Rise of the Agency Sales Model

Appliance importers such as Miele have long used the agency sales model. For anyone not familiar, the shops are order takers for Miele, not sellers. Other appliances have joined that trend, and relatively recently auto manufacturers are doing the same.

As the trend continues consider the change to the balance of power between consumers, traditional resellers/dealers, as compared to order takers who get commissions but generally have little or no stake in the game. Prices are set and the same everywhere. One argument is it provides transparency, another is that national customers have access to the same product pool under the same T&C. It must be nothing but good since so many companies are doing it? (/sarcasm)

Another aspect is that it moves more of the profit up to concentrate it with the importer/manufacturer, as well as controlling protocols for dealing with customers and their ‘concerns’. My thoughts were instigated by

as well as very positive and very negative experiences with Miele over time.

Australian Consumer Law puts the onus for consumer guarantees on the retailer while the agency model removes the retailer from the equation. Semantics? A technicality? An agency’s ‘power and control’ over customer experiences far exceeds that when a retailer or dealer was front and centre.

Like it or not it is slowly becoming a more widespread business practice in more industries. Will this be good, bad, or indifferent as it propagates globally?

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Two concerns that arise for me.

  1. Where is the claimed real seller located? If located overseas, does this avoid in practice obligations under Australian law? or reduce the effectiveness of consumer protections?
  2. What happens when the “order taker” makes false representations, either knowingly or unknowingly?

I guess, with the hollowing out of Australia’s manufacturing capability, this kind of change is encouraged.

I can imagine that eventually there will be a change in the law to say that the “order taker” is the retailer, regardless of the contractual arrangements (between order taker and manufacturer, and between consumer and manufacturer).

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I suppose for the purposes of ACL it would be from whom did you purchase the car?

Under the agency sales model, it is still dealers in Australia. And they would handle after-sales activities like servicing and parts and warranty claims. And pre-sales activities like showroom, test drives, etc.

Seems the dealers are having a whinge because their ability to make money is diminished.

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That could be the case for vehicles but it is not the case for appliances - first hand experience speaks to that. All agency models may not be identical, but they do change the landscape.

Partly to that point, the money is still made but by the importer/manufacturer. It seems a continuation of the concentration of wealth upwards.

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Which in itself is a very expensive part of the business to run.

One approach to the agency model is that the retailer becomes simply a sales agent. They have zero responsibility to the customer once a product has been supplied, ideally out of an independent warehouse facility. It may even be out the back of the display area on a sub-lease?

If I’m not making sense, look to the gig economy for how things can change faster than legislation and regulation.

While Australia has traditionally sold and serviced vehicles through authorised dealers, it is not the only business model. Tesla does not use dealers. Several other brands may be following? Polestar and BYD come to mind.

In the instance of motor vehicle sales, is the seller committed to providing the after sales servicing and parts through legislation, or can the importer provide otherwise?

If the agency are selling the product, it becomes the seller (retailer) under the ACL.

If the agency is an intermediary between the consumer and seller, then their responsibilities under the ACL may he somewhat limited.

If the manufacturer is the agency, then the manufacturer becomes both the seller and manufacturer. The disadvantage of this is the consumer only has one party to potentially deal with if the case of a claim under the ACL, as the manufacturer and seller are the same. In some respects this model already exists when one buys direct from a manufacturer.

In all cases, there will still be seller/retailer under the ACL.

That is true but the balance of power tilts when there is only the manufacturer to deal with as the sole retailer, supplier, and point of support. If it goes bad there is no intermediary to fall back on. It becomes more of a binary experience tilted to the manufacturer (agency). Whether it does or would or will make a difference in practice? Maybe or maybe not, case by case.

I had one experience where the independent retailer eventually made good on a multi-years recurring problem when the importer told me (and the retailer) to go away even after asserting my rights under the ACL. In an agency model my choice would have been to go away or go to VCAT.

Each experience may be different and one’s personal experiences will colour one’s views.

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Would this increase the challenge for the average consumer? For a purchaser in Western Australia dealing with a seller who has only a physical office and staff in Melbourne it’s a long way away.

There are currently several big name online retail outlets. How consumers deal with these may offer a parallel for how consumers should approach the law in respect of any failures or claims.

I can see an outcome where the after sales support offered by the seller becomes more important than the quality or task performance of the product. Something that is difficult to assess in a new product test by Choice. It’s only assessable after the fact.

What was a reliable product brand with good after sales support can become an also ran with less support and vice versa. For consumers showing hesitation or concern about the risks of a new purchase there is always the option of an extended product warranty purchase. Not a recommended solution, but one the industry might encourage as their ‘get out of jail free’. One way to transfer a large portion of the cost risks of needing to respond under Australian Consumer law onto the less assured consumer.

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It can, but shouldn’t. The platforms argue, and the ACCC seems to agree in principle, that the platforms an advertising type medium that links buyers to seller. Possibly a modern version of the Trading Post or newspaper advertorial. As a result they aren’t the seller. Some platforms offer buyer protections which is more about maintaining reputation rather than obligations under the ACL.

