P&G Tests Online Sales to Consumers
Procter & Gamble is working with a third-party operated website, theEssentials.com, to sell its brands directly to consumers, thereby bypassing traditional retail outlets.
TheEssentials.com, which only sells P&G products, is part of a larger movement by consumer packaged goods (CPG) brands to test direct sales to consumers. P&G rivals L’Oreal and Estee Lauder, for example, have operated websites that sell beauty brands to consumers.
While it supports the operation of theEssentials.com, P&G spokesperson Paul Fox told The Financial Times, “We treat them like any other retailer as they buy product directly from us.”
P&G’s direct sales test is still somewhat uncommon among CPG manufacturers but is something that companies in apparel, electronics and other categories have used with varying degrees of success.
The Financial Times piece points out that some analysts believe selling directly to consumers online can help brands address competition from private label products.
Others, including manufacturers, are mindful of the delicate relationship with retailers, particularly large chains, and are treading cautiously into an area that can be seen as directly competitive.
Discussion Questions: Do you see CPG brands looking to bypass traditional trade partners and sell directly to consumers? Will more CPG brands look for non-traditional outlets such as Amazon.com and others to reach consumers? Can the learning that CPG companies gain from direct-to-consumer online sales be used to benefit traditional retail partners?
High tides raise all boats. Advertising equals awareness, and awareness generates sales through all channels. I had a run-in with Levi Strauss during my college years as publisher of the University Daily Kansan newspaper at KU (Go Jayhawks!) that to me has always illustrated the short-sightedness of manufacturers trying to control or direct references to their products: A local retailer offered a $5 OFF coupon for (I still live in ’em) Levi’s jeans. Big money when jeans cost $12. I used my coupons. But, the UDK received a Cease And Desist order from Levi Strauss to discontinue the coupon ads. Their intent was to control the distribution and retail price of their precious “denim dungarees.” A dumb move, of course, but illustrative of the times. Abbie Hoffman whined on campus that week and a few co-eds burned their bras in my office protesting something or other. A remarkable planetary alignment and fun for the whole family.
Fast-forwarding to today, manufacturers and their retailers should welcome all the exposure they can get short of being recalled for Chinese production. Traditional trade partners need to concentrate on their partnering rather than concerning themselves about too much brand exposure. “Become one with the (retail) universe” and “Gather ye rosebuds (sales) where ye may.” Those contorted quotations aside, so-called traditional retailers must find ways to cash in on the expanded awareness of the brands they sell rather than oppose them.
It’s highly unlikely that CPG vendors will make significant sales directly to consumers over an Internet channel. For the bulk of P&G’s products, it is far more convenient for consumers to buy them from a retailer that offers a broad assortment of products that can be purchased on one shopping trip. theEssential.com appears to be focusing on P&G’s more expensive and complex products, such as OralB toothbrushes, Braun coffee makers, and Crest Whitestrips, not toothpaste and detergents.
For these more expensive products, consumers might purchase them from an Internet channel with theEssentials.com being one of many Internet retailers offering the products. theEssentials.com does provide parts for P&G consumers that might be hard to buy through traditional supermarket channels. By offering these parts, theEssentials.com can provide a service to P&G customers–a service not offered by its retailers.
I’m wondering about the cost factor. As an example, I paid $7.99 for a 2-pack of Gillette 4 oz. deodorant. It would cost me $4.49 a piece plus $5.15 shipping, for a total of $14.13 online. Yes, you can amortize the shipping costs over a number of products and yes, there are some people who don’t care about the cost–they don’t want to or don’t have time to go shopping. But is this the next great thing for manufacturers? Not likely.
If P&G sells its brands only online, then it will be missing out on a segment that does not use computers to purchase mundane essentials such as soap, detergents, etc. But on the other hand, for those who use only P&G brands and do quite a bit of shopping online, this will be great. I am sure P&G has done its home work. For those consumers who use only P&G brand items and do not experiment with different brands, regardless of the price, an option to shop online will save them lot of time, and today’s consumer is a time starved consumer!
By selling direct to consumers CPG brands can gain insights about their products and, more importantly, consumer buying habits. That having been said, selling directly to consumers will not negate sales through retail. As ubiquitous as the Internet has become, it cannot replace thousands of retail outlets.
While an interesting experiment, one has to ask why consumers would feel the need to buy these products directly from Procter & Gamble, when most of the products are available at either Drugstore.com, Amazon.com, or other online retailers. While it is a great way for P&G to gain insight from their consumers, they will have a difficult time providing a compelling reason as to why people should shop on this site. Unless on the other hand, they start to offer products or variations of products that are not available from other online retailers.
Let’s not forget that P&G has sold directly to consumers before through their Reflect.com site. And that ended up in a failure, although it was a completely different model. Let’s see where P&G takes this, and how they can make this work.
A great many smaller and niche branded CPG companies are already selling consumers directly online. They do so because the cost to do business with chain retailers is becoming excruciatingly expensive. It’s also an effective way to build a brand’s consumer base in order to be accepted later into retail chains.
