When manufacturers sell direct and “compete” with retailers
In the world of consumable products, Procter & Gamble is often held at the pinnacle of marketing perfection. P&G is home to many brand names all of us are familiar with, either because we specifically seek them out on retailer shelves, or because it's simply second nature to nab these items while at the store. From Folgers coffee, to Tide laundry detergent, to Duracell batteries, the list of brand names is rooted with highly recognizable names and long-standing tenures in the marketplace.
Retailers depend on brand name products to sell "private label" products
Retailers rely on brand names in the P&G portfolio as well as many other manufacturers to bring in the foot traffic to their stores. So as to not be dependent on one manufacturer's brand within a product category, retailers often will sell competing brands or go at the product manufacturing/sourcing process themselves by "private labeling" their own version of the product.
We've all seen it at Target: the orange box of Pledge-brand furniture hand wipes on the shelf and conveniently positioned on the shelf below Pledge products, a similarly orange-colored "Target" brand furniture wipe for a moderately cheaper price. To the brand-agnostic consumer, this is a "win" for Target. To the brand-aware, the private label option appears to be cheap, or a "knock-off."
Regardless, the brand names pulling traffic into stores allow retailers to enter into the "private label" business in the first place. The margins are healthier for private label products and enable the retailer to not be entirely dependent on one supplier/manufacturer. Excellent business strategy all around and certainly a trend with no end in site, particularly as low-cost-countries become more and more accessible to retail buying offices.
Manufacturers selling direct-to-consumer becoming more common
Like retailers depend on brand names for private label products to be successful, manufacturers depend on retailers for product sales. However, like the "private label" model outlined above, Manufacturers are turning the model around in their favor as well -- by selling direct-to-consumer and bypassing the retailer altogether.
As a manufacturer, we began selling direct in June 2007. Our intention has always been to do this as a means for learning about the consumer shopping experience online. In the nearly 15 months since beginning our e-commerce initiative, the amount of data collected has been invaluable. The initiative wasn't initially met with entirely positive feedback from our retail partners, however. Other Newell Rubbermaid brands (Levolor is a division of Newell Rubbermaid) are also selling direct: Graco Baby, Rubbermaid, and Dymo to name a few.
P&G ventures into selling direct-to-consumers online ... and Wal-Mart hires an executive to analyze the impact
In an article posted on FT.com, it opens with the following:
Procter & Gamble is testing its ability to use the internet to sell its toothpaste, household cleaners and nappies directly to US households, in a potential long-term strategic challenge to its retail partners.
The company is supporting a website, theEssentials.com, that is exclusively selling its brands, with items such as single tubes of Crest toothpaste and bottles of Mr Clean cleaning fluid, to boxes of its Pampers and Luvs brand nappies and Gillette razors.
When the leading consumable product manufacturer ventures into the world of selling direct-to-consumer, retailers' ears perk up. While nobody can be sure of the long-term intentions of theEssentials.com, it's obvious that a new chapter in Manufacturer+Retailer relationships is being written.
Quite often, manufacturers' website traffic pales in comparison to retailers' website traffic
Traffic to the P&G theEseentials.com site is minimal (27K unique visitors per month at the time of this post according to Quantcast). Clearly a non-threat to all of the major retailers who boast 10s of millions of unique visitors per month.
Retailer is to private label as manufacturer is to selling direct-to-consumer
In the short-term, P&G's efforts will probably amount to several very uncomfortable conversations between the sales office of the manufacturer and the retailer. Phrases from the retailer will sound like, "You're competing with us." In the long-term, consumers will ultimately benefit from Manufacturer-driven ventures like these.
It creates a level of healthy competition between the retailer and manufacturer pushing both camps into a better understanding of the consumer's desires and shopping behaviors -- very much like private label opportunities for retailers force manufacturers to be honest with pricing and innovative with new product offerings.
Blog by Eric Long
I'm an experienced online marketer, information architect, digital strategist, and social media enthusiast. I'm passionate about providing outstanding cross-channel experiences for considered purchases (with a focus on mass customization).
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November 6th, 2008 - 09:52
Good post Eric. Question though. Was there something published that indicated TheEssentials.com was a new website? This site has been around for numerous years.
I do like the fact that TheEssentials.com offers a range of brands and is not brand specific. This allows multiple brands to leverage technology, traffic and marketing efforts. I think it's a path other corporations such as Newell Rubbermaid should investigate.
November 12th, 2008 - 07:48
Jim – Nothing was published to indicate that this was a "new" venture for P&G but it was recently highlighted on the Financial Times website — probably more to do with the Wal-Mart executive hired to specifically investigate the potential impact of manufacturer-driven initiatives like this.
