Brands Skip Retailers, Go Direct to Consumers

Discussion
Mar 01, 2012

An August 2010 poll by RetailWire asked if there was a greater upside for manufacturers who went the consumer-direct route versus those who only sold products through retailers. Sixty-eight percent of respondents said brands going the consumer-direct route had a much or somewhat bigger upside than those selling exclusively at retail.

Now comes a new study conducted by the Economist Intelligence Unit (EIU), sponsored by Oracle Consumer Goods, that found more manufacturers are exploring new ways to create direct relationships with consumers.

According to the research:

  • The percentage of manufacturers selling directly to consumers will increase from 24 percent to 41 percent over the next year.
  • Manufacturers are looking to improve interactions with consumers through social media. Activities planned include promotion (74 percent), consumer feedback (63 percent) and customer service (62 percent).

Procter & Gamble, perhaps the best example, has sold products directly to consumers through a variety of online and physical store environments in markets around the globe, including its own e-store, shopping walls using QR codes, platforms such as Alice.com, pop-up locations, Facebook and more.

"Manufacturers are increasingly exploring ways to integrate new channels such as mobile and social media into their marketing mix," said Cassandra Moren, senior director, consumer goods industry marketing, Oracle, in a press release. "It is critical in today’s highly-competitive global economy that consumer goods companies take advantage of every touch point with the consumer. As the EIU report shows, this now involves a combination of physical and digital environments."

Discussion Questions: How do you think the nature of communications between manufacturers and consumers will change in the years ahead? How will increased consumer-direct activity change the dialogue between retailers and manufacturers?

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21 Comments on "Brands Skip Retailers, Go Direct to Consumers"


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Bob Phibbs
Guest
10 years 2 months ago

Manufacturers are looking for any way possible to grow sales and one of the most insidious is direct to consumer. We’re seeing this in the appliance business with Whirlpool and their brands selling direct, no shipping, free setup and delivery through JB Hunt.

This virtually eclipses the retailer, as the manufacturer’s site can be the most robust and a click away to deliver. Retailers would be wise to reduce their support of these brands where possible — that’s not easy, as like with the Amazon app, it’s a take, not a give and take world.

Tony Orlando
Guest
10 years 2 months ago

The increase in direct selling will make it tougher for bricks and mortar stores to gain sales in the future. I understand the constant change in how things are done, and as a retailer, it is getting harder every day to sell household goods, which is why I concentrate on perishables.

David Biernbaum
Guest
10 years 2 months ago

Let’s be honest here. Brands would much prefer to work with retailers than going the direct route. However, retailers have made it so difficult and unaffordable for smaller, innovative companies to do business with them that they themselves, the retailers, have created the monster.

In this day and age of SKU rationalization retailers are not making enough room for innovation and “new.” Instead they are taking what they believe are the “safe” paths of least resistance and awarding space to the line extensions of the large brands which means, they have nothing else to lure customers, other than discounts and pricing. Do you want to know how I really feel about this? Ha!

Dick Seesel
Guest
10 years 2 months ago

The best example of a brand selling its product in its own stores while distributing to other channels is Apple. The Apple Store has done wonders for the company’s brand image and pricing power in the marketplace, and consumers see very little discounting in other channels like Best Buy, Target and Walmart.

But walk through any mall and you will see other examples of brands following their own retail path. Many of these are accessory businesses — shoes, watches, handbags, and so on — and some of them are at “better” rather than designer price points. What many of these brands have in common is better control over their own product development and brand image, helping them to build leverage and avoid becoming promotional “footballs” in department stores and elsewhere.

Lisa Bradner
Guest
Lisa Bradner
10 years 2 months ago

The short answer is ‘yes” — with the growth of mobile technologies there will be more dialog (or at least direct) conversation between manufacturers and retailers.

The broader answer is more nuanced. I see a bifurcated world where consumers go direct to the brands they use most often, care about the most and value the most while continuing to want choice and a market basket approach to lower involvement products. Relatively speaking, a mass merchant retailer or grocery store is still more convenient for me to shop than going to 5-10 product websites to get what I’m after. Alice.com is attempting to address this, but I personally believe they will never win vs. Amazon and Google. For many categories, he who can amass the most product selection at the best price with the most convenient checkout process will win.

Ben Ball
Guest
10 years 2 months ago

Retailers whose primary function is to serve as an aggregator of manufacturers’ products are in effect earning a “toll” (their margin) for providing proximity-based convenience to consumers. That’s really their major benefit.

