We’ve all seen the writing on the wall: online sales across nearly every industry are growing faster than their brick and mortar counterparts. Not only that, studies such as the Digital Consumer Preferences Survey done by Brandshop show that 90% of consumers visit a brand's website to shop and 87% of consumers prefer to buy directly from the brand if given the option. Those are some pretty high numbers!
We’ve already seen a major shift where more manufacturing companies are starting to sell direct to their consumers, rather than going through the traditional routes of distributors and retailers. The shift actually began before the Internet was established with manufacturer-owned brick and mortar stores, but was reserved for only the top in brand names: Nike, Apple and Sony to name a few. Over the last half decade, however, there has been an increase in direct to consumer brands with many well-known names now a part of the landscape such as Everlane, Warby Parker, and Casper to name a few.
With the rise of eCommerce, brands no longer need to rely solely on their distributors to stay afloat. Despite knowing many of the benefits, you would expect that the majority of brands would be racing to start a direct to consumer model. But there is still quite a bit of hesitation. Here are a few reasons why:
Hang-Ups of Going Direct
When eCommerce began to gain credibility as a viable means of shopping, these premier brands were first in line to be manufacturers selling direct online. This transition was easy for those brands because they had already dealt with the two primary hang-ups of going direct.
The first challenge is maintaining relationships with retailers whom the manufacturer will now be both supplying and competing against. After all, you don't want to gut the wholesale side of your business prematurely because it is not only the primary revenue channel; after all, it is often the the biggest marketing avenue. A huge portion of product discovery happens when people stumble upon a product while shopping for something else, and this happens very effectively in a multi-brand retail environment.
The second challenge of going direct is mastering the dynamics of consumer-based sales and customer service. Wholesalers often find it hard to understand all the extra effort that goes into dealing with consumers. Ask anyone who has worked a cash register during holiday season and they will tell you exactly what we are talking about here. The resources required to maintain this type of customer relationship is often underestimated by newly founded online businesses.
Are you thinking about bringing your wholesale business direct? Here are five important factors to consider when you take the leap.
Overcoming the Primary Roadblocks
1. Instigate MAP Pricing
Pricing is one of the most important things that a manufacturer can control. Often a primary concern of retailers is their supplier’s competitive advantage in margin when that supplier starts selling direct. You can mitigate this concern by instigating MAP (Minimum Advertised Price) policies even before moving to direct sales.
In the short term, such a program helps to level the playing field among existing retailers who are now in the same marketplace online, and it sends a cohesive message to the consumer about the value of your product. In the long term, when you do launch your site, you are better prepared to play by the same competitive rules that you have put in place for the retailers.
But why would you want to have to play by the same rules?
Keep in mind that the competitive advantage of margins is exactly what we want to exploit when taking the business direct. You can do this even with MAP policies in place by offering bundled discounts, loyalty rewards, shipping promotions and other key consumer-decision makers.
Think of it this way: you could avoid having a MAP policy and offer a $100 retail item for $75 direct instead of selling it to a retailer for $50. Great! You’ve made an extra $25 but are sure to lose that retailer and their future sales, as well as devalue your product and brand.
On the other hand, you could offer the same product at $100, just like the retailer, but provide free next-day shipping (at a $25 cost to you). In this way, you are selling your products for the same price as your retailers, thereby preserving the relationship and marketing avenue. You’re maintaining product value, since your price is their price. And, you’re still capturing your end customers back from the retailers because of that sweet free shipping deal.
2. Toss Your Retailers a Bone
While MAP pricing is going to help with retailer relationships, we need something to sweeten the deal. In order to do this, we want to reassure the retailer that your increased online presence is going to be good for their business.
There are lots of ways to do this, and it varies between industries, so you'll have to think about the best approach for your particular business. However, one idea is to increase the exposure of your dealers online. Maybe next to every "Add To Cart" button you include a "Buy Near You" button that pops up a menu of the closest dealer to the consumer. More forward thinking and technologically savvy businesses will actually sell the product online for the retailer, and then have the customer pick up at the nearest retail store.
