Before the Internet, buyers and sellers communicated through three channels: in person (direct sales), by mail and by telephone. There is currently a fourth channel: the Internet. This channel has an important impact on the relationship between buyers and sellers.
Due to the emergence of the Internet, many companies wonder:
- Do we have opportunities or threats in distribution thanks to the Internet? Will it affect our supply chain? How will it affect sales in the rest of our channels, mainly the sales force?
The Internet can dramatically impact distribution (be it a typical distributor or a company that manufactures and distributes) in three ways:
- Redefinition of the value proposition of intermediaries. Disintermediation and reintermediation Conflicts with own sales network Appearance of new intermediaries
The first of the sections is developed, developing the following two in later issues of our magazine:
1.- Redefinition of the value proposition of intermediaries. Disintermediation and reintermediation
Obviously, the opening of a new communication between clients, suppliers and intermediaries will redefine the relationships between them. Initially, two potential phenomena were raised: disintermediation and reintermediation.
Disintermediation consists of reducing the distribution chain. There can be different cases: the manufacturer sells directly to the seller or the ultimate customer or the distributor sells directly to the ultimate customer.
CASE STUDY: TRAVEL SECTOR
The Economist weekly magazine recently pointed out, in a monographic report devoted to electronic commerce and new businesses on the Internet, that companies based on intermediation, especially Travel Agencies, are facing the redefinition of their activities or seriously putting their business at risk. situation in the market in a short time. According to this report, the activities of selling air tickets and hotel rooms are the sectors most affected in the United States by the disintermediation that the Internet allows and the new technologies made directly available to users to search for offers and compare prices. prices. Names like Expedia, Travelocity or Priceline are well known to Internet users in that country,50% of whom already used regularly in 1999 the new channel that constitutes the Internet to buy airline tickets.
This circumstance is somewhat mitigated as a result of current regulations in Spain, especially Law 21/1995 of July 6 on Combined Travel, which limits the possibilities of Wholesale Agents to establish direct commercial relationships with end users. In any case, it is necessary to take into account the variations that the regulatory environment may experience over the next few years for reasons of homogenization of the single market, and in that sense the harmonization of Spanish standards with European Union directives may produce some substantial modifications to the legal framework of travel distribution in Spain.
In addition, there is the phenomenon of reintermediation, that is, "traditional" intermediaries are replaced by companies that have a presence on the Internet. Rumbo (a joint venture between Terra and Amadeus) in the travel sector, Amazon in the books and other articles sector, Uno-e in the banking sector, etoys.com in the toys sector, etc.
After these reflections, it may appear that all intermediaries in any sector "are in danger." The answer is that each case has to be analyzed separately and they must analyze how they create value for their customers.
All intermediaries whose only contribution of value is the contact between buyers and sellers (that is, picking up the order, calling a third party and serving or similar) will have a terrible competitor on the Internet that will seriously jeopardize the profitability of their business. This is the case of the so-called “brokers”. These companies must redefine their value proposition by better understanding their role in the chain and generating more value for their customers.
Some of the questions to ask yourself are:
- Are customers willing to buy the product / service without seeing it? How complex and "digitizable" is the purchasing process? Is great knowledge necessary for the sales process? Are other members of the distribution chain in Internet? Are competitors using the Internet? How concentrated are the distribution channels? Does your industry have complex logistics?
Actually, the two critical parameters are the relationship between the importance of information and physical contacts in the process.
A very different case is the intermediaries that really add value in the chain due to their knowledge of customers, the management of processes, management of intermediate warehouses, etc. in which they will have a threat with the Internet but much less.
In any case, in these processes as in the travel sector, the pressure from intermediaries will be very important. In a recent Reality Research study, 57% of respondents said they would stop recommending a product if the manufacturer started selling directly. Although the reality is that, these pressures, in the cases in which the intermediaries do not contribute, will never be enough for its viability.
CASE STUDY: DELL
Michael Dell founded the company in 1984 with 200,000 pesetas and an unprecedented idea in the personal computer industry: restructure the distribution chain, eliminating the reseller who adds little value to the products, but increases the price substantially by selling the computers. personal to the end user. In addition, selling through "resellers" caused the company to lose contact with the customer and therefore Dell to know its customers less.
Using this innovative method, Dell Computer has established itself as the second largest manufacturer of personal computers in the world. In just over thirteen years, the company's sales have grown from 1,200 million pesetas to 3 trillion pesetas in the last four quarters.
Results: Currently, 50% of Dell's sales are through the Web, 50% from technical service.
This is a case of an SME that thanks to the Internet, has gone from being a SME with a turnover of 1.2 billion to a large company with a turnover of 3 billion.
