In Person, Online and Tough Choices

repeat

People often throw around the expression that “history repeats.” In truth, the original axiom — it’s attributed to Mark Twain, although I suspect it’s even older — states that “history doesn’t repeat, but it does rhyme.”

It’s certainly true that if you stick around long enough, you begin to see patterns — that what’s happening now echoes what’s happened before. In any partnership between two parties, it’s not always going to be the case that everyone’s aims will be aligned. Even though two parties work together, sometimes incentives will lead them to choose actions that benefit the individual more than their partner. They may even make decisions that harm said partner.

In the current business environment where manufacturers have to weigh the options between selling through online retailers versus brick-and-mortar stores, I see parallels to the tension between choosing between specialty dealers and low-margin big-box retailers in the previous two decades. It wasn’t that long ago that specialty dealers, whether their channel catered to consumers or businesses, experienced tension with their manufacturer partners over the latter’s decision to open up their product lines in big-box retailers.

From the perspective of the specialty dealer channel (and I was on that side of the business when much of this was occurring), there’s a feeling of betrayal when right after a vendor thanks you and your peers for championing their brand and driving sales growth over the years they turned around and opened up formerly exclusive lines in big-box retail. This drove revenue and margins down for their dealers.

We’re seeing it all over again, but different now: Manufacturers, looking to grow their revenue, are taking their products customer-direct via Amazon. I understand the motivation for it: revenue growth. We all want it, no matter where we are in the logistical chain that leads from manufacturer to end user. But whether that actually always works out as intended is arguable and has yet to be determined.

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Broadly speaking, the pool of potential end-user consumers is finite. That’s why competing brands jockey with each other for market share: There’s no unlimited number of consumers, so rival brands have to compete for the money consumers spend. As a brand, you’re counting on your existing base of dealers to reach those consumers and turn them into customers of yours. You’d love it if they’d reach out and sell to all of them, but that’s unlikely, so you hope they’ll sell to most of them. As a manufacturer, going with online sales may grow your revenue, but it may well also only shuffle around where that revenue is coming from. Put it this way, is it growing the pie’s size, or is it just changing the size of each piece?

It’s demonstrably apparent that the impact of COVID-19 over the past year has seen e-commerce’s share of the pie grow enormously, but at the expense of traditional in-person dealers. There’s no avoiding that fact. Personally, I would rather see manufacturers expend resources on helping their dealer base survive, thrive and successfully sell their products for them. I understand the imperative for revenue growth; I’d prefer not to see it come at the expense of the partners who built your brand into what it is today.

I opened this piece up by pointing out that if you stick around long enough, you begin to see patterns, similarities in what’s happened before and what’s happening now. Those same similarities can sometimes give you clues or lessons from the past, suggesting how to proceed. I know I’d sure like to find answers.