There’s a new trend in commerce. The lines between B2B and B2C are blurring. Manufacturers selling direct to consumers becomes more common. That’s because direct sales can be a powerful way to increase profit and strengthen control of your brand, but it isn’t without risk. Here’s what you need to know.
The traditional model of manufacturers selling to wholesalers or retailers that in turn sold to the consumer has served commerce for hundreds of years. It fostered close, loyal and profitable relationships with third parties, but the internet has changed all of this.
E-commerce opened new channels of distribution and the marketplace evolved. If manufacturers want to stay relevant they must evolve too.
Previously, manufacturers selling direct required a massive capital investment in brick and mortar stores and additional employees. Now the investment is much smaller and it is in technology. A single e-commerce enabled website is the equivalent of a store on every corner in every city. Manufacturers selling direct is becoming the norm and not the exception.
Benefits of Direct Selling to Consumers
There are many benefits of direct selling to consumers. Time to market is significantly decreased. Instead of the long traditional retail sales cycle that requires locked-in product development well in advance of order and delivery, you can prototype, test, and move to market quickly. Agility is a key differentiator in competitive industries.
In addition, you have complete brand control. Brand image isn’t subject to distortion or dilution by third parties. Consumers like it when they can interact directly with a brand. It’s always wise to give the consumer what they like.
In addition to brand control you have price control as well. Direct selling allows you to further reinforce MSRP (manufacturer’s suggested retail price) and communicate directly with consumers about price points.
Selling direct allows you to collect a goldmine of data. Better customer data leads to better promotions, better products, better relationships and more sales.
Assessing and Mitigating the Risks
If you see the rise of e-commerce as a catalyst for a strategic change in your company, mind the risks associated with direct selling to customers. These risks merit careful consideration and a plan for mitigation.
The Risk. The first risk is damage to existing relationships. Retailers and wholesalers can react negatively to what they perceive as competition for the brand. It is imperative to openly communicate your plans before they are implemented. Transparency is the key.
The Mitigation. Squash the perception that selling direct is the opening salvo in a brand versus retailer/wholesaler war. Maintain focus on consumer satisfaction. If the customer isn’t happy; nobody will be happy. Remind sellers that many consumers will continue to demand access to multiple brands, something that you cannot provide. Do provide exclusive products to your wholesale/retail channels. These can be exclusive sizes, colors or finishes that you will not sell direct.
The Risk. Manufacturers selling direct need to have a deep understanding of retail sales and customer expectations. A manufacturer that leaps into the direct market without the proper infrastructure and human assets will only damage their brand.
The Mitigation. Make sure you have the shipping and customer service infrastructure in place to support direct sales. Incorporate features such as chat and click to dial in your website design to make it easy for customers to contact you. Your social media presence must be trained to listen as well as interact. Be prepared to ship quickly and handle returns flawlessly.
Picking the Right Channels
Once you’re ready to reap the benefits of direct selling to consumers you’ll need to determine which channels are appropriate. You may limit sales to one channel or take advantage of all three.
B2C Website. Using this channel, your unique website will be the online representation of your brand. Consumers will interact with the brand directly. Sales are made directly on the site. On the plus side, you keep all the revenue and all the customer data collected with each visit to the website and each sale. On the downside, you assume the risk for credit card fraud and must achieve and retain high rankings on search engine results to maintain website visibility.
Marketplaces. Long established marketplaces such as Ebay, Sears or Walmart have a loyal following. When you sell your products on these marketplaces you immediately tap into this following. In the case of Sears and Walmart, your items appear on their branded website. For Ebay you can participate in actions or sell for a set price. The advantage of selling on a marketplace is access to an established customer base and the marketplace assumes the risk for fraudulent transactions. The disadvantage is the marketplace isn’t free. Monthly fees, commissions and interchange charges eat into profit.
Amazon. Amazon is a marketplace that offers such significant opportunity and risk that it deserves separate consideration. Amazon CEO Jeff Bezos is famous for saying, “Your margin is my opportunity.” When you sell on Amazon, your goods are part of a site that millions turn to for everything from toothpaste to TVs. That’s a significant positive. In addition, Amazon assumes the risk for credit card fraud. On the downside, the customer is never your customer; it is Amazon’s. Amazon prohibits collecting customer data, follow-up marketing and masks significant data such as email addresses. You may get sales, but you won’t get customer data. Amazon may also require you to make product available for them to sell, competing against you.
Making the Move
If you’re joining the legions of manufacturers selling direct to consumers you’ll need a comprehensive digital strategy. The most important decision you make will be selecting the platform for your e-commerce operations capable to support both of your sales channels – B2B and B2C. It must be powerful enough to operate out-of-the-box and flexible enough to customize for your company’s needs. You’ll need to consider such logistics as:
- Order fulfillment and tracking
- Payment security
- Customer service management
- Sales and marketing activities tracking
- 360° view of all your B2B and B2C customer interactions
Channel selection will drive many of the decisions. Remember to keep retailers and wholesalers informed. Manufacturers selling direct (or rather selling both ways) is the next big wave in commerce. Don’t miss it.