This is great from retailers’ perspectives, because they get to sell the inventory they are sitting on without the leg-work of acquiring the customer themselves, and that customer is then exposed to the rest of the products they offer when showing up to pick up the goods.
From your perspective, this deal is even better. The cost of storing inventory, which tends to be the largest cash flow concern of a business, is offloaded to the retailers. They pay up-front to store your inventory, while you slowly train customers to come to your website to buy your goods directly.
3. Holy Shipping
Now that we have our retailers feeling all warm and fuzzy (ok, maybe just content), let’s talk about the challenges that are awaiting us on the customer side of things.
The most obvious of these challenges is the dramatic difference between shipping one or two items at a time versus shipping pallets of products. As a manufacturer going direct, you’ll now need to become adept at both.
Depending on the business, there are different solutions that you will need to implement to make shipping a success. You could segment your warehouse into wholesale and retail sections. Typically retail fulfillment operations have setups with a much more robust picking system and inventory management controls.
Remember that the retail operation will potentially be 10 times (even a thousand times) more orders than your wholesale business. That means more pick tickets, packing slips & shipping labels than you are accustomed to. You will also need to make some tough decisions about inventory allocation between what is available to your wholesale customers and what is available to retail customers.
When it comes to shipping providers, taking your business online may be a good opportunity to re-evaluate the best cost; using split providers may end up being the most cost effective. For example, shipping via UPS Ground or Freight for wholesale will yield the lowest rates for bulk orders, but in the micro shipment space, USPS might provide the best bang for the buck.
It is going to be extremely important to work with technology systems that facilitate this multi-faceted approach to shipping providers, inventory management, and order fulfillment.
4. Return Policies
If you've never sold direct before, then it is imperative to make sure your return policies are in place before launching any online store.
You may be used to having a customer call you and negotiate credits for slow moving products, or exchanging last year’s models for the newest, but the landscape in direct to consumer sales is vastly different.
It’s nearly a guarantee that within your first handful of orders, you will have an irate customer requesting cash back in full, delivered by unicorn immediately, and free goods for a year! Now stop take a deep breath— and know that this is normal.
Customers are thoughtful and astute when it comes to online shopping, and many maintain unbelievable expectations. That is why it is so important that you have a clear, plain English return policy that your internal team and your customers find easy-to-understand.
Also, be prepared to have a policy acknowledging that sometimes you will be doing deals at a loss. Your return policy is as much of a marketing expense as your ad budget. With the increase in margin comes an increase in the cost of doing business. Prepare yourself.
5. Time to Steal Back our Customer
Let’s talk about the real motivations for going direct: staying ahead of your competitors and increasing market share.
Now that consumers have every product option available online, they are in the driver’s seat when it comes to the products that win and the ones that lose. More than ever, it is crucial for you to take control of the consumer experience as it relates to your brand.
At the end of the day, you have x number of people who end up with your products in their hands; the goal is to have all of those people get that product directly from you. In other words, we need to steal our customers back from the retailer.
Retailers are essential for gaining us new customers, but we don't want them to retain that customer for future purchases. They also have a large portion of customers that may not have been previously exposed to our brand.
Consider including online sweepstakes in your packaging that drive those customers online to participate. Once on your website, they should be able to find it easy to order from you direct online (most likely with better promotions than the retailer can offer).
Another option is to do joint online sweepstakes with the retailer, where you provide the free product, and they provide the email list as well as an opt-in to your list as part of the sweepstakes form.
While seen as a Win-Win, at the end of the day, you are building your direct marketing assets, and ensure better future control over the brand message.
While this isn't a definitive list of To Do's nor is it a complete playbook, the challenges of going direct are something to embrace, not avoid. Retail establishments as we know them today are changing. In fact, many of them are shutting their doors because just being a middle-man isn’t good enough to attract consumers anymore. Arguably, manufacturers going direct have the edge on being able to deliver experiential commerce in ways middle-man retailers can’t.
You can either adapt and stay ahead of the curve, or try to play catch-up, and hope that it isn't too late. The fittest always adapt and survive!
This article was originally posted on May 7, 2015 and updated on November 21, 2017