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Turbulent Times in the Widget Industry
-- Brick and Mortar Stores vs Online Discounters
buckworks




msg:3152361
 11:21 am on Nov 10, 2006 (gmt 0)

I hang around a niche forum that's populated by brick and mortar (B/M) retailers who specialize in selling a certain type of widget. I've learned some interesting things about their problems.

These particular widgets are specialty items, usually made to order. Most shoppers will want to check out samples in person before they buy, but it takes quite a bit of staff assistance for them to do that. What happens is that a certain type of shopper will visit a brick and mortar store, use up staff time, and cause wear and tear on expensive inventory ... then go home and buy online. They use the B/M to figure out what they want, then purchase their widgets from some discounter who can sell cheaper because he provided no service.

It's a variation on what classical economics would call the free-rider problem, and B/M widget stores are tired of it. They're tired of being used as free showrooms for competitors, and they need to figure out ways to prevent it from happening so often. The B/M's aren't just facing a price war, they're effectively subsidizing their competition. It's not sustainable.

Any suggestions for the B/M's? Customer service strategies? Promotional strategies? Anything?

And what about widget manufacturers?

The better a widget maker is at publicizing her widget dealers, the trickier the situation becomes. Some stores are saying, "Stop telling the world that I sell your widgets. The only people who call me because of your ads are the sharks who waste my time and cost me money. I'll do my own advertising, thank you, and I won't be mentioning any widget brand names."

Some stores are even saying, "Because it's so easy for shoppers to find widgets at prices I can't match, I'll stop selling widgets."

Because of US laws against price fixing, Wilma the Widget Maker can't just decide to stop supplying Dudley the Discounter, and neither can other stores to ask her to do that. Some widget makers have tried it and ended up facing legal action, and so have some stores. For the moment, Dudley is one of Wilma's largest accounts, but she knows he can't sustain that unless there's a strong base of B/M stores who carry her widgets. Remember, few shoppers will order these widgets unless they have a chance to see samples in person first.

One online discounter cloaks so that shoppers visiting his website will only be shown discount prices if they live at a sufficient distance from his physical store. He has no intention of selling at reduced prices within his own store, only to shoppers who are far enough away that they're certain to use someone else's services to check out the widgets.

To make things even more interesting, in recent months two major widget discounters went out of business quite suddenly, leaving countless widget customers in the lurch. It seems that what the discounters are doing is not sustainable at their end either.

One observer said, " It's hard to compete with savvy business folks, but it's even harder to compete with idiots."

These are turbulent times in the widget industry, and Wilma the Widget Maker is uneasy.

-------

I'd be really interested in hearing some fresh perspectives here. In particular, are there any case studies out there describing how different industries are coping with tensions between brick-and-mortar retailers and online discounters?

 

briggidere




msg:3152371
 11:46 am on Nov 10, 2006 (gmt 0)

we run on of those dudleys discount style sites you mentioned. I think it's just tough luck to the B/M bisiness.
It is a product that people want to touch, sit on etc before they buy as it is a fairly pricey item, so need to get a feel for it, but are able to offer up to 60% off what the retial outlets are selling them for as we have virtually no overheads.

it is not a new thing, it's been happening for years and i don't think you'll ever stop it.

AndyP




msg:3152508
 2:37 pm on Nov 10, 2006 (gmt 0)

When the dust settles, where will we be? Will B&M stores no longer sell widgets due to their uncompetitive cost structures? That can't happen -- experiencing widgets in person is crucial to the buying process.

A related question that further exacerbates the problem: it is reasonable that local B&M stores must charge a sales tax when non-local internet retailers do not? Why are we, as a society (in the USA, anyhow), providing an incentive to send our money out of our own communities? Even a national retailer has a role in supporting a local economy -- but a distant internet discounter does not.

Perhaps the middle ground lies in the big retailers. Wal-Mart, Best Buy, etc. They have the buying power to keep their product costs low while being able to provide the ability for consumers to experience all their widgets first-hand -- along with the customer service and trust that accompanies a national retailer.

