-personal type of transaction that tends to be less costly and very expedient.
Those are my thoughts!!
February 3rd, 2010 at 11:19 am
You’re right, Bill. I’ve never seen a specific manufacturer-distributor contract. Thanks for the insight.
February 3rd, 2010 at 1:59 pm
I think Chris has some valid points. Manufacturers have two sources of revenue, equipment and replacement parts. I think we will continue to see changes in the distribution model as manufacturers and dealers try to survive. Consolidation of distribution channels (MCFA, NACCO), elimination of brands, multiple dealers in the same territory and direct sales by manufacturers are all happening now. The internet has certainly changed the way a dealer has to market products. The internet will continue to replace traditional marketing sources so territory lines will become diluted especially for low maintenance products. This is especially true when manufacturers focus more on developing creative distribution as opposed to building a competitively priced quality product, maximizing product support and supporting a strong dealer network. There are no simple solutions and solutions can vary by market. Good product, strong dealers and customer focus will ontinue to be the primary drivers for success. I do believe that territories for equipment distribution will still be relavent. Dealers are not going to invest their resources in distributing a product that cannot provide a return.
February 3rd, 2010 at 2:40 pm
Interesting article, and could happen for some industrial/material handling products. I can only respond from the perspective of the Cat large mining/construction equipment.
Cat (privately-owned) dealers will most likely remain territorial regarding distribution, sales, and service. In the mining business, it’s the support that Cat dealers provide that sets them apart. So; there is a Main (corporate-like) Branch located centrally in a region; and district branches strategically located (based on the specific technical coverage required for large or smaller customers).
Web-based lead generation is used: BUT the leads always go to the dealer in that respective region. We (cat) work very closely with our dealers and customes, but the dealer makes the sale to the end-user and is responsible for distribution and support. At the end-of-the-day; the relationships still depend on face-to-face interaction.
February 3rd, 2010 at 4:14 pm
Fortunately we have a pretty tight knit organization regarding the Lift Truck side of our business and I don’t see territories being a thing of the past. As far as allied, non engineered, catalog sales, the opportunities the internet provides opens up new markets and threats for all material handling distributors.
February 4th, 2010 at 8:43 am
The level of service required determines that line between local and national marketing of products.
February 4th, 2010 at 8:55 am
It seems clear from the comments that those interested in quality service will still rely on local distributors. One thing I didn’t consider was that catalog sales were an early form of the Internet trend. A few of you mentioned that point, and it’s a good one. Still, though, with the ease and ubiquity of the Internet, this seems to be a far more difficult issue to tackle.
February 4th, 2010 at 8:58 am
By the way, just for clarity’s sake, I don’t think I said anywhere that territories are going away or aren’t going away. I just think it’s an interesting discussion that people should be proactive in having.
February 4th, 2010 at 9:34 am
I think this gets to the heart of the largest problem we have faced as an industry since our response to the imported products. If you think back on how much the material handling landscape changed as the imports were introduced and got better (quality). So much so that they are now part of the fabric of our daily business and personal lives.
Many companies were dramatically changed by imports and I think an equal or greater number will be changed in the “channel challenge” that will play out over the next few years. I think there can be good days ahead for dealers who make good decisions. There has to be a reason for them to be there, and it is up to them to develop their worth…..they will not become irrelevant unless they allow it.
Things are going to change…the secrete is to manage the change and come out on top.
February 4th, 2010 at 11:16 am
He has some very valid points. We are in fact seeing more and more geographical territories give way to Internet marketing / social media best practices. Because of technology and the real-time demands in buyer behaviors, geographic boundaries are becoming less of a concern/value and how you can solve their problems and meet their demands at the point of their need is becoming critical. With all of the noise in so many markets, more and more customers are NOT asking for marketing material or sales calls and they’re going to the web!
February 4th, 2010 at 3:33 pm
Yes we are now being asked to share a territory with a factory store.
February 4th, 2010 at 3:49 pm
I agree with Ron’s comment above: “There can be good days ahead for dealers who make good decisions. There has to be a reason for them to be there, and it is up to them to develop their worth…..they will not become irrelevant unless they allow it.” That’s a very succinct way of saying what many of you have been saying. Thanks for reading.
February 4th, 2010 at 4:43 pm
Airline flights are a purchased service. Beyond the flight itself there is no continuing relationship or support requirements (assuming your bags do not get lost). And choosing a flight is dictated by simple to understand customer needs, such as where do I want to go and when do I want to get there and return.
Most equipment purchases are much more complicated. Autoquip was used as an example so I will use them as an example. The folks at Autoquip will tell the customer that they have a warranty for one year. The saavy customer will want to know who will support it locally. Boxing it up and sending it back like toaster or DVD player is not an option. And local distributors, cut out of sales by the manufacturer or a far away distributor, may refuse to support the equipment as a lesson to the customer and manufacturer not to go past them.
