Many brand manufacturers have been selling direct to consumers for decades. But many hesitated, fearful of channel conflicts, or unsure of retail investments or results. Now, many manufacturers are casting off that way of thinking and expanding their models to sell direct.
It’s not that simple to be a great retailer. Channel partners have provided a buffer between manufacturing and the consumer for eons. They have been the ones to manage the challenge of understanding consumers to determine store locations, formats, and displays that will attract customers. And they have been the ones to absorb the expenses of purchasing and holding inventory, opening real-estate, and managing the store operation from sales associates to point of sale. They have been the ones to deal with all those pesky issues from parking lots and midnight madness to loss prevention. So if that appeals to you….
Of course you may dispense with that and develop an ecommerce channel. But web channels are also growing in complexity due to growing consumer expectation. Yes, many channel decisions are open today. Selling to consumers has two fundamental areas for consideration—1) understanding consumer markets/demand; and 2) fulfillment. Logistics needs to support direct to store, direct to consumer.
Consumer Demand and Experience
Demand management techniques are different for retail than for manufacturing/supplier. Consumers signal demand through their behaviors. Those behaviors supersede demographics, although traditional market analytics are important. Thus investing in systems and analytics and the learning over time about the customer is required.
There are novel approaches to retailing today such as pop-up or showroom stores. These allow brand manufacturers to test markets and consumer interest as well as learn about the challenges of managing store operations. A showroom reduces the pressure for local inventory, but fulfillment then has to be world-class. Or a manufacturer can gain entry to retailing by operating a store-within-a-store.
Making decisions about what channels will reach your end-consumer customer is another area of analytics and expertise. Such questions need to be considered such as:
- Should we have our own physical stores? If so, what kinds of stores will we create? How do we understand customer and partner markets to determine our own real-estate and store concept strategies? (A whole new ball game for most manufacturers).
- How do we manage pricing to honor existing channel partners’ agreements?
- Do we offer different products by channel?
And, as important, is developing that unique experience that builds brand identity, an experience with which your customers can identify. Experience and marketing strategies need to be thought through. Leveraging social, as well as new and unique promotional strategies to attract and retain consumers is key. What media and techniques are most effective?
This is a dynamic area with hype that ranges from same-day to drones. When manufacturers become retailers, they have to manage the end-to-end inventory, consumer-oriented distribution, home delivery, active stock, and that pesky returns process. Here are few questions to consider:
- What are the fulfillments models that we plan to offer?
- What will be the service promises to consumers and how will we price them—same day, free shipping, home installation services, and so on?
- What will be the distribution strategy to support these fulfillment and service models? (Will we use regional or centralized distribution to actually deliver to consumers?)
- Will we rely on a service network of partners (3PLs) or manage pick, pack and ship ourselves?
- How will we manage returns—through third-party services or directly?
- How can we manage the cost implications of one-each consumer orders?
- Who will run the call center and handle customer inquiries, complaints, return requests, etc.?
Technology investments are key here from end-to-end visibility using deft optimization methods to find the best way to execute, to analytics to ensure that each decision results in long term success.
Omni-channel retailing seems attractive. And it can be, with the right brand and the right strategy. Again, avoiding impulsiveness and taking a step-by-step approach is critical. The retail sector needs fresh ideas. Consumers do respond as a whole new generation of retail experience is emerging. Disruptive models are gaining growth. Many of these disruptive models in retailing actually reflect lower capitalization and inventories, yet smarter fulfillment methods. So plodding the old path may not be the smarter path forward.
Omni-channel will require inventiveness and information if the manufacturer is to succeed as customer markets around them change. Whether extending their model through services or joining the ranks of retailers, today’s world requires us to act. Customers are always looking for fresh ideas and great service. Don’t let that be from your competitor.
For more information, read Ann’s previous blogs in this series – Omni-Channel is Not Just for Retailers and Your Customer is Going Omni-channel. What is the Impact of Omni-channel on the Supplier?