When I was developing software, my company sold through a network of dealers in the United States, and distributors in other other countries. We did not sell our software direct, even though we could have kept 100% of the sale if we had chose to do so. The reason why we went with a dealership channel was because the dealer could sell them the additional hardware and software they needed, in this case a complete AutoCAD system. They could also provide local training and support (this was before online training was possible).
Most of our early WebStores customers were wholesalers, who we met at various trade shows. The wholesalers would either make their own products, or they would source them from other countries and sell them through retail stores. Their business model was to sell through a dealer channel. Over the years, we frequently heard these wholesalers talk about selling at retail on their websites in order to increase their margins, thus cutting out the middleman. This of course can cause its own problems, especially channel conflict – often it is still best to have different websites for wholesale versus retail and give them two different names, essentially acting as your own supplier.
Now digital-native brands are exploring new ways to reach customers beyond their online presence. One such method is a brick-and-mortar dealer network, much like car dealerships. While it may seem odd for online-based brands to venture into the physical world, it’s not conceptually different from selling on Amazon or having your own retail store. In fact, adding a dealer network can be an effective way to expand a brand’s reach, offer additional services, and increase revenue.
How a Dealer Network is Similar to Selling on Amazon or Retail Stores
At their core, dealer networks are simply another way to present products to customers. Whether it’s through a physical retail store, online marketplace like Amazon, or dealer network, the goal is the same – to meet the customer where they are and provide additional services.
Retail stores, Amazon, and dealer networks all have their unique advantages and disadvantages. For example, retail stores can offer immediate gratification to customers who want to see, touch, and try on products before making a purchase. On the other hand, Amazon can reach a massive audience, has a well-established infrastructure, and handles fulfillment for sellers. A dealer network, meanwhile, can offer installation, maintenance, and training services, as well as face-to-face support.
Wholesale Margins and Finding Retailers
One of the primary advantages of a dealer network is that it allows brands to reach a wider audience and increase revenue. However, when selling through a dealer network, wholesale margins must be considered. Wholesale margins are the difference between the cost of the product to the brand and the price at which it is sold to the dealer. The dealer will then mark up the price when selling to the end customer.
Brands must carefully consider pricing when selling through a dealer network. If margins are too low, the brand may not make enough profit to justify the investment. On the other hand, if margins are too high, the dealer may not be able to make a profit.
To find retailers, brands can take several approaches. They can attend trade shows, look for complementary businesses in their local area, or search for dealers online. It’s important to find dealers who are a good fit for the brand and its products, and who have a good reputation in their community.
Developing Dealer Criteria
Before reaching out to potential dealers, it’s important for brands to develop dealer criteria. This will help ensure that the brand is targeting the right companies and that both parties will benefit from the relationship. Some factors to consider when developing dealer criteria include:
- Location: Where should dealers be located? Should they be in a specific region or country?
- Type of Company: What type of company would be a good fit for the brand’s products? Should they be complementary businesses or in the same industry?
- Target Market: What markets should dealers target? Are there specific demographics or industries the brand wants to reach?
Once the brand has developed its dealer criteria, it can start reaching out to potential partners.
Creating a Dealer Contract
Before working with dealers, it’s important for brands to have a dealer contract in place. The contract should outline the terms of the relationship, including margins, product support, exclusivity, services provided by the dealership, and compensation for those services. Often, wholesalers will require a minimum initial or opening order, especially if any white labeling of the product is concerned. You may also require minimum order amounts for subsequent orders; if so this should be included in the dealer contract. The contract should also include marketing details, such as who is responsible for promoting the dealer and the product, as well as use of trade names when it comes to advertising.
Managing Dealer Relationships
Managing dealer relationships can be a full-time job, and it’s essential for brands to invest time, effort, and resources into building and maintaining those relationships. This includes providing training, inventory, and capital to dealer partners.
Training is an essential part of managing dealer relationships. Dealers must be knowledgeable about the brand’s products, how to use them, and how to provide support to customers. The brand should provide dealers with all the necessary training and resources to ensure they are able to provide high-quality customer support.
Inventory is another important factor to consider when managing dealer relationships. Brands must ensure that dealers have sufficient inventory to meet customer demand. The brand should also have a system in place for tracking inventory and ensuring that dealers are ordering enough product to meet demand.
Capital is also important when working with dealers. Brands may need to invest in their dealer partners to help them get started. This may include providing financing, marketing support, or even inventory to help dealers get off the ground.
Creating promotional material that the dealer can either obtain for free or purchase including stickers or signage indicating they are an “authorized dealer” can be a great way to create a relationship with your dealers.
Once you have multiple retail outlets selling your products, you might want to add a “where to buy” map to your website. There are various WordPress plugins that allow you do to this, including giving users the opportunity to search within a radius by zip code of where they are located.
Finally, it’s important to stay in regular communication with dealer partners. Brands should establish regular check-ins to discuss sales, inventory, and any issues that arise. This will help to build a strong working relationship and ensure that both parties are benefiting from the partnership.
Potential Benefits of a Dealer Network
Adding a dealer network to an ecommerce brand’s sales strategy can offer a range of benefits, including:
- Increased revenue: Selling through a dealer network can help brands reach new customers and increase revenue.
- Additional services: Dealers can provide additional services such as installation, maintenance, and training. This can help differentiate the brand from traditional retailers.
- Local presence: Dealers may reside in the local community, providing a physical presence for the brand in areas where it may not have had one before.
- Enhanced customer experience: Dealers can offer customers an easy way to return or maintain products, purchase enhanced services, and receive face-to-face support.
- Diversification: Adding a dealer network to an ecommerce brand’s sales strategy can help diversify its revenue streams and reduce reliance on a single channel.
Concerns with Dealer Networks
While there are many potential benefits to a dealer network, there are also some concerns that brands should be aware of, including:
- Brand commitment: Dealers may not always have the same level of commitment to the brand as the brand does. Dealers who only want to sell products may place the items on a shelf and forget about them, which could harm the brand’s reputation.
- Dealer performance: Brands that rely on dealers to install their products risk reputational harm from poor installation. Brands must ensure that their dealers are trained and have the necessary expertise to install the products properly.
- Margins: Brands must carefully consider pricing when selling through a dealer network to ensure that margins are high enough to justify the investment but not so high that dealers can’t make a profit.
- Management: Managing dealer relationships can be a full-time job, and brands must invest the necessary time, effort, and resources to build and maintain those relationships.
Adding a dealer network to an ecommerce brand’s sales strategy can be an effective way to increase revenue, offer additional services, and reach new customers. However, it’s important for brands to carefully consider the potential benefits and concerns of a dealer network before investing in one.
Brands must develop dealer criteria, create a dealer contract, and invest in training, inventory, and capital to manage their dealer relationships effectively. By doing so, they can build strong working relationships with their dealer partners, enhance the customer experience, and diversify their revenue streams.
Greg Jameson has been writing blog articles on ecommerce and internet marketing for over 10 years. Learn more about Greg at https://webstoresltd.com/about/