The Top Five Areas of Manufacturer-Distributor Channel Conflict in the Digital Age
Tuesday, June 23, 2015
Posted by: Stephanie Lanzarotti
In our recent article on channel conflict resulting from online sales in the B2B sector, we likened the potential conflict to a simile between a “grizzled tom cat and big yellow dog.” Both parties have learned to co-exist as long as they remained outside of each other’s food bowl. The problem, as we’ve come to understand it, however, is that end-customers and the nature of the online transaction play havoc with the defined “food bowl.” That is, past practices in channels of commerce, where one can and cannot get product, service and warranty support, are becoming obsolete. Hence, conflict between manufacturer and distributor, from the online transaction, is a given. In this article, we uncover the top five areas of channel conflict in the digital age and what are most likely the outcome(s).
1) Not Far with the A.P.R.
The area of primary responsibility is a well-known designation in distribution agreements. The concept and practice is to give distributors a defined territory in which to sell their vendor items. In the past, distributors needed exclusive or selective areas to represent their vendors and maintain a “fair” profit on the relationship. The A.P.R. limited excessive distribution and allowed the distributor an environment where they found supporting a particular vendor to be profitable.
The A.P.R. is increasingly anachronistic. First, online buyers want to buy from anyone, anywhere at any time. Territorial restrictions thwart this popular benefit of e-commerce and most buyers don’t see the need for restricted access of supply. Second, the economics of distribution, where protected territories offer a margin buffer to service a “high-cost” vendor are changing. Today, e-commerce takes significant costs out of the buying channel and these costs are not, in many ways, driven by the vendor. They are service costs related to the distributor’s decision to support the new technology. If the distributor won’t invest in rich product content and search options, which increase customer service while bringing the cost-to-serve down, they will be increasingly non-competitive. This decision is theirs to make and has little to do with the vendor. In short, an A.P.R. restriction is counter to the way the online buyer wants to transact and has less and less to do with the cost of service of a particular line.
Finally, policing of the A.P.R. for infractions is almost impossible to do without original and detailed point-of-sale information from the distributor’s order manifest. Too, the inspection process, for A.P.R. compliance, is labor intensive and costly. It is also punitive in nature which doesn’t make for good channel partners.
We view A.P.R.s as, mostly, obsolete. They are for a different set of channel economics of an earlier time.
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