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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.