"Retailers estimate $45 million of revenue is lost per billion dollars of revenue due to lack of cross-channel capabilities.” – Gaurav Pant, research director for EKN
In many industries, the traditional multi-tier distribution model sees manufacturers aiming for 50% margins when selling to distributors. Distributors sell to dealers and retailers at margins in the 15% range and retailers seek a 50% markup. With the emergence of eCommerce, internet savvy consumers and changes in buying behavior, this model is being disrupted. Margins are being squeezed and the middleman is most threatened. Manufacturers are establishing an online presence and selling direct to customers, whether it’s through online marketplaces such as Amazon or their own eCommerce sites. They’re gathering valuable data about customer behavior that can be used to build brand relationships and more targeted marketing. Sometimes the elimination of margins that would normally be paid to the channel enable manufacturers to offer lower pricing. The manufacturer that was viewed as a partner is now perceived to be cannibalizing revenue, and some channel partners respond by taking defensive or even aggressive measures to protect their turf.
PC industry giant Dell found great success as an early market disrupter by selling direct to end users. It then embraced a channel-oriented model. But many resellers felt that Dell was competing with them for the same customers and undercutting them on price, despite a deal registration process that was designed to protect them (Tech Target). As a result, some resellers rebelled and stopped promoting Dell products. Dell says it now has policies in place to address reseller concerns and control potential conflicts, but the perception remains, and “getting Dell’d” is now part of channel vocabulary, used whenever a reseller is burned by a supplier.
With its size, customer base and product reputation, Dell survived its channel problems. Major brands might have the leverage and brand equity to challenge the status quo successfully, but for small and mid-sized manufacturers it can be a risky proposition. Is it risky enough to keep you waiting on the sidelines?
This is the dilemma that some manufacturers face. You recognize that DTC eCommerce is imperative to remain competitive. But you fear the consequences if you launch a DTC strategy. Is it possible to implement eCommerce in a way that will enable your business to reap the benefits without alienating your channel partners? Can you create a win-win scenario?
CEO Mike D'Errico discusses the benefits of DTC and implementing an omnichannel strategy.
Today’s consumers are using technology to control their own buying experiences. It’s not unusual for a consumer to search a product category from a desktop PC today, resume at another time by researching manufacturers’ websites from a mobile device, then place their order from a manufacturer’s website for pickup at a retail location. It’s essential to engage with customers wherever they are, across multiple devices and media channels. According to one study, companies with extremely strong multi-channel customer engagement retain on average 89% of their customers, compared to 33% for companies with weak omnichannel customer engagement (Aberdeen Group). Retailers are very aware of the shift in buyer behavior and many have implemented strategies to address the trends.
There are ways that manufacturers can be allies with their channel partners. Here are some examples:
- Share Customer Data – This is perhaps most important. Suppliers that have eCommerce gather valuable data on sales, demographics and buyer behavior. Data shared with channel partners can be used for more targeted marketing that can boost sales for both parties.
- Create and Share Rich Content – An important component of eCommerce and building an online brand is creating engaging content that can be used across digital channels and devices. This content can also be distributed on distributor/retail websites.
- Don’t Compete on Price – Make sure your resellers don’t get Dell’d……by you.
- Send the Buyer to Stores – Given that many consumers do research online but still buy at stores, make it easy for them to find out where they can buy your products at retail.
The Omnichannel Path to Beauty
Lancôme, a brand of beauty products giant L’Oréal, is especially innovative in their use of omnichannel. Using personalization technology, their website enables consumers to create a profile with their preferences. The website combines the shopper’s unique skin tones, preferences and expert recommendations to deliver a personalized look. It also builds a curated selection of products that will appeal to the taste of each consumer. This information can be used online or in-store. Since the tactile experience of in-store shopping still appeals to consumers of beauty products, the added value of the online brand also benefits retailers.
Questions to Ask
Despite your best efforts to manage potential channel conflict, you might still face the threat of a backlash from some retailers. Here are some key questions to ask yourself if this threat looks like it might become a reality:
- Are you acting in the best interests of your company’s future by avoiding or delaying eCommerce? Does the retailer really care about your best interests?
- Are you the retailer’s first vendor to make the transition? Were there consequences for the others that went before you?
- Will the retailer reduce orders, discontinue doing business or take other measures to penalize or make an example of your company? Is this the kind of retailer that you want or need as a partner in the future?
- Will giving your competitors a head start in eCommerce put your organization at a disadvantage down the road?
- Have you taken inventory of the many benefits of branded eCommerce, measured against the consequences of a damaged or lost relationship with the retailer?
Despite the growth in eCommerce sales, many consumers still prefer buying in stores. Even while you're building your online brand and DTC sales, you can still be an ally to resellers if you share data and partner with them on marketing programs that help drive traffic to their stores. A sensible strategy will enable you to maintain your channel relationships while gaining online sales and keeping your business competitive.
For more insight on end to end eCommerce strategy visit this resources page.