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Six drivers for manufacturers to engage in direct sales online

29 April 2013 | By Marijke van MollStrategist
Attention, this is an old blog.

Six drivers for manufacturers to engage in direct sales online

Direct sales from manufacturers to consumers is hot! This has a number of reasons: 67% of online shoppers expects to buy directly from the manufacturer in future. Generic brands are putting high-end brands increasingly under pressure, while the crisis has reduced margins available to retailers. Traditionally, the philosophy behind a manufacturer’s own web store would be turnover, but there are other considerations for setting up a direct online distribution channel as well. This article addresses six reasons for manufacturers to opt for direct sales.

Manufacturers selling direct to consumer is the fastest growing online retail channel

- Internet Retailer

1. Gain consumer insights

Manufacturers’ strength lies in creating strong brands and products. The retailer’s expertise is serving consumers, both online and offline. The manufacturer mostly depends on the retailers’ data to gain consumer insights. It’s in retailers’ interest to limit this; they know exactly what sells and what doesn’t, while keeping manufacturers in the dark.

E-commerce is a driver for manufacturers to collate more high-quality consumer insights for the purpose of optimising products and services to consumer needs. By selling directly themselves, they get to collate and analyse their own consumer data, such as physical characteristics, product preferences and buying behaviour.

Example

Manufacturer of office chair Klöber launched its own web store. The ‘chair configurator’ on Kloeber.com helps visitors make the right choice. Moreover, the ‘chair configurator’ instantly provides Klöber with a wealth of information about (potential) customers’ needs and behaviours, due to the configurator asking a vast number of questions, such as “what type of atmosphere of interior makes you feel most at home?”, “What is your height?” and “What type of work do you do?”

2. Improve brand equity

High-end brands experience ever more competition from various brands available directly online or via etailers. For the end consumer it is often hard to judge online whether they are dealing with an actual A-grade brand or in fact a B-grade product. Moreover, we will often see etailers positioning the high-end, A-grade brand differently (using their own text and visuals) in ways that can devalue the high-end brand’s image.

E-commerce is a driver to create and maintain a strong brand. Operating one’s own online channel gives the manufacturer full control over its brand identity. Using a variety of online marketing tools, such as search marketing, social media and email campaigns, they can grow brand awareness. On top of that they can apply the right brand elements online, like corporate and product information, to improve the brand’s image. The new e-commerce site also provides opportunities to use distinct products, facilities and content to drive brand interaction.

Example

Burberry's online sales channel gives them total freedom to position their brand the way they want. Applying rich visuals, product video’s and copy like “the story behind the brand” to their own site, Burberry have created a strong brand.

3. Bring about innovation

Manufacturers need to keep innovating to keep their brands relevant to consumers and to continue seducing consumers to buy their brand. To this effect an own web store is an outstanding way of offering new (service) facilities, propositions or business models (a subscription model, for instance).

Innovation drives the manufacturer’s product and service innovation. The web store enables them to involve the consumer more closely in innovation, for instance by way of crowdsourcing or customisation facilities.

Example

Reebok’s ‘Design Your Own’ shoe customisation facility gives consumers a reason to visit Reebok.com directly and interact with the brand, since etailers’ websites don’t feature this functionality. This doesn’t rule out that Reebok might offer this feature to a select number of etailers if they seek to grow brand image on all online touchpoints.

4. Category management

Manufacturers will continue to optimise their supply of products and services to (changing) consumer needs.

E-commerce is a driver for introducing product and service extensions or new product categories not (yet) available via (r)etailers. A manufacturer’s web store can, for example, be used for trial launches prior to formally launching the products through established retail channels. An online direct sales channel is also rather suited to sell vast amounts of niche products (long-tail business model).

Example

Aside from the opportunity to purchase items from the regular product lines, LEGO’s web store at one point featured an opportunity for consumers to design their own kits. LEGO then issued the required bricks and charged for shipping. Such custom designs could even be featured in the catalogues for other customers to buy; the original creator would receive a tiny share of the profit. These user-designed products were a product line extension to LEGO’s best-selling kits, and were LEGO’s way of tapping into a long tail business model.It proved successful – demand was huge – but struggled to meet product quality standards. It was therefore discontinued in 2012.

5. Improve service

Excellent service is often high-end brands’ distinct proposition (see, for instance, Nutricia’s 24/7 care line). On top of that, retailers tend to increasingly outsource service to manufacturers in order to maintain their own wide profit margins. To consumers it makes sense to take their service inquiry directly to the manufacturer, anyway.

E-commerce is a driver for manufacturers to meet consumers’ service needs (convenience and advice), for instance by selling product parts and accessories.

Example

Dorel is the manufacturer behind trademarks such as Maxi‑Cosi, Quinny, Hoppop and Safety‑1st, sold through various retailers. They wanted to facilitate retailers better in providing service directly to the end consumer. Moreover they noticed the increasing consumer demand for ordering parts directly with Dorel. To this end, service web store Quinny was developed to enable consumers to order parts directly from the manufacturer.

6. Transactions

The ongoing economic crisis and low consumer confidence have hardly affected online consumer spending, which in 2012 even increased by another 9% on the previous year. This growth follows on from the increased number of online orders. 2012 saw 88 million orders, 13% more than 2011 (source: Dutch home-shopping monitor, Online sales until December 2012). Aside from that, consumers will in future increasingly expect to be able to buy directly from the manufacturer (source: Digital Shopper Relevancy, 2012, page 39).

E-commerce is the driver to use direct online sales to gain market share on current players. In addition it allows for a greater profit margin by removing one link from the chain. The manufacturer’s own web store also enables them to drive continuity and online cross selling. High-end brands often also exploit specific propositions online, such as bulk buying.

Example

In the United Kingdom, Nivea sells directly to consumers via shop.nivea.co.uk. Their online focus is clearly with value propositions. ‘Buy two get one free’ applies to pretty much all products on offer, and Nivea also offers consumers the chance to buy ‘Big Value Bundles’ which feature around thirteen different products bought as one discounted purchase.

In other words, now is the time for manufacturers stop putting off selling directly to end consumers. Many a manufacturer may worry about sales channel conflicts; these can often be avoided, although sometimes they’re in fact welcome. We expect that channel conflicts will become less of an issue as retailers will come to accept manufacturers selling directly to consumers.

As a manufacturer, don’t just focus on turnover as a driver for setting up a direct sales channel online; the other five drivers are no less important in deciding to open a direct distribution channel online, as they add a lot of value to the bottom line.