And lets look at customer satisfaction and safety. The Autoquip distributor in Texas, who is contacted by a customer from California, will want key specs to determine which model to quote with what table size, what lifting height, and what power is available. They may not ask if there is a static load anticipated or a rolling load. Or what type of safety skirting, toe guards, or barriers are prudent given the physical location of the table. If these critical details are missed, no matter who is in the right (customer, distributor, or manufacturers) unhappy customers make for bad business. Injured workers are even worse for business.
It is my belief that manufacturers of industrial equipment do not want to sell directly to end users. They want an in-person site survey performed by a knowledgeable and responsible company. Such a process is good for business. But customers, as always, will drive this marketing channel. If the distributor in Texas can sell in California and take care of the above customer needs at a lower price than a local distributor, then customers will flock to them and that is good business for them.
February 4th, 2010 at 11:47 pm
I’m back with some more thoughts.
Product Life cycle and application knowledge needed to sell it.
In later life cycle of a product it becomes more of a commodity, doesn’t need as much explaining and generates a lot less revenue. At this point it becomes an “internet” sellable product.
In the rack industry whenever I have tried long distance no visit selling it has always been a problem. Even in little rack jobs customers need a lot of hand holding.In one large push back system I had sold over a one year long distance sell. I arrived on site to find a severe slope where the rack was due to be installed. Lots of re-engineering solved the dilemma but could have been a disaster.These kind of sales could never be done successfully over the Internet.
So we have to have a product that either originally lends itself to selling over the Internet or one that has declined to that point.
A product that dealers are really not going to fight to keep because the margins are so thin, everybody has it and there is no service work to be gleaned from it.
These are the products that will be sold on the Internet and a distributor should avoid. In fact a distributor should be continually culling these items out of his offerings to only offer higher margin newer products.Maybe form an inside/internet sales division to take care of these products and not compensate their sales people for them.
You don’t want salespeople selling commodity items, that a buyer can take the knowledge from the salesperson and shop it on the Internet. You want a salesperson selling, new concepts and ideas, that can only be purchased from your dealership. A customer is only willing to pay a premium to mitigate the risk, by employing you the dealer for your experience in making sure the system will work. If the risk is all taken away then there is no need for you.
Today we all talk about the customer being in control but we really don’t want that.We want a knowledgeable customer but not more than us.
February 8th, 2010 at 9:01 am
My company still works under a territory structure. I know many of our clients operate their sales departments by territory as well. Hope that helps!
February 8th, 2010 at 10:28 am
A few years ago I developed and web site for customers to use to purchase lift trucks directly from the factory. We test marketed the site in two dealer territories and it completely bombed. Truck purchases are complex and the local sales associate plays an important role in the process. Dealers have always experienced some poaching from other dealers in their territory and that will not change. I think that territories will survive for equipment purchases.
Territories will also survive for equipment service, again with some poaching on the territory edges from other dealers. The cost of remotely delivering service is too high so this area of dealer business will be maintained.
Customers who buy parts direct and have their own internal service have many new options to circumvent the dealer structure manufacturers have put in place. Parts sales are an important part of dealer profitability and territory boundaries are quickly falling in this area of the dealers business.
February 8th, 2010 at 12:04 pm
Thanks for the comments. It’s been interesting to read everyone’s wide range of perspectives. It seems like the majority say that distributors who provide value will be around forever. That makes sense. I probably should have mentioned something to that effect in my original posting but I’m glad you all pointed that out.
February 9th, 2010 at 2:29 pm
[...] my colleague Chris Powers, the editor of The MHEDA Journal posted an entry on his blog entitled “What the Internet Means for Distribution.” To say it set off a little bit of conversation would be like saying Drew Brees had a pretty [...]
February 9th, 2010 at 3:59 pm
It is useless to bemoan what’s happening in the distribution world. Instead, adapt. Think about your day — do you spend a large fraction of it staring at a glowing rectangle of your computer monitor? Do you think customers are much different?
We have a successful website that draws great in search engines and makes money. If we didn’t, our regional territories would still be under assault from paper catalogs, catalog house websites like Grainger or GlobalIndustrial, and from other distributor websites. I find absolutely nothing unethical about pursuing that business.
Any local distributor who loses a sale to a website from someone halfway across the country simply wasn’t doing his job. If he was, he wouldn’t have lost that sale.
If someone can take your business with a telephone and a website, the problem is not the internet. (And yes, you can sell just about anything in the material handling world on a website!)
February 11th, 2010 at 5:58 pm
Interesting point, Scott. See my colleague Dan Vest’s blog at http://www.mhedaedge.org/blog for an extended viewpoint based on that line of thinking.
