Manufacturers have been facing a running battle with resellers taking branded products to platforms such as Amazon and eBay, and flouting Minimum Advertised Price policies. The onus to stomp out these attempts at undermining the brand value and undercut other retailers has always been on the manufacturer. However, now the manufacturer is moving to block the shady reseller by entering the realm of direct to customer sales.
Manufacturers aren’t looking to replace the traditional retailer; brands and authorised retailers have enjoyed a fruitful and long-standing partnership bringing their wares to the public’s attention. The move is not a surgical removal of the middle-man, merely changing the relationship.
Brands manufacturers and suppliers have been walking a fine line to maintain their profitability, while also making the product affordable for the end customer and allowing the man in the middle his cut.
Some brands already cover both bases of production and sales, by having branded storefronts. Apple has taken this model and created a supremely well-crafted store-front experience. For most brands, this approach only works with a broad range of products, examples such as Nike with sporting clothing and equipment across numerous sports and activities.
In the past, brands have relied on authorised retailers, which sell a broad range of brands and related goods, to buy their products at a specific price, and then resell at a price that reflects the brand value and quality (and to allow the retailer to make a profit).
This relationship has worked wonderfully well in decades gone by, but with the proliferation of resale sites such as Amazon, and eBay, brands have been losing their control over their Manufacturer Suggested Sale Price (MSRP) and Minimum Advertised Price (MAP) policies. The increased usage of online resale has also increased the combative nature of price wars.
Manufacturers and brands can seize back control from the middleman retailers,
# Price Control – MSRPs and MAP policies can only go so far, as unilateral policies arranged by the manufacturers alone, MSRPs and MAPs can only stand as a guideline for the retailer. Price competition between retailers both on and offline ensures that there is always another retailer aiming to acquire a larger share of the market by undercutting the competition.
# Consumer Relationship – Direct sales to customers help brands, and manufacturers get closer to their target audience. The benefits of the direct to customer relationship between brands and their target demographics is that there is far better communication of consumer needs to the manufacturer and in the other direction, better distribution of developments and updates from brands to their loyal customers.
# Brand maintenance – With the direct to customer approach, brands are in a far better position to maintain a pricing structure that reflects the value and quality of their product, without being subject to the price competition that is so rife in the retail market. #Speed to Market – Bringing new products to market requires that manufacturers not only convince the end customer to buy their new product, but they also have to convince the retailers to stock the product. Removing the retail element brings the product to the market quicker and consequently cheaper.
The direct to customer sales technique that has begun is not going to eliminate or usurp the retail middleman, but there will be a change in the way that brands and retail resellers.
In the realms of online retail, brands can trade on their names alone and just cut out the online reseller. However, there is still the showroom effect that is required in brick and mortar stores, which has always been covered by the display of purchased stock for sale.
Instead of cutting out the retailer the brands will “rent” space from the retailers to display their goods. The retailer retains a certain amount of profit margin without having to undertake the price comparison and competition with other retailers.
There will still be competition. However, the brands will be in control of their prices, and they will compete with other brands selling direct to customer, and it will be on them to create a pricing structure that maintains their brand value in the field and keeps them competitive against other brands.
The onus will be on the brands and manufacturers to create the best product at the best price, while retailers still get the financial benefits of hosting the product.