Manufacturer Wants Feedback On Plan To Sell Direct Off Their Website

I've been meaning to post this here for a few weeks, and the recent threads made me finally decide to get some feedback.

For the sake of this question, we're talking about a new company and a new product, not a new product being offered by an existing company.

I have a Magic Widget Box those does some things of value. The form factor is a small appliance footprint, like the Husky NVR or a Mini-ITX box. It connects to power, of course, and the network. It's not an NVR, and for now the exact thing it does is not really relevant, other than to note that setup would be fairly simple and not require a lot of complex or in-depth knowledge of networking, weird RTSP URL's, or things like that.

The target customer would be diverse, but more often than not would have their own IT department, or similar technically competent staff that could handle plugging another device into the network and dealing with basic provisioning.

For the most part, this is more likely to be the kind of product where the end user deals with the manufacturer website or inside sales people to ensure that it fits their needs, though some integrators that deal with certain kinds of customers or projects might be able to offer this to the customer if they were not already aware of it.

As far as the sales model is concerned, this is where my question comes in. MSRP will vary based on license type, but it would typically be between $2500 and $20000 USD per unit.

I plan to offer direct end user sales, via a fairly standard website ecommerce kind of site. If you like the demo, and the inside sales people answer your questions, you can order one direct and have it shipped to you. Discounts would be minimal, they would more be a factor of license quantity than a direct discount off MSRP.

A standard integrator could get 10-15% off MSRP just by filling out the basic tax forms and placing an order. This would cover the cases where the end-user wants the unit (and has most likely gotten any information they need and demos on their own), but wants the integrator to provide a single PO and installation service for an entire system. In this situation, the integrator hasn't "sold" the product to the customer, so they get a small courtesy discount and maybe make an extra hour on labor for handling a simple setup procedure.

Integrators that are doing a larger volume of business, in effect truly selling and not just taking orders will get sliding-scale discounts of 30-45% off MSRP, based on annual sales volumes. This would also allow them to be competitive with the direct sales from the website, as they could price it slightly slower and still make a decent margin.

There are currently no plans for distributors in this model. Volumes are unlikely to be so high as to require a distributor. Credit risk is also low, the direct sales and Tier 1 Integrator (10-15% discount) sales are all credit-card only, no terms in most cases. Larger integrators would get credit terms.

I would enjoy hearing general responses on this (or, maybe I won't enjoy hearing the responses). Is there any reason why this model is not feasible? Any likely problems based on this approach?

"I plan to offer direct end user sales, via a fairly standard website ecommerce kind of site."

Is this the part you anticipate problems with?

This is where I could see some integrators seeing the direct online sales objecting and saying "I won't sell this widget."

The question then becomes do you need to maximize integrators to generate sales or can you do enough in online marketing, direct marketing, etc. that such obstacles do not cause a problem.

Most integrators should be able to be reasoned with given your approach of offering additional material discounts for those who sell in volume.

Hell, since Axis is available anywhere anyway, they might as well sell off their own website at MSRP. Or Hikvision :) Dealers still get discounts and get sell for less, package solutions / labor, etc.

Is this the part you anticipate problems with?

Well, no. I've built e-commerce sites in the past. I have no doubt that I can take and fulfill orders without getting a fatal paper cut handling all the invoices :)

This is where I could see some integrators seeing the direct online sales objecting and saying "I won't sell this widget."

Which is fine, because if they won't sell it the end user can buy it direct. It's more like those that see the Big Picture here have multiple options:

1) Don't sell it, which also means they don't have to support it, and they can theoretically prove their value to the customer by forcing the customer to deal direct with support when needed. Of course, I think the end user would in most cases prefer to get direct support anyway, where the support is the knowledge transfer sort (teach me how to use this function) and not the labor sort (you need to climb up on a ladder and change out this component).

2) Make a few bucks for plugging in a device. They didn't have to answer any questions from the customer, perform a demo, purchase demo gear, or otherwise use up measurable time and resources to get the few points of markup. Sure, you couldn't make a living off just these sales, but that's not the intention.

