Channel conflict is over; Retailers now "Expect Direct Sales"

Matti Heikkila was described by a former Nokia President as “Rock and Water”, for his ability to charm people to work together while politely guiding them to his point of view.  In his 30-plus years at Nokia he worked during the time of  five CEOs, and held various posts including Data Division Export Director, GM of Global Accessory Business and finally running the direct sales operation. He is hugely entertaining; modestly recounting stories from the growth of the mobile business, and has much to tell about organising channels and internet sales. He is now the Chairman of eChannels, a consulting company that works with major brands to help them sell direct.

It’s with my “Manufacturers D2C” hat on that I meet Matti at ceBIT, where he is presenting case studies and “how-to” on reducing channel conflict. He recounts how Nokia had evolved their e-commerce solution, launched before the dot-com boom in 1999. Nokia had watched the PC direct-sales models carefully, deciding to learn about the direct-to-consumer sales model, and “get some practice” so that if there was a sudden shift to online, they would be ready.

The dot-com crash of 2000 meant that plans for further developments were scaled back, and the corporate online sales learning  evolved into an extranet for Nokia’s partners to buy online.  “It helped us scale,” said Matti, “and meant that we could expand our sales without the need to grow the local sales force massively, especially in the Middle East markets”. He added that Nokia found the productivity gains were significant.

In 2007 Nokia launched the direct-to-consumer store, to sell handsets, accessories and software downloads. Matti had to deal with many issues internally to start the initiative – chiefly with the perception of channel conflict (more later) but also internal competition from other projects. Matti said “Nokia is a democratic company – and several managers had started up e-commerce activities – so alliances had to be forged to bring differing initiatives together, or to terminate some projects”. This Darwinian approach was typically played out in a gentle, Finnish way: ”The culture is forceful, but respectful.  Nokia allows strong internal competition, but you need to behave!” he added.

Handling channel conflict opened his eyes. In many instances, the reasons why a local e-commerce initiative had failed had been down to long, comfortable relationships between the senior country executives, and dealers, many lasting a number of years. No one in this circle wanted the possible trouble of a direct sales initiative which could affect the  channel equiibrium, so facts (and emotions) were presented to prove “it could not work here”. Matti’s tactic was to go further down the organisation to speak to managers, salespeople and and finance people, and understand the real facts and issues (here is where you can understand how his “Rock and Water” name came about). Presented with the truth, the executives agreed to the corporate “multi-channel” strategy.

In one case, the termination of the existing e-commerce relationship was actually a relief to a channel partner in one large country. Operating it on behalf of Nokia, the initiative had been started early, and the platform was outdated – but there was not an easy way out. However, when the Nokia D2C strategy was rolled out, it improved and clarified the relationship.

Protect the Brand, Sell Direct

I asked Matti why Nokia took the decision to sell direct. His answer “Number one: protect the brand. With so many partners online it’s essential for brand owners to set the right online marketing examples, to guide retailers and gently control the material available”.

Next reason is “Two way communication. The new social media activities, especially in  switched-on target markets mean that the brand (and product) is talked about, positively and negatively. A manufacturer needs to be part of that conversation – to listen, and sometimes to contribute”.

This leads onto Matti’s most controversial stance on channels: He sees conflict as a result of “direct v. channel partners” as a largely Web 1.0 phenomenon. “In the 2010’s, channel partners  will expect or even demand that a manufacturer has at least some direct sales activity. Web enabled sales is very important for the channel partners.”

“The last 10 years has been eChannels 1.0 – it was all about sell-out  to channel partners and consumers – manufacturers just followed the etailers, and there was little or no customer data feedback” says Matti. “We will see eChannels 2.0 next  – manufacturers will find ways of having two-way dialogues with consumers through brand communities, direct feedback or social media. They will listen, improve products and services, and in turn share that with the channel. Strong brands will lead the channel, and will communicate customer needs and expectations as a result of this conversation. Manufacturers who do not have some form of direct contact will be left behind by partners who will expect an improved level of communication.”

Matti goes on “Switched on affiliates, bloggers, twitterers or other plugged in networkers will become channel partners, able to get into niches that no-one else can serve. They will operate with no stock, and live on sales commissions from recommendations. And this channel demands a level of engagement not based on personal contact, but on rapid, effective and deep communications with manufacturers. You had better be ready with intimate details of your product specification for example, on recycling (for “green” bloggers), performance (gaming geeks) or industrial design (for the fashion sites). Gaining their loyalty will be key.”

Matti summarises: “Direct sales can help the whole channel – transparency, and efficiency benefit everyone – that’s why I believe that channel conflict is over, and  partners will start expecting direct sales as part of the mix”. I observed his audience of manufacturers nodding heads in agreement, so expect this trend to increase.

To find out more, Matti’s site is echannels.fi. We have some Manufacturers D2C articles on the enGaugement site  including our Direct Sales Toolkit, and the Manufacturer D2C group is on Linked-In.