If your company is manufacturing products or designing services, and selling directly to end customers, you have much more control over the customer experience and sales process, vs. a situation where channel partners are acting as middlemen between the manufacturer and the end customer.
In this article I will focus on companies operating via an indirect distribution model, in Europe.
In such a situation you may experience complex challenges due to a lack of channel control.
The 4 critical success factors for manufacturers are to:
Customer data is the ‘’Gold’’ of the 21st century. Companies able to effectively capture, and use such data to send customers relevant, personalized offers (while complying with data security regulation of course), will win.
The 1st challenge is that, in most cases, customer data is actually owned by the channel, and it is so precious to them, they are more than likely not willing to share it with manufacturers.
There are 3 ways to address this:
If you choose the 1st or the 3rd solution, it is critical that you are fully compliant with GDPR.
Another challenge manufacturers face is to adjust investments to rapid changes in the channel landscape. Many of your big partners so far, may not be significant in the near future. Vice versa, some small partners may be growing rapidly, to become your key partners for the future.
The important thing is to be able to effectively assess the e-commerce capabilities of your partners and invest in those that have the best ones.
Digging one level deeper you can also selectively invest in specific activities (i.e. Content/natural search, CRM, Paid Search….) depending on specific partner capabilities in those areas.
The e-commerce channel landscape is also rapidly changing, with online marketplaces (i.e. Amazon marketplace, E-Bay, Zalando, CDiscount, Bol.com, Jumia in EMEA) growing exponentially, and capturing customers from pure online direct players. It is projected that marketplaces will be the dominant e-commerce Route to Market in the near future, because customers appreciate the endless choice and good deals they offer, as well as the convenience offered by such ecosystems.
Chinese marketplaces like Ali-Express and JD.com are also expected to establish themselves and expand in Europe, thereby making the marketplace channel more competitive, and accelerating customers’ shift to buying via market places.
The online marketplace landscape is expected to consolidate in the hands of fewer players, because the critical success factor for a marketplace is the ability to scale.
If your direct online partners have not yet developed a robust e-commerce infrastructure, they face the following ‘’difficult’’ choice:
a/ Strike an alliance with a large online marketplace to leverage the needed technology and infrastructure (i.e. robust IT, logistics, pricing and content systems). Many large retailers have signed such deals with Amazon, Alibaba & JD.
b/ Sell via a marketplace, so they can use the marketplace infrastructure to manage content, logistics, inventory…etc. This should only be considered if developing their own infrastructure and signing an alliance have been considered. It may be the only choice for small channel partners. But it may also be very challenging to reach acceptable margin levels (commissions charged by marketplaces can be very high). Sellers best bet is to use market places to reach a high volume of customers fast (also cross-border) and make up for small profit margins via selling in high volume. Success to sell on marketplaces is not a given either, because criteria to onboard sellers can be very strict. If you want to sell via multiple marketplaces, you also have to manage the additional complexity, that comes with it.
For a manufacturer, a large portion of marketplace sales are likely to come from a proliferation of small unattended sellers, it has no commercial relationship with. This can negatively impact the manufacturer’s brand value (bad / inconsistent customer experience) and online pricing (degraded).
To gain share on marketplaces,manufacturers need to:
If possible legally (if you are not considered as a dominant brand by the European Union authorities), the ideal solution is for manufacturers to ‘’close their product category’’ on the marketplace. This allows such brands to decide what partners are allowed to sell their branded products on marketplaces.
The sales team who is most often compensated on revenue recognized in the company’s books, is likely not to consider online marketplaces as a key area of focus. It may only see it as a threat, omitting to see potential opportunities to develop online sales & gain share for the future. So, sales compensation needs to be adjusted, to enable sales people to focus needed attention on marketplaces, as well as direct sites.
Finally, it is critical for a manufacturer to keep channel inventory under control.
Whenever too much inventory builds up in the channel, there will always be brokers buying this stock and fire-selling it on marketplaces, having a negative impact on your product’s pricing in the online channel (destroying value for the manufacturer and its channel partners alike).
Of course, this has always been important.
But, in the new digital world we live in, failure to manage channel inventory well, is less forgiving, because price matching algorithms of online marketplaces make the negative impact on the overall online market price for your product, almost immediate.
In summary, the 4 critical success factors for manufacturers are to:
To win share on key marketplaces, close collaboration between sales and marketing to grow the presence of your product listings, is very important.
As we will explore in future articles, to avoid negative pricing spirals in the online market, close collaboration between sales and supply chain / distribution to keep inventory under control, and collaboration with legal / brand protection teams to minimize online fraud are also critical.