Dick’s 6/1 blog, “Selecting a Sales Channel Has a Direct Impact on Revenue” identified Online Distribution as one of the major distribution channels in use today. This blog is focused on a company that decides to sell its product online, managed by itself, as opposed to using an online aggregator, e.g., Amazon, EBay, Zappos, Overstock.com, etc.
Several characteristics are common to Online Distribution, or e-commerce, as it was originally called:
The product is generally a non-technical commodity.
The company is committed to Marketing, in the sense of building and maintaining brand awareness, by reaching the target audience using all the tools available, e.g., direct mail, email, trade shows, print, catalog, YouTube, Instagram, word-of-mouth, etc.
An established supporting infrastructure exists, that can not only turn around orders in hours, but also can immediately resolve customer service issues.
As the product is generally a commodity, two factors are necessary for success.
One is volume. Most commodity products tend to have small margins. The vendor must generate a volume necessary to cover the fixed costs of Marketing and infrastructure above the product costs. High volume will also help cover the costs related to the inevitable returns that will be generated.
Second is a well-articulated value proposition that differentiates the company’s product from all the others in the market. While this differentiation can be price, this will not last long. A differentiating feature or function of the product is a better, longer lasting value proposition.
The complexity of today’s distribution efforts often means that companies start with either Direct distribution or Indirect Distribution (VARs or Distributors) and then begin to think about implementing Online distribution. There is an inevitable conflict when a company employs both Direct and Indirect channels. Layering a new channel, Online, on top of these existing channels increases the potential level of channel conflict.
Management should examine all the pros and cons of opening Online distribution for their offerings. You can review many of the issues using of Online Distribution by reviewing our Online Distribution Checklist available here. If you are starting out with a new product or are examining channel alternatives Contact us to help you over the rough spots.