Why Manufacturers Can No Longer Afford to Wait to Sell Direct to Customer

Aug 05, 2014 5:08 PM  By

In 1984, CompuServe became one of the first entities to make online shopping possible with its Electronic Mall. Yet thirty years later, many branded manufacturers are still tiptoeing into the ecommerce waters. Why aren’t more brands diving in?

It is certainly not for lack of opportunity. Forrester Research states that 60 percent of all U.S. retail sales will involve the Web by 2017—as much as $370 billion annually. Moreover, a survey by PwC shows that 52 percent of online shoppers in the U.S. are already going directly to brands and manufacturers websites with the intent to buy, driven by a greater assortment, and brand loyalty.

On top of the undeniable growth prospects, direct-to-consumer (DTC) selling offers manufacturers other important advantages. Because many shoppers prefer to make their first stop at a manufacturer’s website when they are researching a product decision, why not capture the sale when they are there?

Adding a purchase capability to their site and taking the sale direct gives the manufacturer, instead of the retailer, the chance to learn first-hand what consumers are shopping for—and why. The business intelligence gathered about buying trends, regional preferences and product positioning can be used internally as well as shared with your retail partners, thereby strengthening the complete channel.

Despite the selling advantages and business opportunities associated with going direct, many manufacturers are still reluctant to jump in for fear of alienating their traditional channel partners. Contrary to the lingering myths, however, DTC does not harm channel partnerships—in many cases it strengthens them. It is not inconsistent for a manufacturer’s website to offer consumers an option to purchase directly as well as a “where to buy” capability that redirects them to a retail partner’s website or local brick-and-mortar store. T

he fact of the matter is that consumers will buy from the channel that best suits their needs and interests—so it only makes sense to make it as easy as possible for consumers to purchase your products according to their preferences.

More often than not, “channel conflict” is an objection raised by internal sales organizations rather than by the retail partners themselves. Many industries—consumer electronics and apparel manufacturers chief among them—learned years ago that DTC commerce can co-exist with retail partnerships. Now, dozens of other categories, including hobby and toys, power tools, home and personal appliances, health and beauty, and sporting goods are learning from their predecessors.

Establishing a robust and competitive DTC presence, however, does involve effort. Sufficient resources must be allotted to support not only the operational aspects of the ecommerce site, but also provide a solid marketing foundation.

Manufacturers’ ecommerce sites must play well with their brand identity as well as the native demands of the Internet; e.g., SEO, social media and so on. Of course, reliable supply chain logistics and customer service capabilities are essential as well. The manpower and expertise required for these functions are why many manufacturers often choose to partner with an outsourced ecommerce services provider.

Regardless of whether internal or external capabilities are brought to bear, perhaps the most difficult question about DTC e-commerce involves how to price your products. Many manufacturers assume they must publish full MSRP pricing in order to protect their channel partners. There are risks to your brand to pursue such a strategy.

Consumers go to a manufacturer’s website for a wide range of reasons. While they may only be conducting research or searching for the latest product information, many want to buy directly from the manufacturer and often are willing to pay a slight premium to do so. However, if your retail partners sell the same item for 20-40 percent less than the price on your site, your customers are likely to feel insulted.

If you’re lucky, they might go on to purchase your product from one of your retail partners. But they’re just as likely to abandon the sale altogether—or worse, buy your competitors’ product. Think of it this way: your website is a direct extension of your brand. Damage your visiting consumer’s experience and you damage your brand.

On the other hand, pricing that meets or is only slightly above the average retail price gives the consumer options. They can choose the channel that is most convenient or attractive to them at the time, which supports your entire channel ecosystem.

Manufacturers have inherent advantages that consumers are drawn to. It’s important to leverage those opportunities in order to offer buyers options that no retailer can match. In addition to accurate and timely product information, manufacturers can deliver an “endless aisle” of product assortment or include unique bundles and closeout items.

Retailers have only so much shelf space – where you are competing with other top selling brands as well as the retailer’s in-house brands. As a manufacturer, you have many more options with your ecommerce site.

DTC selling is clearly going mainstream and offers the ability to forge relationships, gain important customer insights, increase channel revenue and protect brand loyalty. By providing a complete and fulfilling experience, product manufacturers can better serve their customers’ long-term interests—as well as their own.

Alex Becker is Global Vice President & General Manager, Branded Manufacturers for Digital River.