If an operation like that can "close the gap" so that buying online is no less expensive, or only marginally less expensive, then there will be less incentive to buy online -- the customer will be inclined to complete the transaction in person.

Tapolyai




msg:3152563
 3:04 pm on Nov 10, 2006 (gmt 0)

I have seen this in specialty widget stores.

Individual walks in, asks detailed questions, takes notes spends time with the expert, walks out and a week later they walk in to "fix" a widget they purchased online from competitor.

There is a (right or wrong) way to deal with this. Take a look at the new-vehicle industry in the U.S. You cannot purchase a new car online. A house, plane, tank, submarine, 5000 acres of land, but not a new car. That is because the new-car sales companies banded together and passed some laws to prevent it. Yes, there are some consolidators who will "sell" you a car -but in reality they just provide leads to the actual dealerships. Not even manufacturers can sell them...

So your widget companies can band together, tell the public front of the Congress that it is dangerous to have people buy widgets online, that general public doesn't know how to use a widget, and demand that they require licensed widget dealers only to sell the stuff. Make sure you make appropriate contributions to various re-election funds, schedule the event in Hawaii, and it better be the Ritz.

... Sorry.. done whining

[edited by: Tapolyai at 3:09 pm (utc) on Nov. 10, 2006]

Tonearm




msg:3152565
 3:05 pm on Nov 10, 2006 (gmt 0)

This is the kind of thing that drives changes in the structure of the marketplace.

unperturbed




msg:3152569
 3:11 pm on Nov 10, 2006 (gmt 0)

we run on of those dudleys discount style sites you mentioned. I think it's just tough luck to the B/M bisiness.

What happens to your business when the B/Ms go bust?

sja65




msg:3152570
 3:11 pm on Nov 10, 2006 (gmt 0)

There are several solutions (but they need to be done by the manufacturer - and have in several industries). Manufacturers can specify a MAP (minimum advertised price). Manufacturers can also create different model numbers for different customers (the traditional B&M customers get one set of model numbers, and everyone else gets the other). Manufacturers can segment their product lines with certain products only available to retailers that meet specific criteria (showroom floorspace, support staff, repair facilities).

WW_Watcher




msg:3152572
 3:14 pm on Nov 10, 2006 (gmt 0)

Don't Be Mad, Don't Take It Personally, It's Just business.

This is nothing new, you have to adapt to survive. When the box stores come to small town, some small B&Ms go belly up, others adapt to survive.

We sell widgets & widget parts locally in a B&M & ship them worldwide utilizing the tools at our disposal. The Widgets & Parts can be bought cheaper (excluding tax) at my B&M, than when I have to ship them in some cases. All of the widgets & widget kits & parts sell better when they can be held & held up to the widget to see how they fit and look, but I still sell 95% of our widgets & widget parts via the internet. We have adapted to compete with the deep pocket, big widget parts names in the industry, and are gaining market share over time.

I think this falls under:

Law of the land
Adapt To Survive
Survival Of The Fittest
Only The Strong Will Survive
Go Big, Or Go Home
Eat, Or Be Eaten
Winners Go Home With A Trophy, Losers Just Go Home
Lead, Follow, Or Get The Hell Out Of The Way
"This Ain’t Personal, It's Just Business"

Back To Watching
WW_Watcher

[edited by: tedster at 7:14 pm (utc) on Nov. 10, 2006]

briggidere




msg:3152578
 3:15 pm on Nov 10, 2006 (gmt 0)

What happens to your business when the B/Ms go bust?

only a small percentage of the potential market is web savy so the B&M's will still have a sustainable market share.

selling to the elderly (mainly over 65)

jk3210




msg:3152584
 3:19 pm on Nov 10, 2006 (gmt 0)

Sears-Roebuck's mail order business flourished for, what, over a 100 years, while thousands of nameless (and profitless) local B&M businesses went bust. Yes, a few products aren't suited for mail-order/online retailing, but most are. Remember, Sears sold *houses* via mail order.

The future is online, and those that fight it are doomed to a hard life of putting up with an ever-increasing situation just like BW is describing.

