Rough Type: Nicholas Carr’s Blog: When “direct” becomes a disadvantage
Smart post by Nicholas Carr on Dell’s financial woes. He nails the economics of customer support — while selling direct cuts out the middleman and reduce the hang time of inventory, it doesn’t cut out support costs, indeed, it assumes them rather than passes them on to a distributor or into the channel. Result: Ouch.
“So there, perhaps, is the flaw in the direct sales model, particularly when it’s applied to a commodity product like the PC: You have a cost disadvantage in customer support, which is hidden as long as support represents a fairly small portion of the each product’s overall cost. But as the price of your product falls, due to savings on the production side, support begins to represent an ever larger percentage of its cost. At some point, you cross the line: The direct model’s cost advantage disappears.”
It gets even worse when you’re seling direct at a low price. Eventually you get into a market segment that requires extensive hand holding, and that really eats into your support budget. And this maket segment screams very loudly and eventually those cries are picked up in rural America by the press who looks into it to protect their readership– it’s a quick apiral dowanward from there.
Best
Jim Forbes
There are other benefits though, of the direct model (not sure how you would measure how good those benefits may be though). Such as, being close to the customer…if you’re good at it, it will help you keep them. If you’re good at it, you’ll learn more about the customer each time you meet with them, each time they transact with you, or each time they complain to you.
If you have the middle man, what guarantee do you have that you’ll ever see or hear any feedback about your product, services or whatever it is your peddling? You may get the hearsay, but likely not often directly from your real customer.
This just means that their needs to be an increased focus on the support model for low cost products. Lenovo is already one of the best & you see the likes of Dell turning attention to it, because they really have “ignored” it in the past. In addtion, your quality has to be impeccable
Agreed. If the quality is high to begin with, then support burdens should, in theory, diminish.