Not as bad as for a agency/platform which would be located in another country half the way around the world. At least in Melbourne the likely resolution under the ACL is greater than trying to obtain resolution from some far-flung place.

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This topic fascinates me because I always believed there was a law against retail price maintenance or collusion? What is this if not retail price maintenance? If this consumer accepts this approach it will thrive. If we simply refuse to buy from these companies the idea will wither and die. I have already excluded this type of transaction from my buying list. I would like to see it legally challenged also because of the first mentioned comment.

Hi @bcleverly and welcome to the Community.

It is not retail price maintenance, which is illegal as you say.

It is an agreement between a supplier who makes a product, and an agent who sells the product to the end customer. The agent gets a commission for each sale, but the price is what it is.

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One outcome may be potential agencies competing to get a particular brand into their range of products by negotiating the commission lower with the seller. This would favour low rent agents with minimalist shop fronts at cheap sites. The seller optionally gains an increased margin if they maintain a uniform national price.

The seller wanting a higher profile for their product alternately may desire higher profile outlets. The flashier premises, styling and premier locations will cost more to provide. The pressure point for the seller and potential agent will be whether the seller is able to pay a commission acceptable to the agent while maintaining an acceptable margin. The seller may need to set a higher price for product sold through those agents. Or increase it’s uniform price point nationally?

How might this play out for consumers?
If the purchase price is the same every where will the winner be the online agent who has the lowest over heads able to share the gains with the seller?
Or will the larger brands move to direct online selling cutting out an agent?

In the second instance would some brands set up their own display centres, IE imitate for physically larger items the ‘Tesla’ experience? For smaller physical items there is the alternate ‘Apple’ brand experience to consider.

Will retailers and in car speak ‘distributors’ look to consumers to reject prospective change? Or will consumers win with cheaper products and a more direct line to the seller (importer/manufacturer) for support and warranty. Consumer experiences with Miele and Apple brands may offer some insight.

Is there anything preventing low overhead agents offering cash back or other incentives to achieve worthwhile sales volumes?

Agency models usually do not provide any discretion for the ‘order taker’. Using the appliance agency models I am superficially familiar with, the importer/manufacturer (the agency) is the one that offers cash back, rebates, or promotional extras. The ‘order taker’ sells through being the most smiling face; I doubt an overwhelming number of consumers are aware of the inner workings. No matter where one buys (eg Miele) the price and programs will be consistent. There is no reason to expect any industry category to be much different.

The ‘order taker’ gets a commission; if they have low overhead they have more profit for themselves. The commissions are negotiable depending on volume and so on but that does not translate to pricing.

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This can be a long debate but is best summarised by the duck analogy. If it looks like swims and flies like a duck then it must be a duck. All fancy legal dressing or hypotheticals don’t change this. On the subject of service; with both cars and appliances I have had great service and warranty support from dealers. Dealing with online sales or car manufacturers has had to be resolved by action with Vcat or the relevant online marketing controller. I know people who are happy to pay retail price and also some who will always try to negotiate…that’s a choice. Being told it’s our price or nothing is retail price maintenance by any other name. Would I buy a major product online which I cannot inspect or test drive? absolutely not. I wish the Benz dealers good luck in their fight. This is just the biggest richest guys trying to screw the middleman and customer to get even more riches and control. It’s a great example of the worst elements of the model. There is nothing in it for the consumer.

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Or, as a thought experiment, the manufacturer could just sell directly to the customer, having no retailer and no agent - and then it is obvious that there is no “retail price maintenance”. The manufacturer is simply determining the price at which they are prepared to sell. Unless they are subject to any restrictions on profiteering …

This.

There are many areas of the law where the duck test does not apply. :duck: :duck: :duck:

In other words, there are plenty of situations where people or companies get off on a technicality where “commonsense” would say “duck test”.

Wrong species. The law is an ass, as the saying goes, not a duck. :wink:

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Both person and Gregr absolutely correct. Legal, moral and ethical…three completely different concepts. I won’t even mention Zealots. Enough said!

Is what’s in it for the consumer a simple decision?

If the brand offers a product that meets the purchasers needs, is durable, reliable, safe, warranted/supported and represents best value, why not?

Consumers rarely purchase on principle.
As consumers we are free not to purchase a particular brand or model and choose otherwise. Will the agency sales model leaves consumers hopeful of enhancing their lives with a considered premium brand (EG Miele, Festool, Mercedes etc) unable to justify the purchase?

The agency model looks like a great opportunity for a seller to build on or trash it’s brand. Poor product performance/quality, inadequate support, and uncompetitive price points are all cause for failure.

For most consumer products providing the ACL applies premium brands may have much more to loose. Premium products are expected to deliver superior outcomes. Will consumers rise to the occasion if sold substandard products at a premium price?
or
Turn away, being a guinea pig less appealing to consumers than the brand seller might imagine?

P.S.
Tesla’s sales model offers some insight to the alternatives. Those heavily invested in motor dealerships have significant investments at risk. It’s an aside as to whether the dealerships should have control over the motor vehicle trade on their terms. An industry supported and arguably protected through government legislation.