Retail has had it tough. As consumers, we may be emerging from the pandemic with pent-up demand and a clutch of savings ready to spend, but it’s come too late for many businesses. No one was too big to fail. From Francesca’s to Century 21, big names tumbled among the 128 national retailers to declare bankruptcy across 2020-21.
The blame can’t be laid solely at the door of coronavirus. The cracks had already started to show long before as retailers struggled to contend with proliferating channels, unsure where to focus their energies. The growth of third-party marketplaces further eroded retailers’ own web presence, as they adopted business models that effectively saw them competing against themselves for sales, whereby they lost control of their sales cycle, marketing and messaging.
Avoid the Self-Cannibalization Spiral
The direct-to-consumer (D-to-C) model has been a boon to brands looking to capitalize on better margins, one-to-one relationships with customers, and data ownership. However, marketing isn’t cheap and the consideration becomes how to keep scaling beyond the initial launch phase. Typically, this is when we start to see brands engage with third-party marketplaces, and is where challenges begin to arise. They gain sales, but at the expense of their brand and their own channels, and cannibalization happens. One such case is seen below, turning a fast-growing D-to-C beauty brand into one struggling to contend with resellers cannibalizing e-commerce sales.
Third-party sites are not the enemy — they can be a sustainable strategy. However, as a D-to-C-first brand, you need to go into these relationships with an idea of what it is you want to get out of them. Factoring in what you want to sell, how much, and what role messaging and marketing play is key. Failure to outline clear goals is where the loss of control begins, and it’s extremely hard to undo.
Once the decline in e-commerce sales sets in, focus shifts to short-term tactics to drive conversions, discounts start to play a more prominent role, and the idea of sales and marketing as a short-term fix begins.
A lot of this problem stems from the fact that retail marketers tend to look to digital as a short-term fix, something that will step in to help them hit a quarterly sales target. Used properly, digital is part of the holistic whole, which works in harmony with the wider brand activity.
It’s time retailers had a digital reset.
Move Back to the Long-Term Vision
Brands need to go back to basics and align marketing channel activity to business goals. Only then can they plot what digital’s role is in helping achieve them. Say, for example, the goal is to double revenue in the year and the two major outlets are the brand’s own website and Amazon.com. To double, the retailer will need to increase its exposure across more third-party sellers (remember, not the enemy if used properly), and increase marketing budget across a range of channels.
This then becomes about measurement. Poor attribution and/or siloed internal teams are often at the heart of short-term thinking and self-cannibalization. I’d challenge brands to find an effective way of tracking sales across all third-party resellers and their own website. It’s likely they might find out that they don't need to spend so much on lower-funnel tactics. Ultimately, if products are on sale in multiple places, it’s less about site retargeting and more about driving attention, desire and emotion. It’s about long-term thinking, and, if you don’t have strong measurement, then sliding back to short-term tactics is inevitable.
So, what does long-term vision look like?
It’s about understanding channel roles and setting key performance indicators that fit. Retail brands have to be careful not to fall into the trap of attributing only online marketing spend to online sales success — the world doesn’t work like that. It’s not how people work. They can see an ad on Google or Facebook, walk the streets and see a billboard, or go into a store. It’s about how all of those interactions weave together.
Expanding into third-party retail for D-to-C can open up a gateway to growth and rapid scale. However, it's about partnership and control. The business goal is to keep growing. But be aware of the pitfalls, put in controls over what resellers can and can’t do with your brand, and take care not to be seduced by that notoriously deceptive short-term sales spike.
Kris Tait is managing director at Croud, a global digital marketing agency powered by the best talent, custom-built tech, and the world's first crowd-sourced network of digital experts.
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