Introduction. Contents. Four powerful strategies for dealing with channel conflict in ecommerce: a guide for consumer brand manufacturers.

Transcription

1 Four powerful strategies for dealing with channel conflict in ecommerce: a guide for consumer brand manufacturers. Contents Introduction Channel Conflict Strategies 1. Don t compete; collaborate. 2. Cross-promote. 3. Generate cross-channel channel value. 4. Price right. As if your competitors didn t create enough complications, technology has splintered the marketplace for manufacturers into online and offline channels, plus retail partners. In fact, most consumer brand manufacturers rely on multiple channels to move their products and invest significant resources to cultivate them. So when they want to start selling directly online, or beef up their web store, they risk alienating their most valuable sources of sales. Fortunately, a few solid strategies can benefit both manufacturers and retailers. Direct web sales can even help forge new partnerships, as one tools manufacturer discovered when their ecommerce store caught Home Depot s attention. This paper will explore the many ways in which, as John Rogers, VP of Global E-Commerce for Under Armour, says: A rising harbor lifts all ships Meridian Ecommerce 1

2 Don t compete; collaborate. If you want channel harmony with your offline sales operations and your retail partnerships, it s axiomatic that you must not cannibalize their sales. But what s the point of selling online at all if you re just going to let everyone else have their piece of the pie first? In practice, though, that metaphor doesn t truly fit: this isn t a pie where everyone gets their slice, leaving you staring at an empty plate. Instead, manufacturers must recognize that they are engines that can successfully fuel multiple distribution channels. We ve found that there are more opportunities to generate sales and product awareness through multiple channels, than there are conflicts. Debra Clark Sr. VP of marketing at Lafayette 148, a maker of designer apparel for women 2 To make different channels align takes collaboration, not competition. The question is how much your online ecommerce efforts can boost sales across all channels, including your own ecommerce portal. Online we focus on telling the innovation and leadership product stories that create strong desire for our products across all of our distribution channels. - John Rogers, VP of Global E-Commerce, Under Armour 3 Suppliers, manufacturers and retailers form an intimate community whose business models increasingly rely on a dangerous combination of automation and brand secrecy. Most channel conflict arises because one party or channel steps on partners toes without even realizing it. Communicating online strategy to channel partners is a courtesy that can go a long way toward finessing potential friction. For example, it s common for manufacturers to use their web store differently from the retailers; for example, they can provide a comprehensive informational catalog of goods unavailable elsewhere. It can help reassure skittish retailers to know that the manufacturer is pursuing a top-level goal of boosting sales across all channels. In fact, the goal of collaboration is so foundational to channel harmony that each of the three following strategies assumes it implicitly Meridian Ecommerce 2

3 Cross-promote. Nothing will convince channel partners that you re focused on mutual success more than giving them free publicity and marketing. Remember, the key to channel harmony is collaboration. And as the consumer brand manufacturer, you have another natural advantage here: access to those customers who come to you for information about your products, including where they can find them. This is an excellent opportunity to boost both your own brand and your channel partners success. Manufacturers have to understand where they can add value with their own ecommerce site among existing channels. David Williams Europe online manager at Deckers Europe, manufacturer of Ugg brand boots 4 Examples of cross-promotion include: Case In Point: Offer a store finder Promote in-person store events Give retail partners advertising space Reward high-performance retailers with prominent listings on your site Lafayette 148 uses its online store to point consumers to retail locations where lead designer Edward Wilkerson makes appearances. That kind of crosspromotion keeps people attuned to the online store while pushing business to retail partners. Both channels can be used to stimulate interest and encourage purchases. 5 Cross-promotion efforts can sometimes prove to be a delicate balance of give-and-take, but it s never necessary to shy away from online direct sales. Tailor your promotional efforts to align with the natural strengths of buying direct versus via a channel or retail partner. For example, Under Armour integrates a robust store finder into their website, where consumers can discover retailers selling Under Armour brand garments. Given the nature of the product, many consumers want tactile access before making a purchase. However, existing customers can order more easily online, or customers seeking special deals can take advantage of Under Amour s online outlet, which can then be used to clear out inventory. Such an approach not only pushes business to the channel best suited for it, it also serves the customers better by letting them choose where to purchase according to their own, individual priorities Meridian Ecommerce 3

4 Generate cross-channel value. It isn t always about the immediate sales. Sometimes it s about procuring valuable business insight and intelligence which brand manufacturers can employ to improve their products and sell them more strategically. And they can deliver that insight to their offline and retail partners. For example, manufacturers might test different approaches to sales and marketing to identify the tactics that yield the most business. Brands can learn a lot about their customers by having their own online store. It opens up enormous possibilities for data mining. Carsten Kraus Chief Executive and Founder of FACTFinder.com 6 Examples of insight online stores can produce include: What products do customers click before they buy other items? What product details do they seek out? Which visuals/messaging approaches lead to sales; and which don t? What naming/branding protocols are successful? Additionally, manufacturers can extrapolate more actionable data from metrics generated by their online store. Case In Point: Spot trends Identify the most lucrative search terms Evaluate the most highly desired product lines Assess shoppers decision-making process JELD-WEN used its site analytics to test and identify customer-friendly tools and guided approaches to selling that boosted sales. Sharing this data with Home Depot led to a partnership. 7 Smart ecommerce retailers regularly run tests where they compare performance. This kind of information can be immediately implemented onsite to boost direct revenue, as well as shared with other channels to support their efforts as well. The insight gained will help manufacturers stay in tune with their customers, says David Williams of Deckers Europe, and this in turn can be used to inform retailers Meridian Ecommerce 4

