The crisis of multi-stage sales models

The crisis of multi-stage sales models
09.07.2018 Kathrin Kempf
brechende welle

How long will the multi-stage sales model survive? The traditional sales process of many industries is divided into multiple stages. Manufacturers sell to wholesalers which sell to specialist dealers which sell to craftsman which finally sell to B2C or B2B end consumers. Since every stage is eager to earn some money, margins accumulate to impressive end prices. Emerging digital sales approaches skip all these levels and sell directly to the customer. First movers are Thermondo for heating installation or Kiveda for kitchen planning and composition (see iq! blog article from 02/2016). Or reuter.de which is the largest German Online retailer for sanitary objects and offers installation support, too.
But what can wholesalers, specialist dealers or craftsman do to oppose the rising competition?

multi-stage model

Multi-stage sales is attacked by digital full service providers
Source: iq! Managementberatung GmbH

Multi-stage sales models face fierce digital competition

Before the advent of the Internet, the sales world was well-defined and every participant had its undisputable entitlement. The digital sales channel brought the end customer closer to the manufacturing entities, direct sales were suddenly possible. The Online Shops of manufacturers have the disadvantage to be brand-exklusive, but soon bigger Online platforms that accumulated offers even better than the physical retail emerged, having unlimited digital shelfspace at their disposal. Nowadays, craftsmen, workshops or consumers can chose between Industry-specific platforms like reuter.de (for sanitary) or Cross-Industry platforms like Amazon Business (read iq! Blog article from 01/2017). At first, the triangle between wholesaler, specialist dealer and craftsman had still the competitive advantage to form a closed loop and consumers had difficulties finding a specialist for e.g. installing goods. But soon, Online Dealers added installation support and Online platforms brokering with services were founded (like e.g. myhammer.de).

Digital Full Service Providers can build a house

Full Service Provider

Digital Full Service Provider revolutionize artisanry
Source: iq! Managementberatung GmbH

Since the launch of first movers Thermondo (for heating) or Kiveda (for kitchen), many other Online Service Providers followed their example in almost every imaginable category of artisanry. Customers are able to build and equip their house using Online platforms. The digital offers do not only include the planning and choice of products, but the installation, too. Thermondo is now the largest player on the heating market and employs over 320 plumbers. Customer satisfaction of Thermondo clients is very high.

Possible backlashes of multi-stage sales models

As one result, the prognosis of sales growth for German wholesalers is meager. But what can the participants of the multi-stage sales model do in order to react to the digital „attack“ and defend their market share?

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Customer relationship programs

Wholesellers or specialist dealers can set up Loyalty programs with the aim of binding their customers closer to them. Considering the partly immense price differences between Online and Stationary sales models, the advantages of benefits have to be really convincing.

Own Online channel

Participants of the multi-stage sales model can introduce own eCommerce acitivities and transfer price advantages for selected products to the costumer. Given the strong competition in the Online segment of many industries, the Online Sales efforts have to very focussed, tailored to specific customer needs and seemlessly integrated into the Multichannel logic.

Better Service

One big advantage, traditional dealers and craftsmen can rely on is service. They are often better able to accompany the customer during the planning process and after installation or purchase.

Conclusion

The majority of wholesalers and dealers are threatened by the increasing Online competition in their respective segment. Therefore, they have to find strong reactions to it. Understanding the needs of the customer and identifying the points where Online platforms are less capable of fullfilling them is crucial.

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