Manufacturer Model - Selling Direct

The use of direct sales channels was expected to significantly increase in the early 2000s, boding well for companies using a manufacturer model. Stamford, Conn.-based Peppers and Rogers Group and the Menlo, Calif.-based Institute for the Future conducted a study that forecast revenues for consumer direct sales to grow from $190 billion in 1998 to $1.1 trillion by 2010. The study also predicted that the number of consumers using the direct sales channel would triple during that timeframe from 11 percent to 33 percent.

By eliminating third party intermediaries like distributors and wholesalers, consumers are supposed to benefit with lower prices. However, some third-party groups have made successful attempts to protect their survival. Among them are the National Automotive Dealers Association, the Wine Wholesalers Association, the National Association of Travel Agents, and the National Association of Realtors. Their efforts have made it impossible for automobile manufacturers to sell directly to consumers, and for wineries to sell wine via the Web. Efforts such as these were considered roadblocks by some manufacturers. However, others encouraged the involvement of third parties in their supply chains because they were able to offer added services that manufacturers found valuable. One such area was logistics, which can include services related to warehousing, storage, inventory management, and shipping.

While leading companies like Mattel, Nabisco, and Polo Ralph Lauren were selling some products directly to consumers in the early 2000s, they did not do so exclusively. Companies like Austin, Texas-based Dell Computer Corp. relied more heavily on the manufacturer model. In 1984, Michael Dell founded the company in a Texas dorm room with the goal of understanding the unique needs of customers and building computers that met those needs. Through a direct sales approach, the company put a premium on in-person relationships. Based on customer specifications, the company manufactured computers individually at locations in Texas, Tennessee, Brazil, China, Ireland, and Malaysia. In addition to consumers, Dell also sold computers to the corporate, education, and government sectors. It received about half of its orders and technical support requests via its Web site. Dell is proof that the manufacturer model works. The company achieved rapid growth, surpassing IBM in global market share in 1999 and climbing to the top of the overall world market in the first quarter of 2001.

The manufacturer model isn't limited to the technology industry. Airborne Direct manufactured bicycles for consumers based on their custom specifications, much like Dell did with computers. At its Web site, consumers were able to choose different types of bicycles and customize the components they wanted. The company used a "Bike Wizard" to help customers pick the right bike. Based on a number of different questions related to riding experience and body size, the wizard was able to select the right bike for each customer. If components were selected that might not be compatible with the bike, or that might delay a fast shipment, the Web site displayed special warning icons. Salespeople were available by phone or e-mail to assist customers with their orders prior to purchase. Additionally, Airborne allowed cyclists to store their custom bike designs in "online hangars" for 90 days to put bikes on display for viewing or to set up a gift registry. While most leading bicycle manufacturers remained loyal to their large networks of dealers, Yeti Cycles also sold custom bikes via the Internet. Mongoose used a combination of the two approaches to sell its line of titanium bikes, giving local retailers credit for bikes it sold online.

Flowerbud.com was another example of a company using the manufacturer model. This company sold flowers through its Web site. Founded by Mark and Alice Hayes, who operated a bulb farm near Portland, Oregon, orders sent to Flowerbud.com were filled by a handful of select growers across the United States, as opposed to florists. These growers shipped flowers in special packages via FedEx next-day service hours after being cut to ensure maximum freshness.