5 Price right. You have the power destroy your retail partners ability to compete. They have to mark up prices to make a profit, after all. But you don t. And they re terrified you won t. Call it the Amazon Effect: Amazon s willingness to take a loss or only break even, while plying its supply chain mastery, has helped the giant edge out competition in multiple business segments. In some cases, like e-books and bookstores, they ve hastened the demise of an entire offline segment. Evidence suggests that price is the single issue over which the most channel conflict is generated. Dr. Vasanth Kiran, Dr. Mousumi Majumdar & Dr. Krisha Kishore Vanguard Business School 9 Case In Point: Or you can reassure skittish partners that you want to boost everyone s bottom line, in line with Strategy 2. Consider the following specific pricing strategies that can yield mutual benefit. 1. Price just above. You could stick to list or recommended retail pricing, which would leave your prices higher than everyone else s. Consequence: low conversion rates. Or you could match or beat retail pricing, only to start the very channel conflict you want to avoid. We recommend: find a happy middle ground. Outside of free shipping, The North Face does not typically discount prices. They realize that a certain core group of customers will be willing to pay a premium to purchase direct from the manufacturer and enjoy the exceptional level of service they have come to expect from the brand. 10 If you think pricing higher at all will automatically lose business, hold on: many consumers want to buy from the brand source and will pay a premium for it. You can leverage brand loyalty without threatening channel partners. 2. Dynamically adjust prices to accommodate change. So you ve opted to price just above retail and offline partners. What happens when their prices suddenly shift? Unfortunately, this strategy takes inordinate time and resources to manage, though your ecommerce solution might offer Dynamic Pricing. This feature automates the process of adjusting product prices against a pool of retailers with whom manufacturers are partnering Meridian Ecommerce 5

6 3. Focus on promotions and other aspects of the transaction. Manufacturers may have greater freedom to compete in other areas than price. For example, a manufacturer can offer special configurations unavailable elsewhere. That makes direct Web sales compelling while still giving partners room to maneuver. 4. Set up direct selling relationships. Whether you re selling directly to in-house marketing and sales B2C lists, or cultivating direct sales relationships with large organizations, you can remove special deals from public view entirely, and focus your ecommerce efforts to serve a niche market that would other elude or be underserved by channel partners. Particularly in the case of direct selling to large organizations, you might find that you can create an agreement that leverages the advantages of both offline and online channels, giving your customers total flexibility to access your goods in whatever way is most convenient to them. Meridian Ecommerce is a global provider of complete, outsourced ecommerce solutions to manufacturers, distributors and retailers in a variety of different industries. We provide an extremely reliable, high-quality alternative to in-house resources by running an online ecommerce presence that includes web development, transaction management, fulfillment services, call center, payments, and direct channel marketing. We are well-resourced to provide customized solutions to meet clients' needs as well as a state-of-theart technology platform that affords great flexibility and scalability. How can ecommerce unlock better opportunities for your company? Contact us for expert guidance, or to request a demo, and discover why our partners love us. (855) Representative Clients Partners 2013 Meridian Ecommerce 6

7 1 Brohan, Mark. "A conflicted group: Top 500 manufacturers need to address channel conflict and speed up online productivity." InternetRetailer.com. 1 June Retrieved from conflict. 2 Love, Jon. "All dressed up: Well-positioned in the social media era, apparel makers grow faster than other brand manufacturers." InternetRetailer.com. 3 June Retrieved from 3 Brohan, Mark. "A conflicted group: Top 500 manufacturers need to address channel conflict and speed up online productivity." 4 "Blurring the Lines." InternetRetailing.net. July Retrieved from 5 Love, Jon. "All dressed up: Well-positioned in the social media era, apparel makers grow faster than other brand manufacturers." 6 "Blurring the Lines." InternetRetailing.net. July Lanigan, Amy. Six models for tackling channel conflict. The Fluid Weblog. 17 Oct Retrieved from blog.com/2012/10/17/six-models-for-tackling-channel-conflict/. 8 "Blurring the Lines." InternetRetailing.net. July Kiran, Vasanth; Majumdar,, Mousumi; & Kishore,Krishna. Distribution channels conflict and management. Journal of Business Management & Social Sciences Research.. Vol 1, No. 1: Oct 2012, pp Lanigan, Amy. Six models for tackling channel conflict Meridian Ecommerce Meridian Ecommerce