No More Channel Conflict

Reader ROI

* Find out why disintermediation didn’t happen

* Learn how companies have reflowed distribution channels in the wake of e-business

* Understand how new types of online entities compete with dotcoms

When Polaroid first floated the idea of a B2B website for its commercial imaging customers, company execs began talking about how Polaroid could use e-commerce to cut out its dealer channel. Eliminating trading partners, proponents of the B2B site argued, would give Polaroid more control over how its products were sold and, better still, pad profits by absorbing the dealer markup. Yet once Polaroid e-commerce managers started factoring in costs for things like inventory management and logis-tics, the math just didn’t add up. Polaroid was no more equipped to ship, bill and service products than its dealers were to manufacture photographic goods.

"In a matter of weeks, we realized we were not going to do a wholesale channel disintermediation," says Jim Barron, vice president of Internet development at Cambridge, Mass.-based Polaroid. "The reality of having to bill and ship goods is what we really had to think through. We quickly realized that whatever margin we’d recover from disintermediating the channel would be eaten up quickly" to cover those costs.

Instead of excluding dealers, Polaroid embraced them. Last June, the company launched PolaroidWork.com, a site for commercial customers that delivers information and demonstrations on products such as film, cameras and digital imaging equipment. Customers don’t actually close a transaction over the site. Instead, they use it to comparison shop, and a dealer locator capability provides maps and directions to three local dealers where products can be purchased.

Some business customers do want to buy online, however. For them, Polaroid used the Web to reflow its dealer channel. Polaroid accredited about 20 of its top U.S. dealers to support a "Buy Now" capability?essentially a hot link on the PolaroidWork.com site that takes customers directly to the dealers’ websites for completing the transaction.

Already, the Buy Now function on Pol-aroidWork.com has translated into about three or four sales a week for Bernie’s Photo Center, a Polaroid distributor in Pittsburgh, according to Bernie’s president, Bruce Klein. Klein says he’s not surprised that Polaroid and other manufacturers like Eastman Kodak and The Global Olympus Group are exploring programs to bring the dealers into the e-commerce loop. "It’s always in their best interest to keep the dealer structure and distribution the way it is," he explains. "They don’t want the headaches of dealing with individual sales?someone giving a bad credit card or a shipping address going bad. Polaroid is a manufacturing company, not a direct-sales company, and they realized that off the bat."

Polaroid seems to have hit upon a win-win proposition that is increasingly resonating with Net businesses. Although many early e-commerce initiatives flirted with bypassing long-standing channel relationships, the focus has shifted to finding ways to empower partners and make them an effective piece of a company’s online sales operation. Often this means rethinking the structure of channels and re-creating them to make the best use of the Web. A year or so into the online game, companies are realizing that creating and marketing a Web storefront for B2C or B2B commerce is the easy part of the equation. The other key pieces, customer service and fulfillment, are a whole new ballgame for companies?one most are not fully equipped to handle.

Far from being disintermediated out of existence, distribution channels remain essential, but they need to be updated for the Internet age, says Dan Garretson, a senior analyst with Forrester Research, a market research company in Cambridge, Mass. "Most industries are finding that the [distribution] channel actually serves a valuable role, and the issue is now what changes have to be made and what has to be done to have the channel better support them," he says. But that’s not to say a vendor can afford to let its upstream manufacturers do all the work. Channel partners that don’t reinvent themselves to become more efficient and add value are always in danger of being cut out. "Refining roles is where the conflict now lies," Garretson says. "If an activity is not adding value, it will ultimately go away."

Companies are exploring a number of ways to pump up and realign channels in the wake of e-business. One of the easiest and most prevalent moves is offering dealer locator services online. These give customers the option of getting hands-on support from a local entity, if desired. In some cases, the dealer locator apps award the selected channel partner with a percentage of the transaction even if it didn’t participate in the sale. On the marketing front, companies like SecureRite.com and Kawasaki Motors are teaming up with distributors on websites that help drive traffic to local stores and their individual websites. Helping less tech-savvy channel players build websites is another way companies are lending a hand. And some companies, like General Motors, are going so far as collaborating with their channel partners to create new online ventures that can compete with dotcoms.

"It’s next to impossible to find any company jumping off a cliff and saying ’We’re laying our reseller relationships on the altar of e-commerce,’" says Simon Yates, an analyst at Forrester Research. "Manufacturers don’t know how to deal with consumers in a B2C or B2B world. That’s why there’s such a deep relationship with the channel. So disintermediation happens first, and then things get reintermediated again."

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