3) Piggyback on the website and marketing which will do the bulk of generating customer interest and demand by embracing the product. They get a large enough discount that they can undercut the MSRP website price, thus proving their value to the end user.

The goal here would really be to have the integrators doing volume resale and the direct sales would makeup about 30% of total sales by unit volume. There are always going to be those customers that want to go direct, or the customers that want the product and are OK with using an integrator but don't have any good contacts. In those cases I've found that trying to play matchmaker also doesn't work as well as you'd think. For the integrator it still takes some time and resources to handle an order from a random customer, and they are often business with their main accounts that processing a 1-off order doesn't always go well and just frsutrates everyone involved.

I also think that the common practice of hiding prices, even MSRP, just makes it harder for customers to decide if a product is right for them.

Not mentioned in my initial post above, but I have also thought of having some "authorized" dealers where a customer who actually wanted someone to just install and set it up for them could have that option as well. Either they would get referred over to the dealer, or we setup an established "basic install" price where the customer purchases through the website, which includes an install fee of say $99, which gets passed to the dealer. In reality the dealer gets that $99, plus their usual margin, so they are making more than $99 and the customer feels like they are getting a low-cost install. This also generates potential new lead sources for that dealer.

Unless you're talking about small town america, most of the time (in bigger metropolitan areas), the $99.00 isn't even going to pay for the gas and wages for a tech to travel across town to the location, park, walk up to the building, wait for reception to get the guy he needs to see in order to install, do the install, answer the customers questions or general chatting that some customers like to engage in and get back to the office or next stop. I think you're going to have to make it more lucrative than that regardless of what they are installing.

Thanks for the feedback!

And the $99 price was just a random example, it would probably be more, and might even have to be somewhat regionally dependent. The main idea being a way to offer the end user customer a simple predictable pricing model. $XXX for unit only $ZZZ for unit with average onsite install. There would still have to be the fine print about how it will cost more if it turns out you want the system installed inside a concrete bunker with no available network drop or power outlet and the tech needs to be part of the local union and a member of the masonic temple.

As long as you stick to this model, I as an integrator would have no issues with it. I would be more than glad to work with you.

Join the club of millions of business selling software and hardware using the same business model. Your problem is how do you reach and convince re sellers to do your marketing for such a small margin. Niche products normally have much higher margins, and those decline as the product becomes mainstream. If your product competes in a crowded space, low price and more features, better support are all that you have to differentiate your product.

Your problem is how do you reach and convince re sellers to do your marketing for such a small margin

The thing is the resellers wouldn't be doing the selling and marketing. That would be done by me/the company. The core demand generation, and the product demo would be handled directly. Sure, there may be some cases where the integrator has a customer that could benefit from this device and mentions it to the customer who has never heard of it, or even does a demo for them, but those would be the exception.

Just set up a good affiliate program and you can sell it off my website's too. It's very simple no one is gonna be happy with some one else's hand in their pocket. How about if your manufacture decided to sell your widgets directly to integrators it's common sense, not rocket science. Now when we have a business man like John we want as many members as possible beause he can't lose. No matter what!! If an end user uses this knowledge to call another and order parts or have all the right questions to pick a capable integrator it doesn't matter either way. No loss. So in the end it's about Making a business plan and selling services that require more than off the shelf plug and play so you have value to your end users. If you don't agree with a suppliers or knowledge sites business plan find a new business partner. One day you will be able to take a bag of groceries to your favorite restaurant and have the chef cook you dinner. LOL

Price that high through a web site sounds sketchy. or at minimum I'd expect a brutal sales experience followed by either wonderful or hellish remote support. $20k should have enough pie in there for some sort of actual human talking to me about the sale. No, a pop-up message with "joe" from bangalore harassing me while I surf the site does not count as "inside sales". (no offense to Bangalore or people named Joe, the manager who ordered the pop-up thing gets all my attention.)