Wired Channel

Manufacturers collaborate with distributors online

Two years ago, top executives at welding equipment maker Miller Electric Manufacturing Co. thought they had a red-hot idea: Sell the companys secondary brand of welders, Hobart, directly to consumers through its Web site, millerwelds.com.

The idea, however, got a decidedly cold reception from the nationwide network of 950 distributors through which Miller had been selling its products since 1929. Some distributors worried theyd be squeezed out if consumers started buying directly from Miller.

"We were concerned, [and] the last thing we wanted to do was have Miller say theyd sell direct and drop-ship to you," said Scott Chenoweth, president of one of Millers distributors, Texas Welder Supply Co. Inc., in Houston. "The distributor really adds value to the chain."

Executives at Miller listened and, in January, rolled out an e-business strategy that includes distributors. Miller launched co-branded Web sites for a limited number of its top distributors. Consumers visiting Millers site to buy welders now receive a list of the closest distributors along with links to their co-branded e-commerce sites, which have up-to-date product and pricing information from Miller. Distributors retain control of the orders and other transactions, but Miller, a subsidiary of Illinois Tool Works Inc., of Glenview, Ill., controls its brand by giving the 60,000 monthly visitors to its site a way to purchase online.

Already the approach is paying off, said Senior Vice President of Marketing Tim DeMars, who led the project. In the last two weeks in January, traffic on Millers site doubled compared with the monthly hit rate at the end of 2000.

Millers move to embrace, not bypass, its distributors is becoming more common as companies realize that theres more to e-commerce than selling directly to consumers. Companies with strong channels are welding tighter online relationships with distributors, retailers and other channel partners. Their goal is to avoid channel conflict, while maintaining some control over the way online sales are handled through distributors and the way manufacturers products and brands are represented through channel partners online. That means making sure that product and inventory information is accurate throughout the channel and that brands—whether represented through logos, slogans or defined by the online target audience—are treated consistently on distributors and retailers sites.

Reassuring the Channel

By collaborating with their distributors online, experts say, manufacturers can drive online sales while avoiding alienating key channel partners. Consider Millers case. DeMars and other Miller executives decided to back away from their plan to sell directly to customers online after hearing that distributors were concerned about being cut out and possibly losing direct contact with customers. After hearing rumblings, Miller officials held a series of meetings with about 500 of the companys distributors during the fall of 1999. Miller officials found that, although about 70 percent were willing to cooperate by fulfilling orders that had been submitted directly online to Miller, many distributors remained skeptical.

So Miller officials began looking for a strategy that more directly involved their existing channel partners. After discussing the situation with their Web integrator, dmInteractive, of Green Bay, Wis., they decided to launch the co-hosted sites using services from InfoNow Corp., a vendor of hosted e-commerce channel management applications. Using InfoNows iCommerce service, Millers distributors can set up Web sites that link to Millers product catalog. Miller provides InfoNow with regular updates of its product catalog, and InfoNow works with distributors to set up the sites with pricing and product information tailored to their product mixes. Distributors can also tap into InfoNows hosted shopping cart application. Distributors, not Miller, pay for the hosted service, which includes a setup fee of $3,500 and a monthly fee that Chenoweth, of Texas Welder Supply, said runs less than $1,000.

For Miller, the initiative allows it to keep distributors in the online sales picture while still controlling the flow of customers through its Web site. Why the need for that control? Traditionally, Millers distributors are under no obligation to sell Miller products from the leads they receive. Most sell products from two or three of Millers competitors as well as from Miller. With its co-branded sites strategy, though, Miller is able to lock distributors into its products online by restricting them from including competitors products on the co-branded site. That way, said DeMars, Miller is capturing consumers that seek its brand online.

Distributors, for their part, havent protested. Only a handful had any e-commerce on the Web prior to Millers initiative, DeMars said.

Tip of the Iceberg

Providing a consistent, seamless online Web interface to consumers is, of course, just one aspect of what, for most manufacturers, will grow to become a much broader initiative to improve relationships with channel partners using the Internet. Eventually, besides coordinating catalogs, Web site designs and brand management, manufacturers and their channel partners will move to link back-end systems and processes such as order management, inventory management and customer relationship management, experts say.

A small but growing number of software and online service vendors have begun focusing on enabling closer online links between manufacturers and channel partners. Software vendors such as InfoNow and iMediation Inc. have focused on managing the front-end online selling process through the channel. They loosely belong in a category of technology vendors providing enterprise channel management software and services.

A second set of vendors has begun rolling out products that can address the broader back-end integration issues that would allow, for instance, a retailer to check manufacturers inventories, place orders and jointly manage marketing programs in real time through the Web. Among vendors focusing on these areas are Allegis Corp., Haht Commerce Inc. and NetVendor Inc.

