Disintermediation is the process of removing intermediaries from a marketplace, shortening the supply chain and increasing manufacturer margin.
Many manufacturers are reliant on distributors to sell their products, as they hold the relationship with the end customer. However, distributors take a significant amount of margin, often up to 50%. Cutting out the middle man and building a direct relationship between manufacturer and end-customer can be tricky without upsetting the distributor, and there are various ways of establishing a connection.
We’ve been working with some of our manufacturing clients to help them establish direct relationships with their customers by using a loyalty scheme – building customer loyalty, reducing their reliance on distributors, and ultimately increasing their margins.
Targeting the installer
In certain markets, the customer is the intermediary between distributor and end-user, for example where a tradesperson/fitter/installer is employed. The distribution channel follows a path of manufacturer > distributor > installer > end-user. For products where it is the fitter/installer who makes the purchasing decision, they are the customer, and there are opportunities to build loyalty between them and the manufacturer. For example, in a bathroom refit, the end-user might specify the tiles, but it will most likely be the fitter/installer who will choose and buy the adhesive. The end-user might select the taps, but it will be the fitter who purchases the pipes. It is in these markets where there is a lot of potential to establish a direct relationship and increase loyalty, by appealing directly to the installer – the customer.
Of course, many manufacturers are wary of disintermediating and going straight to market – relationships built up over many years with distributors could be lost – and selling direct to customers online can be risky if they aren’t familiar with your website or buying the product online. Online promotion and paid search could help buyers find your products, but at a price, and how do you keep them coming back to your website to buy more?