Like I mentioned above, it'll probably lead to several unpleasant discussions between the retailer and manufacturer, but at the end of the day, the consumer ultimately benefits from the competition this will breed.
September 25th, 2010 - 14:13
How about when a manufacturer of a niche product not only sells on their own site, but also sells on eBay and Amazon, at a competitive price. As an online retailer, I have to compete with that, but my costs on the product are higher, and it leaves me with a much smaller margin.
I also deal with a wholesaler that sells direct from their website.
They quote me at 40% off of the "list price", but then they sell the product at about 20% less than the list price on their own site. The shipping from the wholesaler to me costs *me* about 9% of the total order. So in the end, I'm making about a 10% profit on the items I sell? No can do… I have to sell them at a cost higher than the manufacturer sells them for, and hope that when people Google for the product online that they manage to come to my site rather than the manufacturer's website.
September 25th, 2010 - 17:31
Mark,
If this is happening, then the manufacturer doesn't understand the concept of proper channel management (which informs a pricing strategy). Typically, manufacturers selling direct will either implement a MAP (Minimum Advertised Price) policy which establishes advertised pricing parity in the market or they will choose to sell at a premium price on their site (and potentially offer other value-added services to account for the increased retail price the consumer pays).
In your example, I do not understand why a manufacturer would do this unless they started their business this way and recently entered into selling through retailers. If the manufacturer is not a traditional retailer, then they probably don't excel at direct marketing or fully understanding the needs of the consumer in the shopping process — in which case, you probably can excel at search marketing when someone does a Google search for the product.
The only ammunition you really have is leveraging their competitors' pricing practices over theirs. At least, hopefully their competition (if any) has implemented a more intelligent pricing strategy.
-Eric
April 18th, 2011 - 16:42
I think the manufacturers can and SHOULD sell directly. The only reason they do not do this in the real world is due to the expenses outweighing the benefits (got to buy land all over the place, hire employees left and right, even more massive fleets of transportation,etc..) where the consumer is unlikely to go into a store that only sells x brand vacuum cleaners or x brand beverage (though coin-op could easily make soda companies independent with minimum real world expenses – I mean a one time machine cost + an employee who covers many many machines even with 6/12/24packs it can work)
Consumers in the physical market place want one trip to cover almost everything. Enter your Walmarts/etc.. Nothing is going to change the mindset of I can buy my condoms where I get my breakfast and dvd's and ooh look a tropical fish (most sales are not premeditated- they are visual impulses at your super store)- so manufacturers as a whole are never going to be profitable by going it alone.
There is however a way they can be independent. Online sales. Nothing is to stop them (other than any real world deals with the walmarts/such) from altering their www to sell at a great price with minimum expense if their brand is strong/idea is unique. Won't hurt sales too much either as if they are based in one state that is sales tax for one state only!
I say the big boys are stuck where they are and the niche/startups can and in some instances have sold directly online only successfully. Likely a side benefit of trying to cut the bs – corps like walmart make you bend to them in we want x color package, reduce sq. in to fit in x shelving, etc.. Your new guys may just have to much pride and sense to bend over for a chance of business.
The walmart mentality of shoppers is what is saving a huge amount of jobs and leaves plenty of room for other crappy things like golfcourses.
September 22nd, 2011 - 19:09
Part of this issue that has not been mentioned is distribution. i.e. Amazon.com I'm sure they're more optimized to distribution than a manufacturer is.
November 7th, 2011 - 10:55
Manufacturers who sell direct to the consumer undermine the retailers ability to turn a profit. Theoretically, manufacturers who do this would be selling at MSRP, but this is not the case. The manufacturers I deal with send out promotions for percentage off, free shipping deals and other things that compete with us. They also have pricing policies for us that keep us from lowering prices to compete as well as hide the where to buy links on their site so the consumer cannot easily find us. I have been in my niche industry for 20 years and online since the internet took wings. This practice has all but torpedoed my sales. When you have companies whose brand you depend on and who will only link to major franchises or themselves, those of us who have the knowledge to help the nursing mother personally will be eliminated. These companies include brands like Medela, Bravado, Avent and more. I feel helpless to stop them as you cannot boycott major brands in your industry and expect to have sales. If anyone has any answers to this or any way to pressure manufacturers to stop this small business killing practice, please comment.
January 3rd, 2012 - 00:25
We are in the baby product industry ourselves and have seen this very negative trend. We can't figure out why they would do this. It is disgusting. Phil and Teds (since Regal Lager dumped them), Mountain Buggy, Orbit… We just don't understand if they know the long term implications of this short sighted strategy. Oh, and selling to predatory Amazon…. I only hope they get stuck with some big receivables…. So unethical.