The OEM-Dealer Distribution Model
Over 20 years ago, the Harvard Business Review published a commentary by the CEO of Caterpillar, website Donald Fites. The article is titled, “Make Your Dealers Your Partners,” and it discusses foreign competition, the importance of after-sale service, and the huge role that Caterpillar’s dealers play in maintaining Cat’s market leader position. It’s illuminating to read this decades-old perspective and realize that, with all our technology and the incredible growth of global trade, not that much has changed in the fundamental distribution strategy for heavy equipment OEMs. While some may view these arrangements as antiquated or archaic, there are many good reasons why OEMs choose to maintain traditional dealer networks as their primary distribution channels.
Over the past several years, all the business pundits, management consulting firms, and enterprise software sellers have jumped on the same bandwagon when it comes to the future of B2B sales…
- Younger buyers are digital natives, and they want to buy online
- Multichannel (or omni-channel) sales are necessary to retain or gain market share
- Global competition is commoditizing products of all types at a faster rate
Digabit understands this mentality. Many manufacturers are interested in direct-to-consumer sales, similar to a B2C retail eCommerce environment. It means customers can order any time and anywhere, using any payment method, with a choice of shipping alternatives and other buyer-friendly options.
This idealized business model appears to cut out the traditional roles of distributor and dealer. In the hypothetical model, customers know exactly what they want, and they want to satisfy their needs at the lowest cost, with the least effort.
But for manufacturers of complex, expensive equipment, this “ideal” is a mirage.
Whether a company makes trucks, industrial robotics, or a 200,000-lb. wheel loader, the real world of capital equipment sales and after-sale service and support is a lot messier than the ideal scenario presented in a consulting firm’s strategy recommendation. Some manufacturing verticals still receive huge value from the physical presence of a dealer network.
Benefits for OEMs that build strong dealer relationships
Dealership employees are the OEM’s human face, for everything from warranty management to promotional collaboration. It’s true that everyone gets frustrated with phone support, help desks and impersonal customer service. But we’re clearly not at the point where apps and artificial intelligence can replace those functions…and some people still prefer face-to-face communication.
In spite of the hype about drone delivery and other futuristic fulfillment methods, having a tangible product in inventory within a reasonable driving distance is important to some large equipment owners.
Nobody aside from the OEM knows as much about products and how they’re used as dealers who work with actual owners and operators every day. From providing service and maintenance, to cross- and upselling other OEM products, a great dealer’s product knowledge is still more relevant and accurate than online sources.
Customer loyalty and retention are highly influenced by dealer performance. Rather than being archaic artifacts, dealers provide assurance for buyers who spend millions on equipment. Does anyone want to buy a $1,000 part for a $500,000 machine from an anonymous website? I don’t. That type of sale still requires a level of trust and accountability that you won’t get from slick websites or one-click processes.
In short, the OEM-dealer relationship is neither dead nor dying. The model needs some refinements that are readily achievable by modern technologies. For example, OEMs need better visibility into dealer activity and inventories. And dealers need better communication tools and higher quality product information from OEMs. Technology is poised to tighten and strengthen OEM ties to their distribution channels, rather than alienating—or outright eliminating—their most effective support system.