December 26, 2000, 9:55 AM

The Levi Lesson

(Page 3 of 3)

Gateway and Dell moved first to market their products directly to consumers through catalogs and direct sales forces. Putting those operations to the Web was a natural, says Charles Gerlach, director of e-strategy for the technology industries practice at Mainspring, Cambridge, Mass. “One of the things that made Dell and Gateway very good at selling online was that they had that direct-selling infrastructure in place to start with.”

Dell has made the most out of selling direct. “Its success has completely unsettled that industry,” says Gerlach. Founded as a direct-to-consumer company, Dell began selling computers online in 1996. Today, Internet sales have hit $30 million a day and make up more than 35% of the company’s revenues, says John Fruehe, business manager for Dell online. By year’s end, Dell forecasts online sales will command half of its revenue.

The Internet is an especially strong selling venue because each computer can be customized by the manufacturer for the person ordering it, Fruehe says. Customer typically visit dell.com a half-dozen times to gather information before making a purchase. “The Internet allows us to get close to our customers,” says Fruehe, “to meet their needs directly.”

An antitrust iceberg?

A s manufacturers define their Web strategies-and their relationships with online retailers-many are trying to control the sale of their goods on the Internet. That raises antitrust concerns. Laws from traditional sales channels usually apply. But it’s a good idea to watch what’s emerging in this area, says Richard E. Donovan, a partner in the New York office of Kelley Drye & Warren and head of the law firm’s antitrust and trade regulation practice.

 

What antitrust concerns do manufacturers have?

On one end of the spectrum, manufacturers are asking if they can reserve the right to sell their goods on the Internet for themselves. On the other end, companies are looking for broad exposure. They want to allow anyone to sell their products, but they want to know if they can restrict how the products are displayed, for example. Each implicates antitrust and trade regulation laws.

 

Are companies legally able to restrict who sells their products online?

The Supreme Court basically has said that manufacturers have the right to restrict who sells their products, with several factors that may create exceptions, such as market penetration. This applies to mail-order sales, and it should apply to the Internet.

 

What should retailers be thinking about?

A retailer should not assume that just because they sell a product in a bricks-and-mortar store they can sell it on the Internet. Putting a picture of an item on a Web page is very different from having the product sitting on a store shelf. That is especially true if the retailer is involved in advertising the fact that they have the product to sell. A picture on a Web site is likely to have the product’s name on it, and that is probably a trademark. A retailer’s distribution agreement with a manufacturer may not cover this.

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