It takes...

1) Cheap Prices
2) Fast Delivery
3) Generous return policy

I bought a computer online.
I bought a 50-inch TV online.
I bought a complete bedroom suit online.
I live two blocks from a drugstore, but I order 90% of my drugstore stuff online.
I'm still mad because the local grocery company stopped online ordering.

Almost anything can be comodisized and those that figure out how to make it work are the future winners, while the rest become distant memories. (Remember that "Authorized IBM/Apple Dealer" in the little strip mall where many of us bought our first computer? How are they doing now? Did they choose the right business plan, or did Michael Dell?)

weeks




msg:3152586
 3:19 pm on Nov 10, 2006 (gmt 0)

I have some experience on both sides of this, having worked for a B/M and then later doing marketing for their vendors, including setting up e-commerce websites.

Both sides have seen customers shift. In a recent Harvest Business Review, one writer relates a story of a firm which offered tons of information of widgets on their web sites, which was very popular. But, then customers would use that info to buy from their local supplier. So, it can cut both ways.

The traditional retail model holds, I believe. Do whatever you can to grab the customers' attention and engage them for your best sales potential. We are seeing this in large ticket items such as autos, where everyone is moving to the web with their inventory to compete. Yes, it is different. But, worse? For who? In our economic model, what benefits the consumer should win. If you can't be the best supplier, then no one can help you--nor should they.

So, if you have the customers in your store and they are leaving to price elsewhere, you are not serving the customer's needs as well as you might.

What one of my clients did was to cut back on sales staff and compete on price alone. Another popular model is to set up another business on the web under a different name where you offer no service but low prices. (B/M have used different price points for different customers for years.)

One former retailer got out of the biz entirely and started offering information only, for a price and with advertising. If you have that much expertise, you can do that.

I recently needed new tires on my truck. Tire prices, I thought, can range all over the place. We have a dozen retailers--from a Sam's Club to Goodyear to some independents and a Sears--near here. So, I wrote down my specs and drove and hit five of them to compare. (I'd never done anything like this before.)

What I discovered was that the tire biz makes it very difficult to compare. This is a very clever retail trick. You see it in electronics all of the time. All kinds of price points on what, to me, looked like very similar products. And there were guarantees (10 million miles!), free rotations, etc. Sheee. Even ConsumerReports.com was confusing to me.

What did I do? I went to the shop I always do biz with and showed them what I had. They rolled their eyes and said, "This is what you want for how you use the truck." I bought it.

Marketing and sales basics still apply even with the web.

[edited by: weeks at 3:55 pm (utc) on Nov. 10, 2006]

Webwork




msg:3152590
 3:21 pm on Nov 10, 2006 (gmt 0)

Selling value added services? That is, some service or customization or thing that you can't quite get (right) online but might need to get things "just so"?

I think that the big box PC stores are filling a need by offering onsite tech support. For example BestBuy + GeekSquad. You pay a little more for the product but you buy "the insurance" or security of having a nearby place to run to when the PC hiccups.

Since there's a value in "just seeing or touching it", i.e., some version of "trying it on" - cameras, equipment, clothing, shoes, you name it - that suggests that in the future there may be a "handling charge" of a different kind. Perhaps B/M become paid personal product consultants? "Come in. Compare. We'll show you x, y and z and explain the advantages and disadvantages. Oh, and while you're at it we'll hook you up with online discounters and act as your advocate if there's any issue AND we will offer classes-assistance-whatever upon arrival of the product . . "

I think the trick is in marketing the value added, which I guess is akin to properly valuing and marketing the UVP (unique value proposition) of the enterprise. If that model isn't sustainable then perhaps the current trend presages a future in which there will be more "trade shows" and fewer fixed retail outlets for specialty items.

