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B2B: How manufacturers with distributors use e-commerce

I often talk to manufacturers who want to sell their products online, directly to retailers or even end users. But they have an established distribution channel that they do not want to bother. Thus, they avoid selling on an ecommerce site.

The situation is usually something like this. A manufacturer wants to sell his products as quickly as possible. It competes with other manufacturers who sell online and do not have the extra cost of the distributors.

There is clearly a financial incentive to sell directly to consumers and retailers: The manufacturer has a higher margin, or at least greater control over margins. But there is also a risk when distributors account for most of the manufacturer's income and maintain relationships with resellers.

So, what's a manufacturer to do? Start by answering these questions:

  • What is the relationship with distributors?
  • How much revenue comes from distributors?
  • What is the distribution of income between distributors?
  • What types of services do distributors provide to customers? As a manufacturer, do you provide these services?
  • Do Distributors Sell Products Online? What is the quality of their website?
  • Do Competitors Sell Online?

If a manufacturer appreciates its distributors, how can it create a mutually beneficial configuration for the manufacturer, the distributors and ultimately the customers?

Here are five options. Each of the options has sales tax implications. Manufacturers should do their research and consult a tax professional.

Realization of the distributor

One solution is for manufacturers to take orders from an e-commerce site and fill them through distributors. This scenario forces manufacturers to decide how distributors would be paid. This can be done through a commission, under which a manufacturer collects the credit card product in his merchant account and then pays the distributors. Or, distributors could receive the initial product in their merchant account and pay the manufacturer. This last scenario is more complex and much less common in my experience.

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If its distributors provide services to customers that a manufacturer does not have, allowing distributors to fulfill orders can keep that customer in place.

But what if no distributor has a relationship with a buyer? How would a manufacturer decide which distributor gets the order processing activity? There are some options.

  • Round robin: rotate your distributors.
  • Attribute according to geography.
  • Assign on the basis of which distributors the products are in stock.
  • Award according to a rating system, in which distributors are rated according to customer service or turnaround time. Orders are then directed to the top scorers.

Electronic commerce sites for distributors

Another solution is for a manufacturer to create sites for distributors preloaded with its products. When orders are placed on the sites, the revenues (by credit card payment) are received by the distributor on his merchant account.

If a manufacturer ships on behalf of its distributors, the manufacturer can automate orders from distributors' sites and integrate shipment tracking.

It is reasonable for manufacturers to charge distributors for setting up the site. Manufacturers should also have very specific definitions of what this site would include. If its distributors do not sell products online, a manufacturer might consider allowing distributors to add competing products to the site. This would encourage distributors to use the site as their main point of sale online, thus sparing them the headache of setting up themselves.

This will depend on the distributors and their online establishment. In addition, distributors may require ongoing training on customer service and instructions on the use of their e-commerce stores.

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Providing Electronic Commerce Tools

If many of its distributors already sell online, a manufacturer may offer tools to facilitate the sale of its products on their sites. This can include data feeds or files that allow distributors to easily import the data. It could also include an API allowing distributors to receive data on product availability and also order.

Before embarking on this path, manufacturers should examine their distributors and learn which formats would be most beneficial. Manufacturers should consider standardizing the offer and having a plan to keep it up to date.

Sell for a higher price

Another solution is for manufacturers to create an e-commerce store and then sell products at a price higher than that of their distributors. This provides convenience for buyers who prefer to purchase directly from the manufacturer, or have otherwise found the manufacturer's website, not that of a distributor.

This scenario provides manufacturers with higher margins. And distributors are certain that they can keep the business because they have better prices.

Refer buyers to distributors

Another option is for manufacturers to use their websites as catalogs, where buyers can search for products and access useful resources, such as datasheets, images, and videos. The product pages would have a button that directs buyers to a distributor, where they will buy the purchase.

There are many ways to do it.

  • Buyers enter their postal code on the page and the manufacturer refers to a distributor near them who carries the product, and he hopes to stock it.
  • Buyers click a button to find a distributor, which brings them to a distributor's general search page. When they find the distributor, the buyers provide information on what they want to buy.
  • Manufacturers provide on their site a form that buyers fill in, for a distributor to contact them to complete the order. (The form is automatically emailed to the distributor.)
  • Buyers can add items to a cart on the manufacturer's website, then the manufacturer sends the cart contents by email to a tracking distributor to finalize the order and collect the payment. .
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There are disadvantages to this option. It interrupts the purchase process and inserts more manual steps. Part of the reason why buyers prefer to buy online, after all, is convenience. This process makes it less convenient. In addition, manufacturers can not advertise on Google Shopping if they do not have a purchase button and a price on the product page.