Letters To The Editor: April 2000

To the Editor:
There is a lot of discussion about direct sales using the Internet and whether this approach is appropriate for our industry, such as with your March article, “Industry Debates Internet Sales.” Although recent announcements may make it appear that manufacturers are going direct, that may not actually be so. Here is why:

A manufacturer that is selling $100 million of product using distribution depends on the “added value” the distribution provides, such as warehousing, selling and servicing for the end user. The need for those functions does not go away with a press release and a Web site. No successful manufacturer can replicate the benefits, efficiencies and cost effectiveness of well-managed independent distribution. Making a product without a way of getting that product to market, which includes the key function of selling, would be corporate suicide.

Yes, you can buy a car on the Internet today, but you will still pick that car up at a dealer near you, and the dealer will make a profit on your purchase – maybe even a larger profit than if you bought it from him directly.

I recall an article that evaluated channels of distribution using three factors: velocity, selection and value. Different channels of distribution provide a different mix of tradeoffs with each of these factors. In all cases, the customer’s ultimate satisfaction is best served when a channel of distribution meets or exceeds their expectations. Likewise, dissatisfaction results when either the channel misleads customers into believing it will meet their expectations or when the customers cannot differentiate between various distribution channels.

Let’s take a quick look at these three measures of distribution.

Velocity – This is a measure of delivery time. If you need a car now, you can go to any dealer and buy one now. If, on the other hand, you want certain features, you may have to wait. Obviously, the speedy procurement of a car has some selection tradeoffs.

What about value? The price and service support of the car might be compromised as our speedy customer does not take time to thoroughly appraise value or comparison shop. Internet purchases may appear to have great velocity due to the purchasing simplicity, and if the desired car is in stock and if shipping is easy, this channel might prove to be a fast way to procure products. But stock levels may vary and larger items might take several days to ship, adding cost and impacting value.

Selection – If the customer is purchasing nonspecific products, selection might be relatively unimportant. As the product complexity, including quality, increases from commodity to brand- and model-specific to special order, the selection factor becomes more difficult to satisfy.

It is also easy to see how selection affects velocity when compromise is not acceptable, since the desired product may not always be available right away. Value goes hand-in-hand with selection as we find our choosy customer not willing to sacrifice quality or switch brands.

The Internet often seems to have a good selection. But even the giant Amazon.com had severe problems this last Christmas with lacking inventory. Internet sites and mail-order catalogs may appear to have a good selection, but they are often accused of displaying window dressing and having no warehousing.

Value – The value factor is the most difficult aspect of the equation to quantify. The first element that comes to mind is price. All of the expenses of getting the product and making it perform must be added to price. In the landscape products business, these might include: shipping, unloading, uncrateing, setup and even training. A great example of pricing is the current Turfco Direct offer of a Turfco aerator for only $1,580. We need to add price, shipping, unloading and set-up to make this price comparable to buying a like aerator off the floor from a dealer (see chart). These are the easily computed expenses. The difficulty begins when we try to put a value on the other elements, like service and support.

Who will perform the warranty work and what are the conditions of the warranty agreement if a product is purchased direct over the Internet? What is the cost of not having parts readily accessible? What if you want to return the product?

What does two days of downtime cost while you wait for repair parts? For a machine in season, that cost is a lot. One day of downtime could cost contractors hundreds of dollars because the machine will break down and at the most inopportune time, right? If these service and support elements have no value to you, your choice might be easy.

Regarding value, it’s important that contractors focus on the revenue-producing aspects of any product they buy rather than making price paramount. Most seasoned contractors have had more than one experience with the old adage: “The bitterness of poor value lasts longer than the sweetness of a good price.”

So, what does the dealer of the future do to stem the tide of direct selling? Exceed the customer’s expectations by adding value. In the end, the contractor who satisfies the customer’s needs best wins.

What does the contractor or buyer do when faced with claims of low prices? The same thing he hopes his customer is doing when another contractor uses price to get the business – measure price against value.

Thomas Walker
President
Outdoor Equipment Co., a power equipment distributor located in Chesterfield Valley, Mo.