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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.
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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?
Our company tried the B2B2C e-comm approach about 5 years ago, and we closed it down because the 'back-end' was too hard to manage at the B&M level. Many of our retailer are pretty 'low tech' and could not use the system...
The business model that Callaway is planning would be a good solution for Wilma's B&M's losing sales to the online sellers.
And the technology has come a long way in 5 years...
To evaluate a fruitful strategy in such a situation goes far beyond the scope of a forum like this, and I must excuse a bit for my enthusiasm, because the stores are in a fairly bitter situation and probably missed the point where they could establish an alternative.
I guess you lack the capital to compete with the already established online-stores, who meanwhile have such an order volume at the manufacturers, that they may sell to end-consumers below your own buying-prices. So to compete with these by an own discount-online-store as suggested is a dead end.
As I said, a website of your own is an absolute MUST nowadays, because it offers a lot more alternatives than any of the local crap suggested by third-class consultants. There is much more to a website than just an online store, a larger sales volume and thus being cheaper than others.
One path is always specialization, because the much broader audience nationwide bears TARGET GROUPS traditional marketing agencies have never thought of before. For instance we received a number of requests from kindergartens nationwide this year, many of which now have computers, but who have such a low budget in our niche that for local competitors it wouldn't even be worth the effort to type their address into a database. I'd suspect with all this accessibility discussion there could even be a "market" covering blind people, who find it "chique" to wear sunglasses. I don't know, and I don't want to sound cynical, but this is a good example why it might be helpful to translate your sales-talks into ascii-code.
One of your key strengths running a small B&M store lies in your specific product knowlegde, and thus your potential ability to pick up trends or identify niches much quicker than pure online-retailers. But you really need a website to make money out of your insights.
It is almost a catch 22, if they B/M wants to compete on price they can't afford to hire the sales reps required to service the customers.
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.
If/once you've acheived that physically, match your online competitors in price, because you have no choice. If complete self-service truly can't be achieved, and/or if the (rent,labor,utilities) overhead is still too high, then throw in the towel. As others have mentioned, the grim reality staring you in the face could very well be that you must evolve, or die.
If the value added is only a vague emotional concept, or at best a roll of the dice to assuage a minority of customers' fears about a future need for retrofitting or service (or an effort to birth such fears via a transparently desperate & pathetic propaganda campaign) that won't be enough to reverse a competitive tide in the industry. If your business model hinges upon somehow convincing customers they need a marginal bit of extra coddling or perceived security only you can provide at 50% more cost, you're building a quicksand foundation, swimming upstream, merely rearranging deck chairs on the Titanic.
I think the trick is in marketing the value added
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.
The specifics will vary from industry to industry of course, but you should really evaluate how much of this sales process is mandatory and how much is really just a way of pushing the most items, with the largest markup, on the customer. In other words, how much of the process is simply "the way it's always been done". That's the part of your process that needs to be fixed, because more and more people are discovering that they don't have to put up with it. From discount brokerages to try-on-your-own-shoes outlets, customers are discovering that the commissioned sales process frequently doesn't add anything of value.
Take that expensive but very nice pot I bought for the cook in my house. It was being sold at a party plan I attended for $450. My cook fell in love with it, so I wrote a check and waited for the pot to be delivered.
Meanwhile, I went home, and out of curiosity decided to check ebay. There was the same pot, new in box, never opened, exactly the same for only $150, with free shipping and no sales tax. The man selling the pot, had many pieces of the line of cookware, and was still in business. I canceled the order made through the party, within 3 days, per U.S. law, and bought through the ebay dealer.
The retailer was infuriated. He says he does all the work and ebay sellers get all the sales.
Well, if the price difference had not been so outrageous, there wouldn't have been a problem. The sales tax alone on the $450 pot was nearly $45, making the savings to me $345, or more than double what I actually paid for it.
Yes, I sell online, and have sold B & M. But either way, I cut the competition and made my money. If you can't do that, then close your 'doors'. Volumn pricing is the key.
go to the B/Ms and offer them an online shop and put leaflets with THEIR URL in the shop.
if they can still survive with online discounters ripping them off, they should really make a lot more with their own sites matching discounters' rates.
and so the situation will change. online discounters will start to look for a B/M store ;)
Not necessarily, if stress lies on the "BRICKS." We sell quite heavy stuff B&M actually, and if we send that via UPS, traffic fees are immense. In that case you can only rely on niches and the long tail, that means people missing their local B&M store having gone bankrupt already and not knowing where to buy what they were looking for.
