Manufacturer/Retailer Relationships: Friend or Foe?
At face value, selling direct to consumers seems like a compelling proposition for manufacturers. They can tap into a new revenue source, strengthen brand control and build customer loyalty. However, direct-to-consumer (D-to-C) selling requires a careful balancing of risk vs. reward. Manufacturers need to manage channel conflict among their retail partners, who might resist the D-to-C model. They also need to ensure that their direct selling doesn't backfire into lost revenue because top partners will no longer carry their brand.
In addition, manufacturers need to master new business processes and technologies, including running an engaging, mobile-optimized e-commerce site as well as efficiently managing consumer-oriented inventory, order management, fulfillment and customer support.
Given the challenges and risks, it's not surprising that only a handful of manufacturers have taken even baby steps into selling direct. Though the number is steadily rising, many manufacturers, particularly in the midmarket, remain on the sidelines. Yet consider that 70 percent of U.S. online shoppers have made purchases directly from a manufacturer, found a recent study by the global consultancy PwC.
Ultimately, it's customer demand and the availability of technology that supports D-to-C selling that will drive further growth and maturation in this channel. Today's consumers want the ability to buy anything, anytime, from any channel. It's up to manufacturers and their retail partners — from big-box chains to local mom-and-pop shops — to collaborate and compromise to satisfy those expectations amid a rapidly changing marketplace.
Overcoming Retailer Resistance
Mitigating channel conflict is arguably the top challenge for manufacturers developing D-to-C strategies. It can be a daunting task, but one that manufacturers should take practical steps to address in order to placate uneasy retailers and build a foundation for mutual reward. Here are some key recommendations to manage this conflict:
1. Keep prices at MSRP or above. Retailers’ bottom lines take a hit when manufacturers sell direct to consumers at prices lower than the marketplace at large. Manufacturers need to work with their retail partners to ensure that revenue and margin aren't pinched. A commitment to not sell at below manufacturer's suggested retail price (MSRP) is a critical factor in rapprochement between manufacturers and retailers.
2. Suggest consumers buy from retailers. Manufacturers’ websites should explicitly recommend that consumers visit a retailer's website or store, especially if a given product is out of stock. In a product category such as apparel, for example, a manufacturer's website could suggest the following: "Want to see it in person?" and offer a map of local retailers selling the garment.
Liberty Bottleworks, a maker of eco-responsible water bottles in Washington state with more than 1,400 retail partners, tells would-be customers on its website: "Although we would be happy to sell you a bottle or two, we would love for you to support your local retailer. Those local retailers are the backbone of our country. Support them. We are all better for it."
3. Share multimedia content with retailers. Dealing with hundreds if not thousands of suppliers, retailers face challenges in developing and maintaining content and imagery that supports an engaging online experience. Manufacturers can build retailer trust by supplying top-quality product information, a selection of detailed images and polished product videos that retailers can feature on their own sites.