However, it’s fascinating that a company such as P&G with such massive brand equity is indicating a desire to go direct. Once P&G goes forward with this endeavor then others will follow. Of course, most major brands are already available to the consumer on all the leading online retail sites.
This is a good experiment and P&G should definitely explore different channels and options, and stay abreast of current trends.
This is an experiment and to some extent, brand marketing. But the possibility of P&G going for a $25 sale over thousands of dollars from retailers at a time is not likely.
This is something that CPGs have been talking about for almost 15 years. I think it’s a great move because the channel-conflict argument is overblown.
Most consumers still shop for cereal, shampoo and tuna fish in stores. They don’t have to pay shipping and (dirty secret here) a lot of people still enjoy the experience of shopping. Online groceries have found their niche in places like New York, but have a slower adoption pace country-wide. Allowing one’s products to be sold on Amazon or other outlets simply allows consumers one more avenue. It addresses the edges of the bell curve. For example, you can’t find the line extension you really like in the store near you.
This kind of online selling is not a threat to retail channels. It never really was. I’m surprised it’s taken this long for a big CPG to realize it.
P&G wouldn’t be doing this unless they felt threatened. Think of what’s happened in the past 2 years alone that would prompt this move, with Safeway creating their own successful brands, Whole Foods and their shut-out of most traditional CPG companies and most grocers looking at multiple formats that also include their own brands. The writing’s on the wall.
P&G, as usual, is very wise to make this move and make it quickly. Next steps: direct to retail with stores.
Online is merely the tip of the iceberg in this move. Direct retail of other forms–including stores–is inevitable. Why? Because the fundamental power bases of manufacturers and retailers are shifting. Manufacturers have traditionally owned brand power while retailers have owned outlet power. Together, they worked to capture a share of consumer spending. They needed each other.
Now retailers are learning that they too can own “brand power.” Not with private label–but by building proprietary brands. This fundamental shift in the playing field puts manufacturer brands at an untenable disadvantage. Just look how quickly we went from “identifying in-store marketing as key to the purchase process” to “this is primarily a merchandising vehicle to increase category and store sales.” Our brief pause at “this is a great place to build manufacturer brand franchises” was over faster than a modern stock market rally.
Manufacturers will increasingly be forced to find direct access to consumers. The online ordering opportunity is hobbled by the cost of its true channel–which is home delivery. So manufacturers will have to find other routes to be competitive on food and basic household items–or they could just cede the field to retailers.
While P&G claims to treat this site like any other retailer, the P&G privacy and legal statement on the site indicates that it is NOT any other retailer. However, there are a few things to point out.
First, how does the consumer know or learn about this site? Taking Braun as an example, I went to the website to see if there was any visible support for theEssentials.com. There was not. In fact, it wasn’t even listed in the “where to buy section.” A similar check for Gillette (great website) DID show that theEssentials.com was listed in the Shop Now widget…often prominently, but not always. A quick test of some (probably) high-cost search terms indicated that theEssesntials IS spending money on SEO–although not overwhelming in it’s presence.
I think the point here is that if P&G really wants to make theEssentials work, they are going to have to drive people to their site. If they drive people to their site, they are in competition with their existing retail base, not only for the end-sale, but for the eyeballs in the first place. In reality, while there may be significant margin opportunities in selling direct, this method creates a very real competitive dynamic that many online retailers will not be happy with.
One final thought: given the difference between wholesale and retail margins on some of these products, the trade-off breakeven can be as low as 1.5 units and as high as 4 units…the number of lost wholesale units which equals one direct unit.
The range of products is interesting. In addition to the basics for personal and home care, Braun appliances from coffeemakers to razors are available. The position of these non-disposable P&G items in the range of SKUs on offer at retail is mixed. They are category leaders in some areas like dental care, but only one of many choices in other product lines. It was interesting that the Essentials site reviews posted said “good customer service,” and writers mentioned they were ordering replacement parts.
As earlier writers have said, this is an additional way to learn more about their shoppers, particularly those who frequent online stores. It also is a way to provide more for those who purchase higher end appliances and need parts or service for their toasters and electric toothbrushes. While it doesn’t seem likely that you would be buying only Febreze and Swiffers with standard shipping charges, Essentials could be the next step to attract another segment of shoppers.
For years I have thought of the industry as a two dimensional grid, with a list of all retailers world-wide across the top, and all the brands down the left side. All you have to do to understand the industry is to understand each of those intersecting cells. You don’t even have to be very good at this, as I am not, to recognize a fundamental principle (exaggerated):
The brands have all the money, but the retailers have all the power!
This segues nicely into another principle I recognized 40 years ago when getting into this business: he who owns the customer, owns the business.
Thinking about these three points, one can see that the entire private label movement is a direct assault by the retailers on their brand suppliers. It can’t totally prevail however, because, looking at the grid, see all those other retailers any given retailer has to compete with?
