In the first and second parts of this article, I discussed aspects of a successful strategy to improve profitability for a consumer products company: a strategic approach that integrates sourcing, distribution and retail, combined with intensive collaboration across your departments and with retailers. In this final part, I discuss the next step in building a successful strategy: finding the right balance between the retail and on-line channel.
Step 3: Be Ready to "Compete against Yourself"
The biggest challenge lies in understanding the inter-dependencies between the different major entities in the distribution channel: the supplier/importer/wholesaler, the retailer (bricks and mortar or online) and the end consumer. An explosion in technology and instantaneous access to massive amounts of data have helped shift the power in the relationship between suppliers, retailers and consumers.
Today, consumers clearly run the show - and are happy to let you know it. They want a wide variety of product choices that are personalized to them and made available conveniently and of course at low prices. They will buy from brick and mortar stores, traditional online retailers and directly from the supplier, depending on access, price and convenience. Suppliers must satisfy their retail partners while serving consumers online, whether via online retailers or directly from their own site. Even though it means competing with your own retail channel, you must be where the consumers are, and that is online.
Maintaining the right balance and avoiding channel conflicts is critical for consumer product profitability. Your retail partners are critical to your success. You should realize that they are watching you carefully. Retailers are avid data gatherers, constantly monitoring all bricks and mortar stores as well as online sites for insights about you and other suppliers. As a supplier to all retail formats your objective should be to create as fair a platform as you can. Realize that you can’t control retail pricing, as that is under the jurisdiction of the retailer.
When online retailing started it was almost unheard of for a supplier to sell directly to consumers via their own site. By now, however, traditional retailers have no issue with suppliers selling online, as in most cases they have their own sites that are selling product as well. But retailers have one key condition: that you do not undercut your retailers’ pricing on comparable products. Breaking this rule is a sure fire way of having a major problem with your retail channel.
The best recipe for success is to have unique products that don’t allow for direct price comparison. Very close monitoring of how customers behave when they are on your own site is imperative, so that you can constantly tune your pricing and promotion. Your goal is simple: not to embarrass any of your retail or on-line formats.
Selling online is the key to understanding your consumers.
While there can be a financial benefit to selling product on your own site, the real value is in the relationship you build with the end consumer. The amount of data that you can accumulate from consumers is a key tool in developing future marketing, branding and product strategies. As a CEO of consumer products companies, I would evangelize to my retailers constantly that the consumer data and insights we gleaned from our site gave us valuable insight and thereby made us a better partner for them.
Successful merchandising is critical for success in both a traditional store as well as online. In a store, the product that is in stock, has the best shelf positioning and is packaged and presented well has the best chance for success. In an online environment, the product needs to be available when the customer wants it. On-line merchandising (high resolution photos, clear product descriptions and thorough product specifications) are just as critical. Once you have the consumer ready to buy, you can’t disappoint them with a lack of information.
Whether for bricks and mortar or online retailers, a critical driver of customer satisfaction is what happens when the customer is dissatisfied. When the product is defective or unacceptable to the customer for whatever reason, making the return process as easy as possible gets you points and likely a repeat customer. Getting the product back as quickly as possible is an essential part of a successful customer service program.
Process is just as important as product!
In summary, there is no substitute for defining a product strategy that is optimized to your objectives and then executing it - flawlessly and repeatedly - internally and with your channel partners. Remember this 3 step strategy:
1. Develop a Compelling Product Strategy.
2. Coordinate with all the departments of your company, supply chain partners, and retailers.
3. Be Ready to "Compete against Yourself."
For consumer products companies, improving profitability is as much about your processes as it is about your products.
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Jack is an executive with 30 years of experience in consumer products, in both private equity-backed middle market companies and large multinational corporations.
He is Newport Board Group partner in the New York area.
To learn more or contact Jack, click here.