For some manufacturers, making sure channel partners have up-to-date product information online and that they dont step on each others toes is only part of the focus. For companies like cosmetics maker Lancôme, its about making sure that the brand is properly and consistently represented through retailers online. Two years ago, Lancôme officials were concerned that wasnt happening. Before Lancôme launched a co-branded site initiative, retailers were simply posting unadorned catalogs of the companys products. Lancôme officials would have preferred that they offer the cosmetics in conjunction with value-added services, such as free beauty advice. Without such services, Lancôme officials said they feared the companys products didnt carry the right high-end brand perception online. So, two years ago, Lancôme, of New York, requested that its retailers end online sales of its cosmetics. Instead, the company focused on creating its own e-commerce site and building strong links between its site and those of retailers, said Sarah Williams, vice president of interactive marketing for Lancôme.

When Lancôme launched its site in December 1999, it focused on incorporating features that assist visitors in finding products that match their physical characteristics, such as skin type or eye color. The goal, Williams said, was never to replace the retail channel but to use the Internet to provide customers with tools for choosing Lancôme products and for the company to accumulate a database of customer information.

Then Lancôme officials took the next step, creating close ties between its site and those of its retailers. Using software called iChannel, from iMediation, that it deployed in December, Lancôme is able to sell its cosmetics through retailer partners sites such as Macys.com Inc.s while maintaining control of the content and branding. The model in many ways resembles the offline world, where high-end cosmetic companies like Lancôme typically manage and staff their own cosmetic sections inside department stores.

San Francisco-based Macys.com, a subsidiary of Federated Department Stores Inc., was the first online retailer to launch the Lancôme boutique site. Now, when visitors want to buy a Lancôme product on Macys.com, they are taken to a special Lancôme page. Lancôme serves and updates the content and look and feel through iChannel. But when customers click the buy button, Macys.com handles the transaction.

Lancôme plans to launch its boutique site next month with Federateds Bloomingdales.com and Belk Inc.s Belk.com and is working on an April launch with Nordstrom Inc.s Nordstrom.com subsidiary, Williams said.

Revving Up

Not all manufacturers, however, can follow a dual strategy like Lancômes, coordinating more closely online with channel partners while also building their own e-commerce sites. In the automotive industry, for example, while large manufacturers continue to explore the concept of direct online sales, the idea of direct sales from car manufacturers has never shifted out of neutral. There are a couple of reasons for that: Dealers are critical for fulfillment, and franchise laws in most states protect dealers as the sales channel, said John Holt, president and CEO of auto industry Web integrator and consultant The Cobalt Group Inc., in Seattle. So car manufacturers have begun concentrating on how to enable their dealers to handle collaborative online selling, something Cobalt specializes in by developing and hosting dealer sites in conjunction with auto manufacturers.

At DaimlerChrysler, of Auburn Hills, Mich., rather than trying to sell cars directly to consumers, the company has concentrated on how to bolster online sales in conjunction with dealers. One of the first steps in 1998 was a pilot project to share online customer leads with a select group of its Five Star Dealer, a designation of top customer service, said Tom Peyton, senior manager of e-commerce at DaimlerChrysler. While results were positive, the automaker wanted better response rates from dealers and more Web functionality. DaimlerChrysler, for example, wanted the referrals to take place online in an automated way.

"There needs to be some sort of order when [consumers] are transferred from our site, and that gave rise to the whole issue of dealer Web sites integrated into our corporate Web sites," Peyton said.

In September 1999, DaimlerChrysler began working with Cobalt to develop a program to tightly link dealer Web sites into the automakers sites for brands such as Chrysler, Dodge and Jeep. After a pilot in December, the program was launched last May and now includes 2,500 dealers nationwide. Dealer sites have common navigability and design but are customized with dealer information, including their stock of new and used cars. Though dealers can advertise their own sites, most traffic comes from the brand sites of DaimlerChrysler. Consumers can visit Chrysler.com, for instance, and configure a new car, receive the list price and then be pushed out to a dealer site for inventory and quotes. Chrysler requires dealers to respond to consumer requests for quotes within 24 hours and plans to shorten that to 8 hours this year, Peyton said. Many are already responding within 2 hours, he said.

DaimlerChrysler officials declined to specify the arrangements with Cobalt and the dealers, but typically Cobalt charges dealers a monthly hosting fee.

Maintaining such controls on design, participation and responsiveness has helped DaimlerChrysler ensure the satisfaction of the estimated 4 million visitors to its brand sites who may turn to dealers for online information and purchases, Peyton said. At the same time, its helping dealers grab more online leads. Over time, those leads will account for a majority of dealers business as consumers increasingly research cars online, Peyton said.

The next step in DaimlerChryslers bid to integrate more closely to dealers online will focus on cooperative direct marketing. The company last month planned to roll out through Cobalt a series of online promotions—offers for discount oil changes, for example—that dealers can use to increase online and showroom traffic.

Its customers, after all, who are leading companies to rethink how they work online with their channel partners. In the next 12 to 18 months, channel cooperation is likely to only increase now that fear of disintermediation is subsiding, said Stephen Zrike, an analyst with Forrester Research Inc., in Cambridge, Mass. Increasingly, online cooperation between manufacturers and channel partners will involve more than just sales, but also the exchange of product and marketing information.

"On both sides, the initial fear is abating," Zrike said. "Even if [companies] sell direct, its just an option. They still need the retail channel and its better to work cooperatively with retailers."