Direct selling is predicted to be the way of the future.
Sell it direct. That's the message of countless books, articles, training programmes and consultants' advice. Direct selling is widely predicted to be the way of the future. If so, it suggests a bleak outlook for the poor old-fashioned dealer.
These days direct selling usually means by post or telephone, or 'off-the-page' advertising. But salespeople representing industrial firms, who knock on other companies' doors and bend the ears of their buyers, are 'direct selling' too. Business equipment, for example, has all the marks of a sector where manufacturers could be expected to sell direct to end-users in this way: a finite number of potential buyers, fairly complex products in need of periodic maintenance and no special seasonal or cyclical patterns.
For several decades, IBM prospered mightily by selling business-to-business.
So, to a lesser extent, did its competitors, Xerox and countless more.
Direct selling gave these companies a large measure of control over their markets, margins and quality of service. It can still do so. The UK subsidiary of what is now Kardex Systems, a supplier of filing and other equipment floated off from Sperry, used to derive about half its sales from dealers.
'Withdrawing from the trade market worked wonders for our UK profit margins,' reports marketing manager Nick Tuggey.
At Hewlett-Packard, on the other hand, computer products - PCs, printers, file-servers, scanners, etc - move 'exclusively' through indirect channels.
'It's partly a matter of natural selection,' explains marketing manager John Yelland. If market forces have their way, then wholesalers and retailers will tend to handle entry-level printers, while customers for file-servers might well be value-added resellers (VARs). Therefore H-P covers the waterfront: dealers, mail-order houses, high street chains, OEMs - the lot. When it comes to selling complete systems, the division's sales reps (who number about 100 in the UK) call directly on corporate end-users. Nevertheless orders are always channelled through 'one of our dealers'.
Among the Japanese companies, Kyocera (which markets laser printers in competition with H-P) 'has never, ever, sold direct'. After only eight years in the UK, Kyocera is of course a relative newcomer. 'To go direct would entail a considerable increase in selling costs,' admits Ian Joslin, head of sales and marketing. In any case, he insists, 'resellers are good for us'. Canon, which is certainly no johnny-come-lately, also went through the trade in the early years. These days it plays the game according to both sets of rules.
Canon even allows the channels to compete. The company in effect keeps major corporate and government buyers of copiers to itself, and allows dealers to nominate a few accounts from which its own 200-plus salesforce is excluded. As for the rest, Canon and the dealers are in open competition.
'We offer the customer maximum choice,' proclaims Graham Macintyre, marketing manager on the copier side of the business. 'The direct operation makes better gross margins,' he adds. But the dealer channels represent nearly 1,000 more salespeople. 'Because of the scale of the operation, at the net level profits are very similar.'
Rank Xerox has moved the opposite way, from 100% direct selling to a large and growing percentage of indirect sales. Some four years ago the UK subsidiary followed the example of its French counterpart in establishing 'concessionaires', independent businesses selling only Xerox products.
Today it has 60 partner firms employing 450 people across the UK - roughly doubling its sales force. Unlike Canon, Rank Xerox keeps the channels strictly apart, reserving the biggest customers to itself and giving concessionaires a free run at the rest, each within a prescribed area. The new channel has been hugely successful, significantly improving Rank Xerox's market share while the expected narrowing of margins has not occurred, according to Stephen Cronin, director of the UK southern region.
Under the concessionaire system Rank Xerox retains control of quality, carrying out all servicing itself. Canon, by contrast, is happy to farm out servicing to dealers. At H-P, too, 'some dealers are trained to perform repairs on our behalf', says Yelland. Across the business equipment sector, there's plenty of room for intermediaries yet. But that doesn't rule out using direct selling techniques in addition.