The answer is in having access to "the service" that only the B/M can provide. That is the service that the charge must be levied for. The question is will there be enough value in the service to sustain the business. The people with the real problem, in that scenario, may well be the online discounters as they can only compete on price . . until they figure out how to add value too . . ;0)

[edited by: Webwork at 3:33 pm (utc) on Nov. 10, 2006]

weeks




msg:3152623
 3:53 pm on Nov 10, 2006 (gmt 0)

Webwork offered better examples than I did. Point is, you are under no obligation to provide service you're not getting paid for offering. If the service has value, try to charge for it.

solly




msg:3152682
 4:31 pm on Nov 10, 2006 (gmt 0)

This isn't a case study, but I am familiar with a couple of different industries. The main way some expensive, high-end audio/video equipment manufacturers have dealt with this issue is to only honor warranty service from an authorized dealer. In order to get service, the customer must show proof of purchase from an authorized dealer. That stopped me from buying a TV and receiver online, even though I had to pay a couple of hundred dollars more to my local shop.

The other way I can see around losing customers is kinda like what Webwork and weeks said--to have a deposit that the customer will get back when s/he makes the purchase. Have the potential customer sign sign a contract along with paying a deposit and if they go purchase elsewhere, they lose the deposit. If the item is dependent upon seeing it in order to buy, people will pay it.

MisterT




msg:3152692
 4:42 pm on Nov 10, 2006 (gmt 0)

the sales tax advantage isn't fair. if i can buy a widget online for $1,000 or at my local store for $1,000 - i'll buy it online because i save substantially in sales tax, even if i have to pay shipping.

i recently bought a $1500 tv online because the experience offered:
-no haggling with a sales person
-no sales tax
-i got all the information and reviews i could ever need online (no sales person needed)

i usually buy nearly everything online now (except groceries and drugstore items)

some purchases for me are really helpful for me to do at a b/m store. examples:
1. scuba gear. (most scuba gear bought online voids the warranty, plus i value the expert advice i get at a dive shop)
2. cars. i won't buy a car without a test drive, and as long as you bring in an online price most car dealers can match it.
3. sunglasses. they all fit different, look different, and i like to go try them on and know what i'm buying. and, if i spend a bunch of time at a local shop i'm not going to screw them by going online to save 5 or 10 bucks. i'll keep the business in my town.

generally, if i spend a lot of time at a local b/m shop i'll buy the product there if the price is the same or very close to the online price. but, i'm not going to significantly over-pay just to keep the business in my town.

benevolent001




msg:3152693
 4:45 pm on Nov 10, 2006 (gmt 0)

Sorry for this foolish question

Can you explain the term brick and mortar bussiness? what it really mean. i have seen its use many times over here but not sure what you people actually mean with it.

thanks

briggidere




msg:3152694
 4:48 pm on Nov 10, 2006 (gmt 0)

B&M are businesses that actually have a shop front for customers to come in and see them.

benevolent001




msg:3152699
 4:50 pm on Nov 10, 2006 (gmt 0)

thanks :)

brick and mortar , very rude looking term

missing lot of good looking things and sexy models over there :)

Paul Roberts UK




msg:3152704
 4:54 pm on Nov 10, 2006 (gmt 0)

as had already been mentioned, relations here can be drawn to a large PC retailer here in the UK. a few years ago they were losing loads and loads of sales to cheaper, online-only type sites.

the solution? add massive amounts of value added service, in-store tech support and the like, warranties etc etc. yet keep the in-store prices high. based on the fact that ease of accessibility, not having to wait days for delivery and somewhere to go for help for the not so tech-savvy average home computer user, will maintain in-store sales.

THEN, and this is the important bit....

launch their own e-commerce store and treat it as a separate business, and compete with pricing with the other online stores. the trick here is to make people aware that none of the value added stuff is available online.

even if people come into the store, then go home and order online, ATLEAST they are receiving an order, even if its at a cheaper price, the main thing is THEY ARE NOT LOSING THE SALE.

puchscooter




msg:3152705
 4:54 pm on Nov 10, 2006 (gmt 0)

Remember, Sears sold *houses* via mail order

You cannot purchase a new car online. A house, plane, tank, submarine, 5000 acres of land, but not a new car

Sears used to sell cars, motorcycles and motor scooters in the catalog as well. What ever happened to Sears anyhow? You would think that their m/o business would now be thriving online, but it proves to be quite cold for them. Heck it seems like the "Amazon" of the past century. What went so very wrong? BTW "brick and mortar" businesses are those with an actual physical store, vs. a virtual one.

Jordo needs a drink




msg:3152742
 5:13 pm on Nov 10, 2006 (gmt 0)

Individual walks in, asks detailed questions, takes notes spends time with the expert, walks out...

Along the line of "Value Added Service", give the customer a piece of paper and a pen to take the notes on. Make sure they both have your web address, phone number, and any other the info you want the customer armed with when he sits down in front of his/her PC to buy.

Customers don't only buy online because it's the cheapest, they also buy online out of speed and convenience. They may make the decision to buy at 10pm local time when you're closed, or they are in a situation where they either don't want, or can't drive back to your store. By already providing them with a web address(they may feel they don't need to search if they already have your web address) and other needed relevant info about your B/M(in case they still search) to make the purchase, B/M 's can do a lot to not lose those customers.

If a B/M does not have an online presence, they need one.

MisterT




msg:3152775
 5:44 pm on Nov 10, 2006 (gmt 0)

i think every "serious" b/m store should have an online store. even if you're small, there are affordable solutions getting it done. if i decide at 12am to buy your widget, you should make available a way for me to purchase it...otherwise you could lose the sale.

buckworks




msg:3152829
 6:20 pm on Nov 10, 2006 (gmt 0)

launch their own e-commerce store and treat it as a separate business, and compete with pricing with the other online stores. the trick here is to make people aware that none of the value added stuff is available online

Some widget retailers have done that, and consumers respond by seeking out other B/M stores to look at the widgets and get advice before they shop online. The strategy that works for one store simply shifts the problem to someone else. It does not solve the problem for the industry as a whole.

There are forums of widget shoppers who advise each other on how to manipulate the B/M stores to view sample widgets and get free advice, then find a cheaper source online. Prices online are in a race to the bottom, and as more consumers figure out how to play both sides of the fence, things will get worse.

Those same consumers would never dream of stealing a physical item from a store, but they see no problem with behaving in other ways that drive up the store's overhead costs for no return.

Wilma the Widget Maker presently sells widgets through hundreds of independent B/M's, and she really, really wants to find ways to help those stores cope ... ways that won't get her in trouble with price-fixing laws.

buckworks




msg:3152843
 6:25 pm on Nov 10, 2006 (gmt 0)

if i decide at 12am to buy your widget

The type of specialty widgets referenced in the opening post are not usually manufactured until they are ordered and a down payment is made. They are seldom available for fast shipment. Supply lines stretch around the world, and it's normal for there to be a time lag of several weeks or even months from the time the shopper orders her widget to the time she actually receives it.

httpwebwitch




msg:3152865
 6:41 pm on Nov 10, 2006 (gmt 0)

My intuition is these b/m widgeteers should scale down the b/m service to a bare minimum and at the same time set up a discount widget online store. Someone who came into XYZ store to see and feel a product is probably inclined to buy that product from XYZ.com if they get the urge to spend at 2AM.

I do that a lot with books. Usually I buy online from the same b/m chain that I visited earler to peruse.

hannamyluv




msg:3152879
 6:47 pm on Nov 10, 2006 (gmt 0)

I think this is one of those situations where a savvy company would have both a B&M and a web store. And for a custom made widget, I would be willing to bet that a little dohicky on the site that let's the customer view the step by step process of the creation of the product, kind of like watching your package go through the UPS or FedEx tracker to your house, would be a big winner with value add-on.

A counter offensive would probably be needed as well. I am currently trying to convince a client of this as well. Re-education of the consumer is what I am talking about. Propoganda, if you will. Things like:

-Forum drops of horror stories of lost products ordered from online shops

-circulations of articles in consumer targeted magazines and sites about such things as the discounter websites that went out of business and left their customers in a desperate situation or other such things

-Making it uber-stylish to buy from the off-line and in poor taste to buy from the online through articles and forum discussions

Unfortunatly, an effort like that may require and industry wide rallying. One merchant probably could not do it effectivly. Does the industry have a trade association?

buckworks




msg:3152908
 7:15 pm on Nov 10, 2006 (gmt 0)

Does the industry have a trade association?

It has a few associations but nothing with industry-wide clout. The industry is fragmented, with hundreds of manufacturers, and tens of thousands of retailers.

One way some B/M retailers have been fighting back is to turn to little-known widget makers whose widgets cannot be found online.

This creates an extra difficulty for manufacturers who use the web or other media to promote their retailers. They drive traffic to the B/M's, then the B/M's turn around and promote someone else's widgets where they have a better chance to sell at regular margins.

Wilma the Widget Maker does not like that at all.

jtara




msg:3152922
 7:25 pm on Nov 10, 2006 (gmt 0)

The answer is manufacturer showrooms.

Manufacturers will have to build-in the cost of the showrooms.

Unfortunately for the online widget discounters, it should at that point become obvious to the manufacturers that they ought to be selling their widgets online directly and cut-out the middleman alltogether.

Jordo needs a drink




msg:3152926
 7:26 pm on Nov 10, 2006 (gmt 0)

if i decide at 12am to buy your widget

The type of specialty widgets referenced in the opening post are not usually manufactured until they are ordered and a down payment is made. They are seldom available for fast shipment. Supply lines stretch around the world, and it's normal for there to be a time lag of several weeks or even months from the time the shopper orders her widget to the time she actually receives it.

But the process really doesn't matter. If B/M's are losing customers to online retailers, then you have to make it just as convenient as the online retailers. You can't compete with their prices, so you have to complete with everything thing else they offer. Speed and Convenience are the other 2 main biggies that attract online orders.

Speed isn't so much shipping and manufacturing (if the online retailers have the same lag times), as it is that customers don't have to wait until you're open to place the order. To the customer, if they get to do it online in the middle of the night, it's 10 or more hours less, he/she will have to wait and once the order is placed or deposit paid. It's done in their minds, on to the next task. It's also convenient for the customer to be able to order the widget while in their pajamas watching the late show, or at work while still being able to manage an office.

It may not be any easier or any quicker, but the customer doesn't have to know that.

Another thing to keep in mind...
We are turning into (or already have) a multitasking society. A growing number of people feel that if they're not multitasking and dealing with 2 or more things at once, then they are wasting their time. Look at what the other industries are doing to cater to these people. All though not specifically competing with online, the very very famous fast food restaurant I ate at for lunch today had a big screen flat panel TV in the dining area. I thought to myself, why would they have that up there, when the goal is get me in there, take my money, and get me out (it's fast food). Because, even that's not fast enough for me, I need to be doing something else also while eating that tasteless burger. It's psychological, and I could be wrong using this as an example, but I was able to eat lunch, catch up on sports scores (TV), plus they were a wireless hot spot, so I could have kept working also in the 5 minutes (ok 15) I was in there.

Brick and Mortar sounds soooo old and outdated. They're stores that don't move and can't keep up with my lifestyle because they make me drive there and take up my time while I'm there. Sure, a forum I read online while watching tv and yelling at my kids, told me the best way to buy this special widget is to drive there and waste their and my time, but, doesn't seem so bad to me, because they said I could come back here and finish the process online and probably cheaper. So, I'll pause the DVR and tell the kids to do their chores, and be in and out of there before my kids even know I left.

When the customer shows up, show him your not a stationary brick and mortar store. Make the customer feel like he/she is multitasking even though they really may not. Let them know that you have a site they can use for research, assistance, and purchasing when they can't make it in, and if they wish to talk to a human, you'll always be there but with an environment that makes them feel like they never left home or work.

Just my 2 cents of course

jk3210




msg:3152936
 7:32 pm on Nov 10, 2006 (gmt 0)

Wouldn't the obvious answer be for Wilma the Widget Maker to become the exclusive online seller of her own product and drop the B&M retailers altogether?

If your statement that "It's not sustainable" is true, then why try to forestall the future for ever-diminishing returns.

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