If the value of that benefit is reduced, the toll retailers earn should come down as well. Of course, it hasn’t. And retailers (at least the smart ones) are fully engaged in finding more durable business strategies like prepared food and private label.

So it is only natural that manufacturers and consumers will be drawn to a more cost efficient alternative model. For now, most of the benefit for consumers is coming in what they now perceive as increased convenience — shopping online from home. Manufacturers are covering the cost of “free” shipping and installation by not paying the retailer toll. I haven’t seen the numbers — but I’m betting manufacturers are coming out way ahead on this deal as long as they are charging anything close to “regular retail.”

Max Goldberg
Guest
10 years 2 months ago

The nature of communication will continue to progress to more direct dialogue and exchange of information rather than selling. Marketing will continue to move towards one-to-one from mass.

Consumers want to have direct, immediate contact with brands when they have questions or issues. Brands will need to respond accordingly or risk being seen as uncaring.

Brands will have to filter noise and rants from quests for dialogue. It’s not going to be an easy transition, but it’s one that must take place.

Richard J. George, Ph.D.
Guest
10 years 2 months ago

Technology has allowed the dialog between manufacturers and consumers to become more effective (customized) and efficient (value per resources allocated). This trend will continue as the relationship continues to shift toward the brand versus the retailer.

The implications for the retailer are significant. For one, the channel power (after many years being controlled by retailers) will shift back toward the manufacturer. This will be a function of the online presence of retailers. Another implication is that retailers will need to continue to positively differentiate themselves on products and services other than national brands. The threat of consumer direct should be viewed as an opportunity to revisit the whole “pathways to purchase” for food and allied products and develop a sustainable strategy.

Gene Hoffman
Guest
Gene Hoffman
10 years 2 months ago

Manufacturers want direct communication with consumers and they will continue to seek an appropriate and profitable mix for that process. That’s a natural desire and thus we should see an intensifying of consumer-direct activity.

As that effort continues, retailers will seek ways to protect their perceived turf. Those two forces do not project a future vision of more compatible dialogue. If such a scenario were to occur, the money involved in such dialogues won’t just talk, it will swear.

Bill Emerson
Guest
Bill Emerson
10 years 2 months ago

In the current environment, manufacturers are wise to open as many channels to the end customer as they can. With retailers competing primarily on price, e-commerce offers the manufacturer the ability to get direct feedback from the customer, better control their prices and brand image, and provide their retail accounts with better information on geo/demographic preferences.

There are a lot of hurdles, of course. Obviously, it is a whole new business with all the capital investment, organizational, and technology requirements. It also requires an expansion of the assortment offering so that the retail account is not competing with the manufacturers’ lines on anything but the most basic commodities.

Matt Schmitt
Guest
10 years 2 months ago

I think the manufacturers hope and believe that social and mobile technologies will give them a much stronger dialogue with the consumer, and therefore an advantage when collaborating with retailers on new programs and in-store promotions. However, efforts by the brands to have unique physical stores and direct e-commerce sales generally seem like a tough proposition to consumers. Having to go around to different locations (physical or digital) to piece together shopping by brand can lead to unwanted friction for the shopper. I think it’s important to remember that the store is still the star, and shopper marketing should be a win/win partnership for retailers and brands.

John Boccuzzi, Jr.
Guest
John Boccuzzi, Jr.
10 years 2 months ago
Manufacturers will not be able to walk away from retailers altogether (not even close), but there is certainly a large opportunity for them to use other sales channels including DTC. The new buzz word in retail is Omnichannel which includes all the ways a manufacturer or a retailer can reach consumers. Social, web, retail, mobile, mail, etc. I was meeting with executives at a large manufacturer of hard goods in California last week and they are very focused on their DTC channel. A major consideration is not damaging their current channel (retail) relationships at the same time. Retailers need to realize that thanks to social media, Brands have a much easier time building very significant relationships with consumers. What retailers need to do is find new ways to collaborate with brands and leverage that new DTC channel. What co-branding can they create? How can they leverage some of those social feeds in-store to drive sales? These are exciting times and rather than considering DTC a threat, retailers should explore how to best leverage this exploding… Read more »
Phil Masiello
Guest
Phil Masiello
10 years 2 months ago

In today’s environment, the retailers have control over what brands get placed in a store and, most importantly, at what cost. Smaller entrepreneurial brands are immediately out of the equation because of slotting, ads, rebates, discounts and accruals that are so burdensome that placement in a retailer is unprofitable. Retailers are increasingly trying to make a profit “buying” products versus “selling” products. There is very little innovation in retail today and the product mix is becoming homogenous.

