Is it time for Brands to Go Direct to Consumers Online?
It’s time for brands to seriously consider cutting out the
middlemen. In this case, that would be retailers, according to Bob Egner, VP
of global marketing for EPiServer, in an opinion piece on the Brandweek website.
According
to Mr. Egner, you need only look to the likes of Apple and Nike to see what
they have done with their own direct-to-consumer selling ventures (Apple Store
and Niketown) to understand the potential of brands to grow by controlling
the retail experience.
The most direct means for brands to reach consumers
is through the internet and some, such as Procter & Gamble and Columbia
Sportswear, are moving in that direction.
Brand marketers, Mr. Egner wrote, are
wise to go in this direction because it helps them reduce the number of "missed
merchandising opportunities such as cross-sell and upsell" that occur
when a retailer with no particular reason to sell one brand over another is
handling interactions with consumers.
Mr. Egner sees brands and retailers on
equal footing today when it comes to developing a web presence.
"New technologies makes it faster and quicker for companies to be able
to engage visitors, manage the transaction processes, incorporate social tools
such as blogs, ratings and product reviews — all to deliver a more engaging
online experience overall," he wrote.
Discussion Questions: Is it time for brands to take greater control of the
brand experience by selling directly to consumers either online and/or in
stores? Are there lessons for all brands from the experience of others such
as the Apple Store, Niketown, Procter & Gamble, etc.?
Yes, by all means yes! Not only should manufacturers consider the direct route, but they will be hard-pressed to come up with good reasons not to implement it. Obviously they should start with small experiments and be very mindful of channel conflict. But in this day and age, it is essential to be the directly involved in the relationship with end users. Manufacturers can’t trust retailers to manage all of the consumer touchpoints.
Engagement is mentioned twice in the story above, but that’s just a small part of it (and a bit over-rated, I might add). The bigger benefit is getting a steady stream of consumer-level data in order to really understand what works. Of course that will force brands to take on a very different set of analytic capabilities than they currently have, but it’s about time that they take a deep plunge into this world that has been so foreign to most of them.
Challenging topic: I think it’s hard to talk about “cpg brands” as a single entity. I can imagine some brands with high engagement, higher price points and the need for personal advice and relationships (think beauty like Cover Girl, Olay, L’Oreal) where brands can gain a lot from engaging and selling directly and where the products aren’t part of a market basket so consumers are willing to buy them from a single manufacturer.
Other products we classify as CPG (soup, toilet paper, frozen vegetables) have a much tougher row to hoe to try to sell direct. To a certain extent they can ride along as a cross sell with the higher engagement brands in the portfolio but you still have the problem of asking a consumer to go to the Unilever store, the P&G store, the J&J store and the Kraft store to get everything they currently get by walking through the grocery store or super target. Hard to see where that’s desirable or convenient.
Nike and Apple are lifestyle brands with high ticket aspirational products so they always come up as the examples but it’s not really a fair comparison to somebody trying to sell butter and eggs. There’s lots of room for online engagement and brand relationships certainly but asking consumers to go to a multitude of single focus websites to get their market basket of goods is a tough sell.
I believe we’ll see the emergence of alternative shopping models and aggregation services that threaten the current retail model and I think the CPGs are smart to pilot out ahead of that so they can have more power in the negotiation (hello slotting allowances and trade promotion dollars) and that’s the role direct to consumer sales should play for them in the current term.
Apple–yes. Snapple–No.
Sure the direct route is good for high profile and/or high ticket brands, but does anyone actually think consumers are going to go to 20 or more websites to do their weekly shopping?
If they do, I think they need to think again.
I hate to over-simplify this but I think it is actually quite a straight-forward equation.
It comes down to asking one basic question. “What is the best possible means of delivering your brand experience to the consumer?” If the answer is strictly online, then so be it. If the answer is through stores, then the brand has to ask itself if third-party retailers are positioned to deliver on that experience or if it’s better done through company stores. The answer may be some combination of all three. It really depends on the brand.
In the end it comes down to delivering on the brand promise and meeting the consumer’s expectations wherever that takes you.
I can tell you that the interest we are seeing from brands wanting to know more about their customers and not being held hostage by the high fees of the shopper marketing/loyalty programs from the retailers/grocers/drug stores is increasing daily.
It has become increasingly difficult for brands to reach consumers with their message and their offerings. Brands should open as many channels to the consumer as they can. Direct channels can be effective for some brands.
For many years, manufacturers have sought to cut out the middlemen in the sales process. This concept, called “disintermediation” can be extremely effective, under the right circumstances. It assumes that the intermediary such as a wholesaler, distributor, or retailer is performing a function that is unneeded or is inefficient.
Some brands can benefit from more direct channels, but often they simply trade one intermediary such as a mass retailer for another such as Amazon.
And how much extra does it cost manufacturers to have the admin staff to fulfill individual orders, purchase and hold stock of shipping materials and manage distribution channels for small orders not to mention deal with the complaints and exchanges? Is it really worth it or is that why they started selling through retailers in the first place? Babies and bath water keep floating through my mind. Why oh why does everything in the 21st century have to be either or?
Shoes and iPods are different than food. No single CPG company represents more than 11% of supermarket sales. For them to open a retail store would unlikely be successful due to the small range of products and backlash from retailers that would discontinue products.
