Brick-and-mortar intermediaries can no longer deliver value simply by maintaining local inventory and providing product information. According to a new Report from Forrester Research, Inc. (Nasdaq: FORR), the Internet will force middlemen to focus either on product delivery or value-added services. To remain competitive, resellers will need to redefine their strategies by either enhancing product fulfillment capabilities or extending service offerings.
“As eMarketplace trade in the US races to $1.4 trillion in 2004, it becomes critical that brick-and-mortar intermediaries shift both their inventory management practices and services offerings — not just to grow, but to survive,” said W. Daniel Garretson, senior analyst at Forrester.
Changes caused by online marketmakers will create a new distribution channel landscape that devalues local inventory, discourages information hoarding, and separates products from services. eMarketplaces make it possible to instantly locate available goods across an entire industry, eliminating the need for multiple reseller stockpiles. As product information is also made widely available, resellers will need to find new ways to cement customer relationships, for eMarketplaces will enable buyers to easily choose from a myriad of suppliers and create patchwork solutions from multiple parties.
“Instead of controlling customers with do-it-all offerings, middlemen must chose between world-class product fulfillment and physical services capabilities,” added Garretson. “This impending product-service chasm will reshape current distribution channels.”
Forrester believes that over the next two years, successful brick-and-mortar intermediaries must carve out spots in this new structure by gravitating to one of four highly specialized roles. For noncritical, high-volume products, logistics-oriented middlemen will fine-tune their business models to efficiently deliver goods all the way from the manufacturer to end customers. To meet time-critical customer demands, other resellers will focus on immediately delivering goods to the location where customers need them.
In an ongoing quest to support highly complex products, service-based intermediaries will offload product delivery and cultivate solutions expertise. Solution advisors will focus on effective collaboration and the development of basic design tools that will support the ever-changing needs of buyers for these products. Service specialists will differentiate themselves by responding quickly and successfully to customer emergencies and difficulties and providing the status of repair projects, as well as helping clients to diagnose their own problems.
Specialized roles will be determined by the intermediary’s strengths in the supplier marketplace, its products, and customer demands, but several of today’s resellers are at risk. Intermediaries that maintain substantial local inventory for standardized items will face rapidly falling margins as the Internet invades the channel. In addition, today’s value-added resellers face an identity crisis as the Net forces them to choose between products or services. Finally, the need for independent brokers to match buyers with available suppliers will quickly fade as online marketplaces create significantly more efficient, industrywide clearinghouses.
For the Report “Redefining B2B Channel Roles,” Forrester interviewed 50 executives from brick-and-mortar distribution companies with revenues greater than $100 million. These middlemen expect online sales to expand fivefold within two years, reaching 25% of total sales.