In Through The (Direct-to-Customer) Outlet Door

Like all merchants, branded manufacturers with a direct sales channel inevitably sell some items at a discount. Some products may be slow to move, while others are refurbished, open-box or otherwise not appropriate to sell at the suggested retail price.

Most manufacturers eventually sell a substantial percentage of their inventory to a liquidator. While liquidation is easy and convenient, it also has its disadvantages. It means that manufacturers lose control of their branded merchandise and have no say over the subsequent customer experience, and they’re letting their end-of-life (EOL) inventory go for pennies on the dollar. To cap it off, these liquidators capture valuable customer information instead of the manufacturer.

So what should manufacturers do if they have inventory they need to move?

The product re-channeling solution

The solution to this product lifecycle issue is for manufacturers to re-channel slow movers, EOL inventory and refurbished products through their own ecommerce discount site. By optimizing the product lifecycle in this way, and by supporting this alternative channel with customer acquisition and marketing tactics, merchants can:

• Capture consumer information to support remarketing campaigns and drive lifetime value.
• Increase profitability by selling direct and delaying or reducing liquidation.
• Garner sales of high-margin accessories, warranties or other related items.
• Control their brand image and gain opportunities to build traffic in other channels.

Many branded manufacturers, including Sony, Lululemon, Apple and Jawbone, use discount sites that allow them to apply their own brand standards with creativity and taste, to maintain the brand’s image.

A manufacturers outlet or discount channel can exist as a separate part of their branded store to maintain a consistent, on-brand look and feel, while segregating EOL merchandise from new, regularly priced products and lightly discounted sale merchandise. The approach can be overt, like Lululemon’s “We Made Too Much” acknowledgement in the dropdown menu; or more discreet, like Apple’s “Clearance & Refurbished” link in the footer of its ecommerce site.

Either way, manufacturers can maintain the advantage of controlling the customer experience – including pricing, warranties, customer service and shipping – by using this strategy. In categories like electronics, warranties are critical for consumer peace-of-mind, and extended warranties can be a profitable upsell.

Acquiring customers and driving traffic

Product re-channeling is most effective when it’s supported by ongoing customer acquisition and marketing. These tactics can include affiliate marketing, paid search and email marketing.

Affiliates: Affiliates are a powerful tool. Some of the most-visited sites on the Internet have become established and trusted hubs of information for bargain-hunting consumers. When merchants engage in strategic selling partnerships with top producing affiliates, they still maintain transaction control. Affiliates can help manufacturers drive more demand and traffic to their outlet site to generate additional sales prior to product liquidation.

Affiliate sites, such as Savings.com, Retail Me Not, Slick Deals, CouponCode.com and others, are a great resource for information as well. They can advise on pricing and help to forecast sales based on their wealth of experience and data.

Paid search: Paid search campaigns target shoppers searching for discounted products. Working together with email marketing and affiliate programs, paid search can be continuously measured and adjusted to deliver the right visitors to a manufacturer’s storefront with maximum efficiency.

Email marketing: Strategically designed email marketing programs with special offers – like free shipping for abandoned shopping carts – can deliver impressive conversion rates. The right offers can also result in sales of full-priced accessories or other items to complement the discounted purchase. The fashion-conscious buyer of a refurbished tablet might be drawn to an attractive, full-priced case or the avid runner buying a pair of discontinued shoes might splurge on several pairs of full-priced technical socks.

Achieving measurable results

The number of direct sales that come from the outlet or refurbished category continues to grow – along with manufacturers that are seeing results using this strategy. And while the results vary by category and brand name, one thing is for certain – the majority of the time, re-channeling merchandise to delay liquidation enables manufacturers to sell their products for 40–70 percent of the suggested retail price rather than the 20–30 percent that a liquidator will pay. With this in mind, it simply makes smart business sense for merchants to make product rechanneling part of their online strategy when they have for inventory that they need to move.

Luke Frandrup is Group Vice President, Customer Success at Digital River.

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