Now you see retailers stocking up on brand expertise in their hiring of senior executives, strengthening their hand against their suppliers. So when suppliers have attempted to band together before to address shoppers directly over the internet, those with the power–their customers–smacked them down. But P&G has been toying with direct retailing for quite some time, and now launches an effort, by themselves, like this. As someone once said, “I am neither a prophet, nor the son of a prophet.” But there is nothing surprising about this development. The lines of demarcation on the grid I mentioned above WILL continue to blur. For further comment on this, you might want to check: http://www.tns-sorensen.com/views/2008-10-13.html
Exploring alternatives is a good idea. Consumer electronics companies, in general, offer expensive products in their own stores or, like the Apple store, offer additional services at their physical stores. What is the value to consumers of purchasing P&G products online?
If I purchase P&G products online I still need to go to the store to purchase the rest of my products. If those products are a lower price online (including shipping) it would be an advantage to the consumer and a disadvantage to the retailers currently selling the products.
The one advantage I can think of is that consumers in some localities may not have access to the whole line of P&G products so an online store would allow those consumers the ability to purchase products they might not otherwise be able to access.
Yes I do! CPG manufacturers have always sought to communicate directly with consumers and the “distribution system” is a necessary evil. The Amazon model has opened many eyes and some realize that the cost of distribution (promotion cost, grand opening discounts, promotional pass throughs, field support, field marketing, etc) when taken into consideration, are actually greater than the cost of direct delivery to the consumer. One smart consumer products company is going to realize that much of the cost of distribution is the cost of water in the products they sell. They will develop products that can be hydrated in the home and reduce their distribution cost dramatically, making direct to consumer delivery an even better business proposition.
Imagine Liquid Tide being delivered to the consumer with an ingredients packet and an empty container. The consumer pours the packet, or better yet a dissolvable puck, in a container of water and in fifteen minutes you have high quality laundry detergent. Think of the possibilities! You can ship fresh meat and produce in shelf stable packaging directly to the consumer and actually reduce the average shelf time of the product. The systems are already in place, the CPG industry just hasn’t made the paradigm leap yet.
As everyone seems to have mentioned, the challenge here is in the execution. Getting the product to the consumer is simply too expensive in most cases. P&G may be an exception because of their product breadth. It may be possible for consumers to build an economic order minimum from all the products P&G offers but for most manufacturers, it makes more sense to go through an independent retailer.
Having said that, serving consumers from an “online store” is a lot different than serving them from a brick and mortar location and not many retailers have yet stepped up to the requirements. There may be an opportunity here for another type of distribution channel that offers an “unbranded consumer outlet” for a variety of manufacturers and retailers. Instead of each retailer operating their own consumer distribution outlet they would contract with a common provider who handles all the individual units and shipping requirements for them. This would allow the medium size and independent retailer to offer online consumer services at a more reasonable cost.
The case of Estee Lauder is not the same as P&G. Women shop for cosmetics as a separate mental shopping trip (even if they wander down the cosmetics aisle at the grocery). It is an indulgence feeling. Estee also has a wide variety of brands to peruse.
P&G products and other CPG HH products are seen as a part of a larger grocery (possibly drug) shopping trip. I think that the mentality of the shopper here means that CPG companies will ultimately gain greater digital sales from aggregator sites and retailer sites than manufacturer-owned sites.
That said, why not a P&G store that sells other grocery or drug items? Pairing with say, local farmers markets for fresh to your door delivery. Enabling a local and P&G sponsored grocery trip online.
I recommend direct to consumer selling to most of my start-ups. It provides cash flow, information and starts the word of mouth process. But, none of these companies will be successful if they cannot break into the mainstream of selling through third parties, whether they are traditional retailers, specialty retailers or internet retailers.
And let’s not be so enamored by what P&G is doing. That third party operator is likely already an internet retailer of sorts, perhaps even offering competitive items under a different domain. This is no more a core competency of P&G than opening a brick and mortar store to sell its brands.
There is one area however that may be of great value. That is for research. While buying patterns may not be projectable, specific product research could be carried out efficiently. In fact, I believe that the research value of this endeavor is the primary reason for opening this sales venue.
In the end, internet retailers will be the successful sellers of products on the internet. Internet shoppers are not going to go to multiple brand websites for the gallery of products that makes up their shopping cart.
I think the headline spells it out for us–“Tests”.
P&G is the master of understanding consumer demand behavior. This online tool is just one more masterful way for them to get inside consumers’ heads. They’ll learn from this and adapt it to the traditional sales channels to continue their market dominance.
They’ll learn great things about average purchase size, repurchase, supplemental items, and basket size to name a few. This may end up costing them less than their traditional studies.
Why won’t Coke deliver cold sodas one at a time to thirsty folks at home? Why can’t Unilever hire folks to sell individual Q-tips in women’s airport rest rooms? Why don’t supermarkets sell hot dog buns individually? Why don’t manicurists charge by the finger? Why doesn’t ExxonMobil deliver gas to cars in parking lots and driveways? How come car washes don’t offer to clean the bottom of the car if the top isn’t dirty?