 Show me the money
It sounds too good to be true, but there are ways distributors can get manufacturer funding for their e-commerce and Web site development efforts.
by Tom Kelly
Before you dismiss this article as crazy, keep reading. You can get your manufacturer vendors to help you offset the majority of your Web site development costs. Really. The secret is, there is no secret. The age-old principles of joint marketing apply, they’ve simply moved to the Web.
Treat your best vendors as true partners and they will help pay for your site through dollars already allocated to your distributorship. You will also receive an added bonus: As you implement the ideas presented here, you will lock yourself in with the vendor in such a way that it will be very difficult to go around you in the future.
First, in order to convince vendors to share your development costs, let’s look at what distributors are doing online today. The Internet push at the distributor level focuses on four areas:
1) a billboard Web site (brochureware);
2) online electronic catalogs/ e-commerce functionality;
3) product information such as marketing collateral, parts lists, installation manuals, troubleshooting guides, customer forums, etc.;
4) customer extranets (where customers check stock, price, credit limit, previous orders, etc., in real time and integrate to the distributor’s back-end system).
In most cases, having a billboard Web site will not help distributors negotiate co-op dollars out of a manufacturer. It is difficult to argue that a billboard Web site provides any value to your customers, so manufacturers will not likely help you foot the bill.
An online electronic catalog, however, allows customers to come to your Web site, browse products, possibly configure them online, compare products, and finally, add them to a shopping cart and complete the order online.
Unless you are a Grainger or MSC, these sites have experienced little success to date. This will change, however, not through increased business from random buyers, but from the use of e-catalogs in integrated supply and larger procurement systems. In the future, an e-catalog system will be the cost of entry for distributors to participate in integrated supply contracts and large client deals. If this prediction holds true, then the question becomes, how can a smaller distributor develop an e-catalog to compete with the larger players? The answer: Get your vendor partners to pay for it.
Increase the vendor’s visibility
There are many ways to entice channel partners to help pay for your Web site. One way is to build your e-catalog so that you can list products in any order you desire. This allows you to set up a system in which preferred vendors get top billing when a customer performs a product search.
For example, say a customer comes to your site to perform a search for widgets. You could ask your No. 1 widget vendor to partner with you by sharing the cost of Web development. In return, you assure that vendor that only its products come up on the first page when a customer searches your catalog. The widget description might also indicate that the vendor’s products usually ship the same day. All other vendors appear on subsequent pages and indicate the customer must call for delivery.
This is worth a negotiated cost- sharing or rebate for all sales generated through your Web site. Which vendors are good candidates for this approach? Follow the 80/20 rule. Your company likely has 10 to 20 vendors that represent 80 percent of your sales. Approach each vendor in each product line and suggest 5 percent of your cost as the rebate. The vendor may not agree to 5 percent, but will agree to something. After all, this is a win for the vendor. You must have confidence in the value your site can bring.
Share point-of-sale information
Another benefit of an electronic catalog is that it enables you to collect reams of data about your customer’s buying habits. For example, you can track what products they looked for, how long they looked, if they bought, where they abandoned the search, what search words they used on your site, and so on. All of this is valuable information to a manufacturer.
By driving customers to your Web site to process orders, you have the ability to aggregate that data and selectively share it with manufacturers. Doing so improves marketing information and gets the offer to customers faster than the competition.
Work with your preferred manufacturers to plan the type of information to collect and how to share that information. Then, negotiate a price for that service.
Some distributors fear their vendors will balk at paying for end-user market data because their marketing department lacks sophistication, or believe they "owe" it to them free. Hogwash! You won’t have to go far down your list to find an interested buyer. Remember, the less market share a vendor has, the more valuable your marketing data becomes. As long as you give your best vendor partners the right of first refusal, they shouldn’t have anything to complain about.
Lead generation is another potential revenue generator from your Web site. Develop a marketing plan that promotes literature available from specific vendors. This is no different from developing Special Product Focus (SPF) plans today, only it occurs online (and manufacturers already provide co-op funds for your SPF development costs).
Provide product-rich content
It’s a good idea to provide as much product information on your Web site as possible. Customers use Web sites to review product specifications, installation manuals, application details, and warranty and support services. How can you turn this knowledge into dollars?
One strategy is to develop a list of product data that you believe provides value to your customers, such as installation manuals, dimensional drawings, CAD files or schematics. The next step is to determine if manufacturers already have that information. If they do, they are usually more than willing to share it with you.
Visitors to your site can view the information even though it is stored and maintained on the manufacturer’s server. If the information does not exist online, suggest to the vendor that you will develop the information and manage the project (if the manufacturer shares the cost) and you will jointly own the information. For every distributor that uses the information you jointly developed, your company receives a fee until your share of the cost is absorbed, plus a fair return on investment. This is a great way to get information online that otherwise would not be converted, such as product information, images, older manuals or sales literature.
Offer troubleshooting and training
Another way to coax a manufacturer to provide financial support for your Web site is to develop a vendor-sponsored customer troubleshooting forum. The Internet is an excellent tool for distributors to begin building a sophisticated knowledge base of troubleshooting questions and answers that customers can access. As the site fills with knowledge, its value increases. Vendors will pay to sponsor these areas.
Online training is another area where distributors can provide value to customers and have manufacturers leverage development costs. Most training is product-focused, and most manufacturers have training courses for their products. An online training goal might be to convert the manufacturer’s print and instructor-led training to the Web. A major advantage to this approach is that distributors can monitor the training the customer utilizes. By having the information on your site, rather than the vendor’s, you control the process and receive recognition from the customer about the value of the training.
A final area distributors should investigate with their manufacturer partners is joint online marketing. Say one of your vendors is promoting a new product with significant advantages over an older, more established, competing product. The distributor knows which customers use the competitor’s product and the SIC code for those customers. The distributor creates a section within its Web site devoted to the new product and also develops a postcard mailer directing customers and prospects to that section of the Web site.
The distributor can purchase a list of names of engineers or maintenance employees in local companies from a given SIC code known to use the generic product, and send them the postcard each month for three consecutive months. The distributor monitors who visits the site and what they looked at.
An even better way is to use e-mail for the same purpose. The manufacturer and distributor share the cost of such a program and both reap increased sales and accelerated market penetration of the new product.
These are just a few ideas about how to get a manufacturer partner to share the cost of your Web site development. Use your imagination to dream up other ways to successfully utilize the Internet to drive new sales, increase your value and reduce the cost of doing business with your existing customers.
As product differentiators continue to decline, distributors must learn how to leverage their market knowledge to boost their value in the supply chain. Thanks to Internet technology, market knowledge is becoming easier to obtain.
Tom Kelly is president of QSSolutions, a Detroit-based technology solutions provider that specializes in industrial distribution channels. He can be reached at or via e-mail at .
This article originally appeared in the May/June 2001 issue of Progressive Distributor. Copyright 2001.
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