You have to take a considerable amount of your gross-profits if you offer free shipping for bricks, and this is the reason why most experiments to sell ordinary food online failed: gross-profits have sunk under 10% in that area and you definitely cannot beat wal-mart and others. No way.
But you're right insofar as you have to get "turn" into your storage, no matter what business you're in, and that indeed means volume.
Wherever I sense price-competition in my online sales, I rely on Lenin: One step backwards...
if you want to pay an online price that doesn't allow for in person inspection of an item......
don't go to a B&M to inspect it in person.
After all, if that online price is so good that you'd buy the item without seeing it, why would you need to see it in person before UPS delivered it anyhow?
The technology itself bears means to measure a clients diopter-values on a monitor online, I think. At least for some people...
Minimum Advertised Price. I own a company that makes widgets and we specify the minimum advertised price that our dealers can sell for. If they dont follow, we dont sell to them. Simple. For high profile examples, have you ever tried to get a deal on an Apple computer? at best you can find 10% off. Do you think that is an accident?
Also, resale price controls ARE legal in the US. I can't say for the rest of the world. The laws against price fixing are mainly aimed at commodities, not Bob's Cola vs Steve's Cola.
Our dealers like this program, and are mostly surprised that there is teeth in it. We have cut some of our bigger customers for violating it. We thought it was better to prune the big branches, rather than let the whole tree die. The net result has been 100% growth per year and we are maintaining our market value.
So the manufacturers CAN do something, and it is legal. All of our dealers are on a level playing field, and it shows. 90% of our sales are in B&M.
Jim will look at discountwidgets.foo, see that ManuB's products are cheap and won't even consider ManuA's products unless there is a really good reason why they are actually better than ManuB.
Most shoppers make up 80% of their mind their mind very early in the process - quite likely when they browse the list of products on their favourite discounter. The trip to the B&M is to compare prices and to have a look 'in person' but for most products they already know what they're planning to buy at the end of the day.
If you want to suggest that ManuA, ManuB and ManuC all get together to set a common MAP then you're in for a rude shock as that is most certainly illegal, even in the United States of America.
Well, if the price difference had not been so outrageous, there wouldn't have been a problem.
That is part of the problem. If he was selling it for $450 and the online was selling it for $150, and both are making a profit - then that tells me the $450 price has about a 500% profit margin.
If non-internet sellers cannot realize that it is very easy to compare prices now, then they will fail.
And as far as MAP goes, that only works if no other manufacturer is selling a competing product. About 3 years ago one of the two major manufacturers of inverters that we sell decided to go MAP. So we changed all of our website prices to reflect the full MSRP of their products. After their sales dropped by over 80% they abandoned that idea. Our sales of widgetA went from 60% of total sales to less than 10%, while sales of the competing widgetB's more than doubled.
IMO, MAP is not an answer, it is a bandaid. Even with MAP you cannot prevent sellers from having the classic "call us for prices too low to advertise".
janethuggard: if the price difference had not been so outrageous, there wouldn't have been a problem
BINGO. It is a X00% B&M markup that is the problem, not the customer.
AffiliateDreamer: Sounds like eye glasses or something of the like.
Actually, a good example. Eyeglasses industry is basically a monopoly in US, most major brands are manufactured by the same holding-company. In other countries you can find virtually identical glasses that sell for $10-$20 that in US are selling for hundreds of dollars. Now, if this is what some B&M are trying to protect, well, then tough luck.
It's not hard to find cheap reading glasses, but if you want eyeglasses that meet your individual needs as closely as possible, you'll need in-person service of more than one kind by people who know what they're doing.
Many optometrists sell eyeglasses. If the price of glasses goes down, the cost of an eye exam will likely go up. The resources to keep the optometrist's office open must come from somewhere, after all.
BINGO. It is a X00% B&M markup that is the problem, not the customer.
In several posts, people indicated they'd be willing to pay a modest premium for the "service" of seeing the item in person before they bought something. But that premium was nowhere near the store's real costs for being there for that customer.
if you want to pay an online price that doesn't allow for in person inspection of an item......don't go to a B&M to inspect it in person.
It would improve life for the widget retailers I'm describing if more shoppers adopted that ethic.
No one is holding their breath waiting for that to happen, though.
The first rule of survival is to deal with the world as it IS, not as you wish it were ...
Many optometrists sell eyeglasses. If the price of glasses goes down,
I don't think eye glasses are a good example. I just got new glasses about a week ago. The lenses and exam - that is the part where the optometrist comes in - was under $100. Where they make their profit is in the $200 frames that cost them about $17.
The lenses and exam - that is the part where the optometrist comes in - was under $100. Where they make their profit is in the $200 frames that cost them about $17.
