Concept: This idea consists of the manufacturer utilizing the Internet, equipment shows and direct personnel to make the initial sale, and making some other subcontract arrangement for parts, service and repair. According to Russell, this is similar to how equipment is distributed in some countries in Europe, where sales and service are functions handled by different dealers.
Appeal: The Internet has changed behaviors about equipment buying today. Any and all sales support information can be posted to the web and could bring the buying process very near to online execution in some cases.
Bakker of Monosem can envision a model in which an "agent" works as an independent contractor directly with the manufacturer to perform the sales function and make customer connections locally. "This is the way many people started companies way back and it's still being used sometimes. It could also be done by a local agent, not a distributor, who knows the farmers, and the manufacturer could sell direct to through the agent."
He says this would probably work best with big operators that buy a big amount of equipment. Once the contact is made and qualified, the company would move in and take it from there and provide all technical support and whatever else is required to close the deal. The agent would receive a commission on the sale.
This type of arrangement would work particularly well for companies like Monosem, Bakker says. "This is pretty much what happens now anyway because most of our equipment is customized. Even if a farmer goes to a dealer, the dealer basically calls us, our engineers figure out what the customer needs, makes a blueprint of it, and sends it to the farmer. When he OKs it, we build the equipment.
"The agent could handle other equipment as long as it doesn't compete with our equipment, as long as it is compatible. He could sell a tillage tool, for example. It's basically the same as we do right now with reps. The difference is that reps right now call on the dealers and this agent would basically call on the farmers. You see some of these farmers are getting so big right now and the dollar amounts are getting so large that they can afford to do that. If a farmer buys 2 planters for $300,000, then you can afford to have somebody go to him and support it," Bakker explains.
Boak says he understands why some manufacturers pursue this "direct to dealer" model. "They simply cut out the dealer in our normal distribution channel. Some of the reasons they do it is certainly higher margins and there's lot fewer people to train; it can simplify things."
Limitations: The trade-in continues to be a problem with this model, says Glass, acknowledging that subsequent efforts involving jockeys, set-ups and auctions could clear this hurdle. But another problem, he says, is safety and liability. "It's easy to post videos on the web about safety dos/don'ts but there's no easy way to document that the buyer watched it. The best part of the dealer-sale paperwork is proof that they went through the safety information.
There are a lot of products - rotary cutters, stump grinders, rock pickers to name a few - that would not be worth selling online due to potential liability concerns if misused, he says. DR Equipment, a manufacturer of outdoor power equipment, is one that appears to be having luck selling direct online, although with relatively inexpensive product.
"There are only so many cuts you can take on margin," says Russell, "so the equipment value would need to be high to make it work with a separate dealer-and sub-dealer model. The Internet and bricks and mortar is mostly complementary; people still want to kick tires."
"But as purity pushed in, and with John Deere starting Frontier, it brought the Internet to the forefront," says Glass. "When all this started, most people were reluctant to do direct Internet-sales because they already had a dealer organization set up; you don't want to do anything that jeopardizes a dealer who's attempting to support you."
Another variation of this model is seldom talked about, and that's a major-line deploying its own direct sales team. Imagine an OEM position similar to a territory manager that calls on farmers instead of dealers.
"There's nothing that would prevent them from doing it," says Glass. The major could put the attention of its field people to call on farmers instead of dealers, and could use a combination of Internet and shows to attract interest and go out and work the sale out, with jockeys standing ready to buy the used.
"This model relies heavily on trade shows," he says, noting that some shortline manufacturers already attend up to 80 shows per year and could focus efforts more on direct sales in areas where good dealer representation doesn't exist.
Great Plain's Evans doesn't believe this would be an effective way to distribute his company's complex equipment. "Not too long ago somebody suggested that maybe we need to sell direct. There's no way that this will work with our lines.
"Now, if you're selling small attachments and that type of thing you might get by with that, but we're selling $300,000 planters with ISOBUS control systems. We can't do that direct and take care of the end user. If we can't take care of the end user when he's trying to plant, he's not going to buy our product. So I don't believe this is an alternative for us."
Conclusion: If the concept held water, one could argue that the two-step distribution process would not continue to lose strength.
Glass says this is another case where the challenges have been such that you'd have seen this model in play by now if it had potential. There's a few selling direct, but very few.
How the Factory-Direct Model Works for Hagie Manufacturing
Farm Equipment interviewed Hagie President/CEO Alan Hagie, to learn more about how the fast-growing maker of self-propelled sprayers is making its factory-direct model work - with 100% of its techs and salesmen as direct employees.
Hagie says the direct-sales approach was formed by his dad and granddad early in the company's history, with their personal insistence in being close to the customer. Each time the manufacturer dabbled with dealer distribution, he says, it struggled with the customer disconnect and inconsistent dealer support. "We stopped experimenting with dealers decades ago, and decided to perfect our direct sales approach and make it a differentiator."
The decision to go direct is a more difficult one than utilizing dealers. "To go into another area, a manufacturer can find a dealer, sign them and be in the market immediately."
For Hagie, the resources to support the model are significant. But it's the commitment to the model, says Hagie, that takes more backbone than the capital and talent investment.
Today, Hagie (which covers the geography of Colorado to Ohio and Oklahoma to Canada) has 25 in-field direct salespeople, most of whom have a demo sprayer for their territory. More important, says Hagie, are the 40 in-the-field service techs, who live in the geographies where machine populations are highest. Each tech has a $120,000 service truck and directly maintains $30,000 in parts inventory. The number of in-field techs as grown 6-fold since 2008.
Techs are in short supply to begin with, and Hagie places even higher demands on them. "The techs work in teams, but they don't see each other that often," Hagie says. "They must be self-managed. It's an awesome job for the right people, but not everyone is right for the job. They must be good with customers, know the technology and can work at a high level without someone looking over their shoulders. It's a lot of responsibility and it's the combination of those skills that makes it difficult at times."
In the last 5 years, the firm opened regional support centers that consist of a large shop, parts warehousing and a place to show the used machines. The regional manager takes some of the call pressure that previously came in to the Clarion, Iowa, call center. "The customer never needs to go to the service center," says Hagie. "The technician will always be at the farmer's door as needed."
Hagie previously tried contracting tech services with other dealers and independents, but "It was just another opportunity for something to not go well," he says.
Hagie admits that factory-direct model requires patience. "It takes a while to create the infrastructure. Not only are you building and selling the equipment, but you also need that support staff network. It's more complicated; we must learn the area, and hire sales and service staff that fit our mold. Entering a new market takes much more time than a dealer model."
But even with aggressive expansion plans (the firm has doubled in size and revenue since 2008), Hagie says the model will support new geographies. "We've reached a scale now where we can enter a new market without the short-term pressures. By the time we need a new market to perform, it's mature. This takes more foresight to do the things today that are needed for 5 years from now. I don't see it holding us back in any way. It just requires us to be more proactive."
Hagie maintains that if he was starting the business today, he'd still opt to go with the same factory-direct model. "The business is more capital-intensive today, and it might be more difficult to generate the revenue to get it going, but I'd do everything the same. We've got strong, intimate relationships with our customers. I can't imagine it any other way."
- Alternative Distribution: How Many Options Really Exist?
- Independent (No Mainline Tractor or Combine) Servicing Equipment Dealers
- Traditional Dealerships Setting Up Separate Entities to Sell Shortline Equipment
- Manufacturer-Owned Company Stores
- Joint-Venture Dealerships Owned by Several Shortline Manufacturers
- Co-Ops Adding Farm Equipment to Their Offering
- Direct to Farmer Sales; Subdealer Model for Service