Selling direct is breaking the rules

Gordon Innocent asks whether manufacturers and distributors need reminding of the rules of the game

A simple distribution model is one where manufacturers make things and sell them to distributors. In turn, distributors help to develop a market and sell to their channel partners – resellers. The resellers then help design offerings to sell and often install for the end user.

So, vendors have a responsibility to design, develop and manufacture products that end users want. Their choice is whether to sell through an exclusive distributor or multiple distributors. An exclusive distributor offers focus and a close relationship, especially valuable where there is a high degree of pre- and post-sales technical support required.

Multiple distribution offers the manufacturer potential to spread further across the market, with a view to achieving more volume. This model works best when the products are more of a commodity and there is existing demand from the market.

The vendor, however, may be tempted to sell via a mix of direct sales, channel distribution and direct resellers that buy from the manufacturer themselves. Where the manufacturer is selling direct to the end user these accounts are usually called 'house accounts'.

The reason generally given for selling direct is that the account is too big, or too technically demanding, to be handled by any company other than the manufacturer itself.

Unsurprisingly, when vendors sell straight to end users, resellers complain they may no longer be able to touch certain large customers. The effect is similar when direct-selling resellers cut out distribution in the middle.

Distributors have a responsibility to provide their manufacturers with a viable route to market, at the same time providing resellers with good advice, fair margins and prompt delivery.

But distributors need to know their place in the scheme of things. They should stick to the rules of the game and just sell to resellers. The distributor's choice is to offer products to any reseller, or to opt for a limited number of reseller partners.

If a distributor finds itself talking to an end user, like the manufacturer it should offer advice only, asking the end user if it has an existing preferred supplier or installer. If not, the distributor should recommend a small group of resellers it thinks will best suit the end user's requirements.

The distributor should not quote or sell direct. If it does it will lose the trust of its resellers, and possibly any further business from other resellers that find out it is doing so.

Resellers are in an uncomplicated position: they can buy anything they like from any vendor they choose. In turn, they can sell to whomever they like. As long as they do a good job helping to design a system that best suits their end-user customer, resellers alone deserve this business – and they deserve to get it with a decent margin.

Gordon Innocent is chairman of RGB Communications