Tuesday, 9 January 2018
The traditional distribution channels have become more fragmented, which has introduced new ways of doing business.
The new B2B distribution channels
B2B ecommerce customers are increasingly being empowered with new conveniences and agile shopping opportunities meaning that the traditional channel setup, as we know it, is changing.
The traditional distribution channels have become more fragmented, which has introduced new ways of doing business. In general, distributors and retailers have lost influence, whereas manufacturers and customers have gained direct access to each other.
New challenges and opportunities
While this new setup introduces new opportunities, it also challenges the existing channels with manufacturers on one side, and retailers and distributors on the other. Retailer and distributor risk losing income from customers who might prefer taking their business straight to the manufacturers. This means that the current setup can be hard to change, simply because channel partners understandably have much to protect. For these reasons, there is a strong incentive to stay status quo – despite knowing that customers strongly prefer good ecommerce opportunities to search and transact.
The primary challenge lies in identifying new profitable ways of exploiting the ecommerce opportunities derived from the new channel setup, but without compromising the value chain. To do so, manufactures, distributers and retailers should recognize the potential in working together.
A good example of a company that has managed to establish an effective and setup is Dermalogica in Denmark who is using ecommerce without compromising its existing value chain.
The Dermalogica case
Before introducing ecommerce, the Dermalogica skincare products were only sold in professional skincare clinics scattered around Denmark. The limited product availability combined with the continuing raise in demand for online shopping meant that Dermalogica failed to cover a huge part of the Danish market. Consequently, the company decided to launch a comprehensive webshop solution, but without compromising the existing relationship with all the retailers.
“The development was unmistakable. The consumers wanted to buy online, and so we started considering different ways of establishing a new retailer ecommerce solution in order to prevent competing brands and foreign webshops from obtaining our orders” - Visti Madsbøl, Marketing Director at Dermalogica.
Having considered all possible options, Dermalogica decided on a joint ecommerce solution, which forwards all online orders from the retailers to a central Dermalogica webshop. In return, Dermalogica will handle all product data, packaging and distribution, and the retailer will receive commission from driving the order from his own webshop.
“We are dealing with a retailer network consisting of independent shop owners, who have different views on how to improve their businesses. Our task is to establish a flexible setup, which enables us to trace the individual order back to the retailer disregardless of which webshop the order comes from.”
In addition, Dermalogica launched their own official webshop – dermalogica.dk to increase online sales. However, to prevent the retailers from perceiving it as a direct competitor, Dermalogica came up with the idea for a point system enabling customers to earn bonus points from each purchase made on Dermalogica.dk. Then, when the customer redeems the points in a physical shop, that same shop will receive the commission.
“The retailers will gain a smaller commission when the order is placed in the central webshop, but in return, Dermalogica handles all service, maintenance and logistics. This makes the setup profitable not only for us, but also for our retailers and customers, who benefit from a broader product range in the webshop.”
The solution demonstrates how Dermalogica has succeeded in establishing channel cooperation through an effective and profitable strategy. The setup is beneficial to both retailers and distributers, and it improves the brand awareness and availability by retaining and attracting new customers.
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Continue reading up on this series here:
Part 1- B2B Expansion