What will work is for CPG companies banding together for online fulfillment of dry products. Many have regional brands which consumers that no longer live in the region want to buy. Many have low volume items with limited distribution that some consumers want. With FedEx and UPS creating home delivery networks, that would be a natural.
Online stores operated by CPG manufacturers is an interesting idea that would not have widespread success. What happened to one-stop shopping? Time-pressed shoppers don’t have the time to visit several websites for all of the the branded products they want.
Selling directly to consumers online would only be attractive if a consumer’s favorite brands are often out of stock in the supermarket or if they’re no longer available due to SKU optimization.
For brand recognition, the web is a great tool. To sell every item directly to consumers, NO. If consumers at Supervalu had information overload and thought it was messy to sort through lots of different promotions in the middle of the store, just think of the clutter and confusion if every brand was communicating directly to every consumer!!! Which consumers want that?
We have entered a world where demand generation and demand fulfillment are being conducted across many different channels. There is not going to be a “best way” to communicate with, sell to, or support consumers. Consumers will leverage whichever channel is most convenient or most relevant to them at the time they want.
While Apple, Nike, and now Microsoft have their own stores, they still sell most of their product through channel partner’s (retailers) websites, catalogs, and retail stores. The cost and value proposition for each of these channels needs to be better understood. Also the cost and value proposition for each channel is changing, as the world changes, and consumer expectations change. Thus, an ongoing analysis and understanding of cost and value trends for each channel will be critical for future success.
I totally agree with the previous comments that brands need to strike a balance between best customer experience in buying the product and the financial return associated with the channel of distribution.
Food for thought….
Is there a new paradigm that could exist that brands (with high ticket, higher consideration categories) would pay a retailer (mdf or coop funds) in order to display products in their stores that are ultimately purchased via the brand’s own mobile commerce or e-commerce sites?
Brands going to consumers direct and online is an excellent idea. There are many that can do it and be successful. Apple and cell phone providers are good examples. But I do not need Coca Cola or Pepsi coming to me online. Nor do I see or want them to open retail stores to sell their products. There are some, as I mentioned, who still need the traditional retailer to be successful. can you even imagine having to go to multiple locations to do the weekly shopping? Not a chance!
The issue is whether the brand’s products are true destination items, or not. Apple is the classic example where consumers simply must have what they have to offer. But if the brand is not a destination item, the brand does need a retailer.
Technology is driving the connection between the marketer and the user ever closer. Eventually, there will be a one-on-one relationship. From that point, it is only a click away to buy the product.
There is no great need for CPG companies to build infrastructure to service an online business. A third-party operator could easily do it without the cost of dealing with a retailer. It becomes a natural extension for a 3PL company. And, the financial return of direct sales also can not be ignored. It could increase the companies’ bottom lines by two or three times.
Consider, Walmart does not see Target as their most serious competitor. They see Amazon as their biggest competitive challenge. Be assured, their concern is not that Amazon is going to build stores.
The fact is that retailers do NOT do a very good job of addressing the shopping needs of customers. The reason for this is simple: they are merchants who make most of their money by twisting the arms of their suppliers, not by optimizing sales. They maintained a stranglehold on access to shoppers for most of the past 100 years, driven by the fact that it was only in the bricks-and-mortar stores where very many products/brands had any real hope of encountering shoppers.
The internet of course broke that stranglehold, and there were rumors in the early days of online retailing, that “retailers” were threatening punishment for brand consortiums who would provide a powerful online alternative to at least some bricks-and-mortar options.
However, online retailing, with Amazon in the van, is continuing to make steady advancement into competition with bricks-and-mortar. This advancement will become an avalanche when the right online applications are deployed on Smart phones. Essentially, the proprietary walls that bricks-and-mortar retailers have maintained in order to “own” their own shoppers, will become porous in the extreme, with ANYONE being able to communicate to any shopper, anytime, regardless of what store they happen to be walking through.
All of the arguments for brands to race into online retailing are absolutely right on–the sooner the better. Maybe they can learn a thing or two about actually selling to shoppers, as Amazon does, rather than setting a static wall of merchandise, and hope the shopper strikes, like bricks-and-mortar retailers are wont to do. The static wall is what brands, being remote from actual retail experience, have come to think of as the natural way to sell. More than a few have recognized that their retail partners are very deficient in shopper understanding. What they seem slow to figure out is that Amazon knows how to do it right–at least as far as retail TECHNIQUE is concerned.
This doesn’t mean that the Convergence of Online, Mobile and Bricks-and-mortar (COMB) won’t be immeasurably blessed by the energy and expertise of the brands in reading the minds of shoppers. As retailers have increasingly asserted their ownership of shoppers, I have observed that “the brands will rise again!” By this I mean simply that with the unfettered access to shoppers that is coming, at least a few leading brands will leap over all channel obstructions to conduct their own business with THEIR customers, just possibly in partnership with a suite of like-minded but non-competitive brands. More than one of these brand suites are easily probable.
The future of brands and retailers will be exciting, with potentially new players leaving those on the field today in the dust. Current winners are always at a disadvantage when the rules of the game change.
Retail is changing, the customer is no longer tied to a store. They are looking for ease, convenience and value. What businesses need to consider are opportunities for greater partnership between brands and distribution outlets verses just the traditional relationship — look at the European department store model, and Amazon, eBay etc.