February 18th, 2010 at 10:33 am
Traditional sales territories have for the most part already gone away. They have been replaced by “area of primary responsibility”. Due to the effect of internet marketing and sales, suppliers for the most part do not hold distributors accountable for selling in a restricted geographic territory. Suppliers do not believe they can tell end users who they must buy from. Sadly, many sells that should be supported by the local distributor may go to a distributor outside of the geography simply because that distributor has done a better job with their website and/or with search engine optimization. In our business, what we term as “stockyard sales” have mostly gone away. Distributors outside of our geography with strong online stores and with strong internet presence have lured those sells away. The sad part is that often those quick stock sales were what gave us entry into new accounts we would then develope into repeat customers. Another part of the story is that many young engineers and operations management at end users prefer to do business over the internet over developing a relationship with a good local distributor.
February 18th, 2010 at 12:13 pm
The used truck example is the most flagrant use/misuse of the internet in our industry. To a great degree this buyer would check every local contact in the old days and find the cheapest price without evaluating value offered and condition of the unit. It is not like used cars that might be comparable. For most dealers the buyers of used trucks are current customers. The extension into other products and services have some barriors to entry or were already covered by a catalog house like grainger. For things like parts there are contractual penalties for selling out of territory.
All this being said, we are not burying our heads in the sand and are using the internet more and more frequently to market our goods and services. contracts will be tested, but customer service disappears with low margins and value can still be sold.
February 18th, 2010 at 12:15 pm
And the hits keep coming! Thanks, Daryle and Duncan, for chiming in. It’s good to get some more perspective from the distribution channel after the mfrs. dominated the early exchanges.
March 3rd, 2010 at 3:25 pm
Dealer territories are declining rapidly. This actually started about ten years ago. Reason why is the relationship between the dealer and the OEM was broken due to trust and OEM needing to survive in an ever shrinking world. The dealers had a part as well — the shrinking world opened up a slew of never known OEMs producing like products at a better price. The OEMs had an ever-growing end-user market calling direct. Lights started going on.
One could argue which hurt the other first. I believe it is a case that once the snowball started rolling, everyone felt hurt or had the feeling they could be hurt, protective measures kicked in on all sides.
Now just to be clear, I am still on the same page as your question. Territories are moving away and having representatives that can FIND anything is key, letting them spread their wings so to speak. Careful though, as being spread too thin translates to lost opportunities or never known opportunities.
OEMs will have designated territories for consistency, geographic knowledge and so forth. Dealers will align with OEMs as legal partners or actually merge, decrease sales forces and overlapping positions, become leaner in markets that are now attacked by overseas companies.
Your question is huge and not a simple yes or no but it is the question that will lead to a smarter and better way to help the end-user. Partnership with the OEM and dealer is not dead, but it is about to get a well-deserved makeover. OEM and dealer go hand in hand to end-users, true teamwork, partners…no more getting three or four quotes and then picking the best price and heading on the sales call. Now it is get the best supplier, and sell the reason why cheap is rarely good and can cost you millions in lawsuits. One bad product, one bad incident, one huge lawsuit.
Dealers and the territory should be structured dealers and the OEM. It worked 25 years ago; more factories = better performance ability = better service and a higher commitment level. TAG TEAM. The dealer sales rep should be working hand in hand with the factory sales rep, together in the customer’s office, joint conference calls and in every e-mail.
OEMs and dealers need to see education as a missing tool. Trust is a two-way street and making sure that both parties don’t lose the order is critical … that is another story. Ignorance and greed are our worst enemies. If the dealer network can not make the sale due to margin, let the order go factory direct, get a point in return and carry no liability but keep the contact and service them.
Territories is a big word with a simple solution — limit your cost by educating what you have, work with the OEMs directly and share the customer, you have a direct three-way vested interest. Unbeatable.
March 4th, 2010 at 4:13 pm
Great insight, David. Thanks for contributing. I continue to be amazed and the quality and thoroughness of responses.
I really like whre you said, “Ignorance and greed are our worst enemies.” True in many instances.
March 17th, 2010 at 2:21 pm
Dealers are important and will continue to be important. Product support is the biggest factor for territories. Customers need product support.
April 5th, 2010 at 10:01 am
Cisco-Eagle eliminated territory-based sales about 8 years ago and went with assigned accounts. It was our experience that when a purchasing authority left Company A and went to work with Company B they wanted to maintain their relationship with the specific Sales Engineer that they worked with previously. When cold calling Sales Engineers still stick to a geographical area, but this is something they work out between themselves.
April 5th, 2010 at 3:47 pm
Territories are still viable. Customers want to see the face of the person they are buying from, provided that the person has value to offer. If the face time they offer is not valuable, then they can go to the Web. Distributors must still add value!
The conundrum comes because in today’s world, you must have a viable Web site in order to provide that value. Otherwise you will lose share.
April 7th, 2010 at 8:12 am
Two months later, and I’m still getting responses to this post! Amazing. And the answers aren’t getting any less interesting, as perspectives continue to roll in on both sides. Thanks again!