The other day, I was with an IT Hardware vendor who was saying he was tired of giving the channel 30% margin for no service. This vendor wanted to open his own eCommerce activity and expected to increase profits by doing so.
Ever since eCommerce appeared, Vendors have been tempted to set up their own eCommerce section on their own web site. The number in the bottom right corner of that spreadsheet says you should make more profit since you are not “giving away” part of your margin to your Channel …
If you go a few steps beyond the knee-jerk-spreadsheet-conclusion, you will find that there are many reasons for not making that step (unless it is your only trading model):
- do you really want your (struggling) logistics organization to start having to ship units rather than cartons, cases, pallets or even containers?
- have you ever thought about the fact that the handling cost of each of those packaging units is more or less the same? In fact, in may cases the actual handling cost is lower.
- do you think you can set up an eCommerce activity without any support staff. People expect to find a human when things go wrong. How many languages will you need?
- how about payments: are you set up to handle credit card payments across geographies?
- What about the tax and VAT issues, are you ready for that?
Once I got my client thinking…he started finding his own objections and finally decided that the Resellers did a much better job than he, the Vendor ever would, and at a lower cost.
Here is another reason why you don’t need your own eCommerce activity: – go onto your favourite internet search engine and type the name, code or reference of one of your products followed by the word “price”. You don’t even need to type your company name and I bet you’ll find 10 companies you can buy your stuff from and get it delivered to your doorstep tomorrow morning.
You see…you already have your eCommerce activity. Its just that it is being managed by the people whose job it is, and who serve their Partner, the End User. That End User certainly buys many other Brands from his preferred Reseller. Why would he want to establish a new relationship with each of the Vendors he has referenced? That would make his life more difficult; he might even decide to change Vendors.