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.
4. Share intelligence with retailers. A manufacturer's website generates a wealth of data on consumer activity and product appeal. Often, it will offer the full range of a manufacturer's products, while a retailer may resell only a selection. Making sales and customer intelligence available to partners can prompt a retailer to expand its product lineup and optimize its merchandising and marketing techniques.
5. Develop unique SKUs and product names for top partners. Manufacturers can help brick-and-mortar retailers combat showrooming. With product SKUs and even names unique to a large retailer, consumers can't easily find the same product on a rival website. While it's not practical to scale this technique across every partner, unique SKUs for top partners can help sustain profitable relationships.
With a collaborative and customer-centric approach, manufacturers and retailers can meet the dual demands of consumers. On one hand, consumers expect detailed product information, a rewarding brand experience and the option to buy directly from a manufacturer's website. On the other hand, consumers tend to view retail websites, especially those with product reviews, as a more objective source of information. Satisfying both sets of expectations is mutually beneficial for manufacturers and retailers alike.
In fact, 55 percent of manufacturers selling D-to-C said they believed it had a positive effect on other channel relationships, a recent Forrester Research study found. Thirty-six percent said the effect was neutral, while 9 percent characterized it as negative. Meanwhile, 82 percent of those manufacturers surveyed reported they had improved their customer relationships with D-to-C e-commerce, while 76 percent said they had met or exceeded D-to-C revenue targets.
"Direct-to-consumer online channels offer clear benefits in the form of both higher revenues and customer engagement," Forrester's study said. "Reluctant firms should take strategic steps to overcome roadblocks that may be preventing the development of this channel."
Hurdling the Technology Roadblocks
One of the roadblocks manufacturers face is implementing the processes and technology infrastructure needed to deliver an engaging online shopping experience that rivals a good retail website. In addition, manufacturers selling D-to-C must be capable of efficient inventory management and fulfillment.
A decade ago, e-commerce was typically a hairball of on-premise solutions bolted together into a workable and cumbersome whole. Cost and complexity was high, and personnel spent untold hours putting data from one system into another simply to fulfill orders. Today's new breed of cloud-commerce solutions disrupts that prehistoric equation.
Manufacturers beginning to sell online or looking to replace a first-generation patchwork of applications can use a single, integrated cloud platform that seamlessly connects every step of the business — e.g., e-commerce, in-store, inventory and order management, merchandising, marketing, financials, and customer service. Since a cloud platform can be implemented in a fraction of the time and cost needed for an on-premise alternative, the manufacturer can also speed time to market.
Manufacturers such as GoPro, the global action camera maker; Magellan, a GPS device provider; and RST Brands, which complements its core business of supplying home and outdoor furniture to Costco, Home Depot and other retailers with D-to-C sales, are among the companies reaping the rewards of online selling in the cloud.
With the right cloud approach, manufacturers have built out D-to-C channels that deliver real-time inventory visibility, an engaging website that adapts automatically to smartphones and tablets, and a 360-degree view of all customer interactions to improve services and insights as well as provide a foundation for targeted marketing. At the same time, they're able to deliver the emotional brand connection and immersive experience that many consumers seek.
In the near future, D-to-C selling will be an imperative for manufacturers hoping to compete and grow brand loyalty. Those not offering online shopping invite brand skepticism, if not scorn, among consumers who visit a site only to find that the shelves are bare. The cost is more than a one-time sale lost; it can mean brand degradation that inflicts long-term damage on a manufacturer's fortunes. With concessions to retail partners and the right technology, manufacturers will be well on their way to meeting the D-to-C mandate.