With the improvements and growth in social media marketing on sites like Facebook, Pinterest and direct to consumer fulfillment, as well as the ability to partner with sites like Amazon, I foresee more and more brands going direct to the consumer.

Retailers need to learn to innovate and change their model if they want to survive, thrive and grow or they will render themselves irrelevant.

Joel Rubinson
Guest
10 years 2 months ago

This is a natural evolution of the ‘frenemy’ relationship between manufacturers and retailers. Retailers have PL brands that compete with national brands so why shouldn’t manufacturers sell directly? Also, it is a way of finding some percentage points of brand growth in stable markets.

Ralph Jacobson
Guest
10 years 2 months ago

CPGers have always struggled with actionable insights into consumer behavior. Selling direct to consumer is a great way to circumvent navigating the flood of unstructured data coming from retailers. This helps increase new product launch success rates, optimize production and inventory in the pipeline and better develop life-long consumer relationships. A win-win.

David Slavick
Guest
David Slavick
10 years 2 months ago

Not too long ago this was a barrier you didn’t cross. Manufacturers from P&G to Kimberly-Clark to other household good brands sold predominantly in grocery have reached out direct to consumers to learn in first person what they like/dislike about their products. At same time, traditional grocery channels have invested in customer data capture along with in-depth analytics to inform their own planning/buying organization but also to share insights with the manufacturer partners. I see this trend growing exponentially, because shareholders want sales and margin growth and a two-step sales model hinders that to some degree — small to large depending on the product price/value relationship.

Lee Kent
Guest
10 years 2 months ago

Brands that interact directly with consumers are learning more and more about their customers. This puts them in a position to help retailers who serve as channels for their brands to merchandises better. This is not a game or competition. The consumer, in many cases, cares little about the channel they buy through. They are shopping for price/convenience/experience, but they are motivated by knowledge/loyalty/awareness of the brand.

Christopher P. Ramey
Guest
10 years 2 months ago

This is about control. Whoever earns the consumer’s loyalty is the ultimate winner.

The internet and selling direct will forever change the relationship between retailers and their competing suppliers. But, each category is different so there are no “hard and fast” rules. Eventually, the vast majority of manufacturers across most categories will be selling direct. However, let’s be careful as to compare Apple’s success against other manufacturers; there are few manufacturers like Apple.

The internet is still the ‘Wild West’. It’s no time for retailers to be timid.

Retail Hysteria
Guest
Retail Hysteria
10 years 2 months ago
I believe the dynamics will change more than generally accepted. There is a fundamental flaw in the beliefs of online and offline retailers, that they provide access to customers for brands and that customers have a relationship with retailers. To me the sole reason for the existence of so many shops, retailers, and outlets is because until now, customers have been unable to buy products from the manufacturer at reasonable costs (costs defined here as including time, travel, effort, overcoming barriers, etc). This has been the case for hundreds and hundreds of years in certain parts of the economy, which is why managers and analysts have difficulty seeing a different future. I think some retailers will have a future because the ease of buying a combination of products at one store is easier than buying everything direct, on the short term at least (think about ocado.com, the Tesco shop around the corner, Harrods…). Twenty years from now the vast majority of FMCG goods will be delivered to your home, after your refrigerator and your storage… Read more »
Tim Callan
Guest
Tim Callan
10 years 2 months ago

The great ad man David Ogilvy once described direct marketing as “my secret weapon.” Many, many businesses can increase their sales by adding a direct component, and it stands to reason that they would do so. At the same time, a good reseller channel adds value that is difficult for a direct selling model to replicate. Some of the things a good channel will offer include:
– Broader coverage of the target market
– Tighter relationships with customers
– Understanding of and activity in a particular segment or subculture
– Relationships in the local community

A reseller that provides these particular advantages will always increase sales beyond what the manufacturer can provide directly. That’s where the resellers will continue to own the customer relationships. In areas where resellers don’t offer these advantages, expect business to increasingly go direct.

Antoine Heijden van der
Guest
Antoine Heijden van der
9 years 8 months ago

Look at the respondents in The Economist Intelligence Units survey and know that this research is not representative of anything. But there is obviously a shift going on. Not as big as suggested, though.

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