No, this is exactly what buckworks is talking about. The cost of the optometrist, techs, equiptment and all that goes into getting your prescription actually costs a alot more than $100. They charge the $100 dollars for the exam so that it isn't a total loss if you just walk away with the prescription and then make up the real cost of the service in the glasses. The glasses may have cost them $17, but the exam and making the lenses may cost them $175, so how much did they really make.
For this industry, it is like the optometrist and the cost of the lens creation is free and the glasses cost $300. But in actuality, the service costs them $100, the glasses costs them $75 and they make a $125 profit.
In comes the online retailer who tell these people to go to the off line place to get the exam (which they are getting for free). They then go online and buy the glasses for $200. Online retailer makes $125 and offline just lost $100. Right now, off line retailers are not in a position to be able to charge for the service as it has long been that you would buy from where ever you got the service.
The real crux of it is though, that if the offline retailer went out of business, the online retailers would not be able to sell their product because there would be no one to provide the service. Can you take an eye exam online? No, you simply can't. Nor can you be fitted for contacts.
Imagine if all of the optometrists suddenly closed up shop because they could make no money. No one could get prescriptions and the online glasses retailers would not be able to sell their products either.
FWIW, I got my last set of glasses in Brazil. I managed to flush a contact lens down the sink. Called my optometrist, who read me the prescription over the phone.
Went to a place in an upscale mall, where I paid a total of $100 including well-known designer Italian frames. Came back for them in an hour. Probably would have been cheaper had I not been in about the fanciest mall in Brazil.
(Oh, and they picked the right frames for me right off the bat. Of course, I asserted my right as an American to pick over some choices. But their first choice was the best...)
Part of this has to do with the low cost of labor in Brazil, part due to no duty for goods from Italy, and part due to the Italian's business savvy. They sell goods for what the traffic will bear, and no more.
So, my understanding is, the place to buy designer Italian fashions in Europe isn't in Italy - it's in Spain, where you will find the same goods sold at a much lower price.
Perhaps the first step for B&M stores should be to cut down all extra spending, move to somewhere cheaper out-of-town, and adopt a warehouse-type layout. If the overheads are so large, then reduce them.
Now subtract the costs of programming, web-design, higher charges for online payment processing, SEO, email and telephone support staff - all of which are required by the online retailer.
I'd be surprised if most B&M firms couldn't draw very close to the online retailer by adopting that kind of structure. As proof, the grocery trade has failed to find a niche online because major supermarkets, already low-overhead retailers, are too much competition to beat.
I'd be surprised if most B&M firms couldn't draw very close to the online retailer by adopting that kind of structure. As proof, the grocery trade has failed to find a niche online because major supermarkets, already low-overhead retailers, are too much competition to beat.
Sorry but that's two fallacies: first price-findings is a matter of volume: If the online-retailer orders 100 of those 175$-frames, he is definitely going to get much better prices. Secondly you cannot send fresh meat or cheese in ordinary packages: It deserves cooling. In addition to that, as I mentioned before, in the food industry gross-profits have sunk under 10% long before the internet came up. You cannot offer free shipping under these circumstances, it is a matter of weight of the products you sell, and its ratio potential gross-profits per kg.
The only difference is the B/M has higher operating costs, direct cost should be similar, so Im guessing margins must be low if thats causing a big problem.
They either need to reduce operating cost to below the online store - not possible - or find a way to charge more for thier services, If the B/M see this product as commodity they wont last long.
I have noticed that many B&M stores are wasteful of money. <snip> the B&M store spends lavishly on interior decoration and 'in-store scents'.
Perhaps the first step for B&M stores should be to cut down all extra spending, move to somewhere cheaper out-of-town, and adopt a warehouse-type layout. If the overheads are so large, then reduce them.
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.
The average customer-zilla needs more than an hour of one-on-one sales help.customer-zilla! :) The new looky-loo!
Shoppers go to the full-service store, obtain help for their widget selection process without being charged for it, then waltz out to complete their purchase at someone else's no-services price.Those shoppers feel very clever. The store owners feel like sitting ducks.
My advice to B&M firms? Look at the bigger picture and change yourself to whatever kind of firm you think will be around 25 years in the future.
Recently, I read an article about a TV reporter covering the closing of a large, well-loved music retailer. After interviewing the owner, and hearing him lament about not being able to compete with online music sharing, the reporter noticed someone in her crew had picked a CD from the rack. Right in front of the owner, she said, "Oh, put that back, I can download it for free for you."
My 2c (free on the internet)
-Automan
