Companies increasingly use digital technologies to circumvent distributors and enter into direct relationships with their end-users. These relationships can create efficient new sales channels and powerful feedback mechanisms or unlock entirely new business models. But they also risk alienating the longstanding partners that companies count on for their core business.
The auto industry is a case in point. Porsche’s Passport program allows consumers to subscribe via a phone app to a range of vehicles for a fixed monthly fee. Your chosen Porsche is delivered to your house with insurance and maintenance as well as unlimited miles and flips to other models included. But if you’re a Porsche dealer, how do you like this idea? Now consider that similar subscription services are being offered by Volvo, Lincoln, BMW, and Mercedes, with more to follow.
These direct-to-consumer offers threaten the very livelihood of dealerships, who historically have owned the customer relationship. And many dealers are pushing back. The California New Car Dealers Association lobbied for a law that required subscriptions to go through dealers. Volvo’s program has elicited so much criticism that dealers have mobilized the Indiana state legislature to outlaw the business model.
This is but one example of the digital Catch-22, the dilemma that most manufacturers and service companies face when creating new distribution channels. As a result, many B2B companies remain stuck in a stalemate. Writing in the Sloan Management Review, Boston College professor Gerald Kane noted that 87% of executives surveyed indicated that digital technologies will disrupt their industries to a great or moderate extent. Yet fewer than half felt that their companies were doing enough to address this disruption.
We frequently find that executive teams understand the potential of a reinvented distribution strategy; however, they are unclear on how to proceed. While the opportunity is compelling, so is the potential to upset existing distribution partners and thereby damage the core business. Disgruntled distribution partners may retaliate in ways such as switching to rivals, favoring competing products, or even lobbying for legislative remedies.
How can companies position for the future without putting their current business in jeopardy? Here are three strategies for developing digital distribution approaches that minimize risk: