|Selling on the Web|
What to do when someone moves the cheese?
Getting the Product from the Manufacturer to the Consumer in an online world
Historically speaking, most of our industry’s manufacturers sell through wholesale distribution who in then turn, sell to a local retailer. (Retailer should also include the local dealer/installer.) There are and have always been a few manufacturers who create their own channel and sell direct to large retailers or buying groups. Industry participants just accepted it and moved on, as it was not a “thorn in the side”. From a manufacturer’s point of view they are just simply cutting out the middle man and getting their items to the consumer at what is believed to be a better price, while allowing the retailer to make better margins.
In an effort to help appease the local retail marketplace many manufacturers came up with various marketing programs allowing the local retailer to feel they are all on the same level playing field. This was done through some variation of consumer direct marketing information or rebates back to the local retailer after selling a given quantity of their product(s).
While selling direct in this manner, some manufacturers would enact and effectively enforce MAP pricing [retail.about.com]. With the recourse being that if said retailer didn’t follow the MAP pricing guidelines, they were not allowed to purchase from the manufacturer any longer.
Then a paradigm shift occurred which gave consumers the ability to reach out across the country and buy these same products online from anywhere through the web. At the same time the web has allowed local retailers to sell to a wider customer base, while still buying through the traditional product channels.
In keeping with a long standing business practice some manufacturers try and enforce MAP pricing on these products. This continues to work for those buying direct from the manufacturer but what happens when a manufacturer tries to enforce MAP pricing on a product sold through the traditional distribution channel? It becomes more difficult for the manufacturer to enforce because they in turn have to have the distributor enforce their MAP pricing guidelines. Which is easier said than done and still has further to go before there’s a viable conclusion.
It’s understood, the manufacturer not wanting their “brand” to be devalued. When in reality they are not being devalued, just sold at a lower market price, which in and of itself does not mean devaluation. Most items of this nature are simply and truly commodity items [en.wikipedia.org]. Take swimming pool pumps for example, a pool pump, is a pool pump, is a pool pump….a commodity item.
So we go from the traditional means of getting a product from the manufacturer to the consumer, next comes the web. With this the consumer can “get closer” to the manufacturer, which is not a bad thing. This advent does not in any means “bypass the retailer” but should further enrich the dealer with greater opportunity.
Some manufacturers and distributors have even seen this as an opportunity to either sell direct to consumers and/or broaden their customer base. “Whoa, you can’t do that”, said many retailers. “You’re cutting me out of the picture and taking away my business so I’m not going to sell your products any more.” Comments like this are all good and fine if you’ve got another means to by an equally alternative product and sell it at a profitable margin.
As a local retailer and an internet company we see both sides of this more pronounced phenomenon. How do we address manufacturer’s selling direct to consumers or even our wholesale distributor selling direct to the consumer? While we don’t have the exact answer to that at this point, we do know that it is and will be something we will face a lot more of in the days and years to come. The first thing we won’t do is have a “knee jerk reaction”. There are ways to improvise, adapt and overcome these issues. The best thing we can do is be a participant in this process and not someone on the outside distracting the process, as it’s not good for the industry.
Let’s try and think about it from a different point of view rather than our own. Let’s back up from the trees so we can see the forest. We are trying to come out of a recession, which our industry has been hard hit from because let’s face it, we don’t sell staple items. We sell leisure products bought with discretionary income. Now that there’s not as much discretionary income, everyone is looking for a profitable short term means to turn a profit while moving toward a long term solution. Will this upset some along the way? Sure it will, but it will not hurt the whole.
Will manufacturers be selling their products on the web? Some will, some will not. Why? Quite simply, profitability. The expense of setting up and performing this service to some manufacturers does not give the ROI when it is compared with the traditional means of distribution. For those manufacturers who are able to cut out the middle man and either sell direct to the retailer or consumer, great. That’s business and the inherent life cycles of it.
Will distributors sell their products direct to consumers on the web? Some will, some will not. Why? Quite simply, profitability. The expense of losing their local customer base may be more than they can withstand. On the other hand, it may be just what they need but their should be balance and have a deliberate understanding of how this will effect their role in the product channel.
Again, as a local retailer and an internet company we see the day quickly coming where there is a “certified network” of dealer/installers who will address installation and service of products purchased over the internet at fair and marketable pricing levels. Currently we are trying to get something working with ServiceMagic [servicemagic.com]to do this very thing. This is an opportunity to both pick up business in our local market place, through the service/installation side while also having access to a nationwide network of service/installers like us.
For our industry, it may be a very profitable business model enhancement for the wholesale distribution market if they were to do this. Let’s face it, they are one step away from the dealer and would better know who would be qualified through. Match this with an industry wide, nationally accepted certification program and it’s a homerun for the industry.
Concerning those selling on the web let’s stop belly aching and stop asking the question “Who Moved My Cheese? [en.wikipedia.org]”
As a father, one thing I’ve learned is that what one generation accepts, the next generation will embrace. This logic too, is appropriate for the web.
I know that was long winded but, I was wondering how others in other industries might feel about these issues and how they've been handled too.
Excellent post, thank you very much for sharing with us. Its amazing how the supply chain has evolved to embrace the web and what it can offer.
I love this post. Thanks for sharing!
and for the words of wisdom. :)
I will chime in here - I have a real problem with my suppliers selling direct - AND selling thru me - a very good (bad?) example of how bad this is can be seen in shop-a-tron - where manufacturers can set up this really complicated process whereby THEY sell their stuff but YOU ship it - you have to go in manually and 'bid' and well, it sort of works, but its really a ridiculous time suck. How much better would it be if they simple pointed to their list of retailers - gave me link juice, and allowed me to compete openly in the marketplace against other web retailers. One of the ways some of the retailers in our business deal with this is to make their prices a tad higher than their MSRP, so that savvy consumers will do a 'google' and find the same product elsewhere, for instance, on my site. But its' very hard to compete against the brand itself. So I am basically against it - unless you go completely on your own - which some specialty retailers do.
In general though, I would say manufacturers should stick to one side of the fence. Drop-shipping is another matter entirely, and if you are prepared to sell via the web, why not just enhance your relationship with your retailers and offer to drop ship?
Being of both generations, mentally and age-wise, I hold with the separation of church and state, in this case.
|I will chime in here - I have a real problem with my suppliers selling direct - AND selling thru me - a very good (bad?) example of how bad this is can be seen in shop-a-tron - where manufacturers can set up this really complicated process whereby THEY sell their stuff but YOU ship it - you have to go in manually and 'bid' and well, it sort of works, but its really a ridiculous time suck. |
I wonder to this degree if the manufacturer’s position might be that their retailer’s are not doing enough to promote their product? Though I will say that a similar thing has been done in our industry too on both the manufacturer side and the wholesaler side.
|How much better would it be if they simple pointed to their list of retailers - gave me link juice, and allowed me to compete openly in the marketplace against other web retailers. |
Yes, it would be nice. But it seems that both the mfg’s and distributor’s are more interested in doing it their way rather than focusing on doing what’s best for their immediate customer base. Long term business strategy, this may work out for them but that is still several years away before we know for certain. Plus, a lot of it depends on the industry you are in.
|But its' very hard to compete against the brand itself. So I am basically against it - unless you go completely on your own - which some specialty retailers do. |
We don’t compete against a specific brand but rather brand our products as them being Propools’ products along with our better/higher customer service level.
|In general though, I would say manufacturers should stick to one side of the fence. Drop-shipping is another matter entirely, and if you are prepared to sell via the web, why not just enhance your relationship with your retailers and offer to drop ship? |
Agreed. Pick a side, stay on it, then enhance the other side, of the fence that is.
A similar problem exists in the services world, especially hotel reservations. For years, the hotels sold to ITAs (Internet travel agencies) who were free to set their own prices. Then they started selling through their own sites (usually with higher prices). Then they got smart and realized that most people are going to the ITAs to get the rooms cheaper. Instead of giving the rooms to the ITAs for a cheaper NET price, they would much rather sell the rooms directly for the retail price.
Similar to MAP pricing in the product world, many of the larger chains have instituted lowest price guarantees and won't let any of the ITAs sell below that price. or (more common), won't allow ITAs to advertise a price below that hotel's direct price.
What's a poor ITA to do? If it's just a matter of not advertising the price, you do what Priceline does- you don't reveal the price (well, actually the hotel) until after they've made a reservation.
Another option is to bundle the rooms into a package. For example, if the hotel gives you a NET price of $100 for a room, but they won't let you sell it for less than $150, but you have a theme park partner who gives you a NET price of $20 for 2 tickets (retail price: $40). You advertise a package of room and 2 tickets to the theme park for $160. For the consumer, they can get a room only direct from the hotel for $150, or for $10 more, they also get $40 worth of tickets to the local theme park: a "win" for the consumer. Hotel doesn't see an advertised rate lower than $150: a "win" for the hotel (according to their definition). The ITA makes a profit on both the hotel room and theme park tickets: a definite "win" for the ITA.
In the product world, try to bundle the product with other products or services to get around the MAP pricing.
An example of how this can work against both the retailer and the manufacturer - one of my suppliers, altho she holds the no 1 spot naturally in the SERPS, is bidding out on adwords - competing with me to sell her stuff. She is of course using an outside agency who is clearly clueless. Why on earth would you bid against your food chain....so she is grabbing my traffic and then forcing me to use a system to ship her product (which I'm not doing, and so of course, our sales of her products are way down because I will NOT bid against her - and our natural rankins are good but I am just not going to waste my time.)
|In the product world, try to bundle the product with other products or services to get around the MAP pricing. |
Yeah, we've done some of that and it works pretty good.
But I truly take issue with the whole MAP Pricing thing though.
Whatever happened to market pricing?
But more importantly, the manufacturer/distributor really should integrate themselves more into the entire process, from manufacturer to consumer.
I'm not saying they should be in direct contact w/ the consumer but rather offer some sort of support mechanism to the retailer/dealer.
If the dealer doesn't choose to accept it, then that's on them.
I guess what I'm trying to say is there should be a more holistic [en.wikipedia.org] approach to moving product to the end user.
One of the reasons you need market pricing or at least some kind of standard (and I've experienced this in a very big way) is because there a lot of total amateurs out there - who decide - hey, I can be a retailer. Without building brand, service support or even having stock. This is especially prevelant on ebay, and it wrecks the experience for consumers - brand protection is not just about price protection. j
Agreed, but does it always have to be MAP pricing? Oooohhh, wait how about a derivitive of MAP pricing which will "kick back" to certified retailers?
|brand protection is not just about price protection |
I think we've all but completed the deal w/ ServiceMagic. :)
Has anybody worked with their "Contractor directory XML API" before?
Here's yet another mind-boggler - just got a note from shop-a-tron - which is the incredibly cumbersome system which manufacturers can use to 'sell' on their websites - actually, they are participating in a system via those 'sales' that allows diff manufacutures to 'bid' on their orders. A note from shop-a-tron that now, when you accept a bid from them to fulfill an order, you will be paying an additional 2-10% fee (!) to support the Affiliate marketing they have going for the item. Another reason why I won't be using shop-atron and why I will discourage manufacturers from doing so as well - first, the really lots of extra work it takes me to deal with it, and now, the extra I get to pay them for bidding against me in the ad systems.
OH, yes, propols - no, I don'tthink it has to be MAP pricing. I just think that retailers need to be thoughtful about cost-cutting. If that was all it was about, then here comes walmart to kick everyones but..
Butt. I mean.
There's a very VERY fine line between MAP Pricing and Price Fixing. Price Fixing can get you in alot of trouble with the FTC (federal trade commission). Any manufacturer in the USA that wants to implement MAP pricing needs to contact an attorney before doing so.
If manufacturers want to sell directly to customers I think they must do it at full tilt retail. Else the retailers arent going to be spending their hard earned money advertising those brands.
Another possible workaround for MAP pricing may be to offer coupons. Price on the site at MAP, but arrange things so that anyone with half a brain can figure out how to use your coupon. (And anyone without half a brain probably isn't smart enough to look elsewhere for cheaper pricing.)
Have a banner on your site- "$10 off item ABC for first-time purchasers!" When they make a purchase, they get another coupon for $10 off their next purchase of item ABC.
Coupons would be great, but a lot of the manufacturer's have a statement in their MAP pricing program which says the advertised pricing cannot be effected via any discounting or couponing.
Great idea though. ;)
In that case, you can try a combination of bundling and coupons- buy an ABC widget and get a coupon for $10 off your next purchase (although I guess they can't apply the coupon to buy another ABC widget). Most likely that will get them to buy something else from you in the future as well (so they don't lose that $10 off).
We don't have MAP in the UK thank goodness, but when I worked in Canada we got around this by offering Free Shipping which, on an office chair, was worth having.
Well written argument but I'm afraid I totally disagree with your conclusion.
As a retailer, I now specifically do not sell products that the manufacturer sells themselves.
Never mind moving my cheese - that's a different thing altogether. I actually took a look at that a few days ago and surely - although it is about changing markets - it is about finding NEW and PROFITABLE ways of doing business. Not being AFRAID to look and go elsewhere when the need arises. As opposed to STAYING PUT with the same cheese and allowing situations that do not benefit either party to proliferate.
One supplier started undercutting my prices to the extent that their price was not far off the cost price I was paying them.
My business, having helped (in a small way) build up and support a brand was now being undermined. I couldn't sell for those prices as it was pointless and would result in a loss or break even situation.
I called them up - said that unless they raised their retail prices and/or lowered the cost price I paid them, then I would pull out. They said NO.
Result: I now sell a replacement product that has a decent profit and they now have less people buying their goods (at their lower prices = lose lose for them).
|Well written argument but I'm afraid I totally disagree with your conclusion. |
In reading your post I wonder, just exactly what is it that you disagree with concerning my "conclusion"? Because it appears to me, IMHO, that you're doing exactly as I wrote about.
|it is about finding NEW and PROFITABLE ways of doing business. Not being AFRAID to look and go elsewhere when the need arises. |
You were saying that manufacturers were increasingly going to start selling their own products through their own outlet.
It then came across as though you implied that as retailers we were going to have to suck it up. The game had changed.
My experience shows that as a retailer you would be unwise to get into a relationship whereby the supplier also becomes a retailer. Not such an issue if the supplier maintains the RRP but when they undercut their own RRP it is a recipe for disaster for the brand.
What I'm saying is that this direction would result in a LOSE LOSE as retailers will stop stocking brands that result in ever decreasing profits.
Thus, do manufacturers dare change the game?
Am I the odd guy? I don't sell what others manufacture. I manufacture what I sell. No MAP ect. or beg the MFG give me a break. Play in their sandbox you get sand. I am also not stupid;. I sell what others manufacture and play their games as long as it benefits me... else I tank the trade and move elsewhere.
Could say more but won't... should be patently obvious.
|Could say more but won't... should be patently obvious. |
Is it possible to get "more" ?
If you have the capital, selling direct (ie, making and selling both) is great! (I have some custom yarns that I do that with.) But I have to say that I'm with webdevfv here ... I am currently in a very interesting discussion with shopatron - there position is that they allow manufacturers to expand customers opportunity to purchase. I believe they are stealing retail by convincing manufacturers that they need to have a place to BUY on their BRANDED website. And now they will be competing with me for eyeballs on affiliate networks - so they can collect a fee for doing so. I don't think Volvo does that. Or coca cola. In any case, I have been dialoging with their CEO - and their positions are incorrect, they are just trying to support their model - which is making money off of the idea that if a user gets to a brand website and can't buy, the sale is lost. Not true at all - a good retailer list and the sale will be made if someone wants to buy a particular item - I get at least 40% of my sales thru branded manufacturer website. If you are a manufacturere and you want to sell direct, set up the systems to do it, and I'll decide whether or not I want to work with you anymore. I think that is fair enough. Is it work it for a manufacturer to lose a large percent of their clients to take on the business themselves? They'll have to make that decision, of course.