The impact of online shopping on brands.
Online shopping has made life more complicated for brand owners looking to maintain brand equity. The sales that can be achieved through online retailers are significant and hard to ignore. The dilemma is that online retailers live and breath by being price competitive. As soon as you have multiple strong online retailers selling your products, you almost inevitably have to deal with increasing discounts as the retailers compete to achieve price leadership. In the worst case, the retailers get involved in a “zero sum game” as retail prices ratchet downwards until they stabilise when retailer margins are eroded to a barely acceptable level.
Whilst the attractive prices offered to the consumer will increase sales volumes, the long term damage to the heavily discounted brand will usually not be justified by this short term gain. The other negative consequence is the damage that is done to loyal bricks and mortar retailers who are brand advocates and enhance the credibility of the brand by bringing the brand to consumer’s attention and them to touch and feel the product.
In the past, a brand had little alternative but to sell their products through traditional channels to market using distributors and retailers. While some brands sell through their own shops this is highly cash consuming if the product is to be made available to large numbers of consumers.
Selling direct to the consumer
The ability to start selling direct to the consumer represents both a challenge and an opportunity for a brand. It offers a brand, for the first time, an ability to have a relationship directly with consumers that can cost effectively have a reach that encompasses international markets. An eCommerce solution that communicates brand values, enables consumers to purchase and can also maintain an intelligent dialogue with brand enthusiasts can be highly scalable covering multiple geographies.
Putting in place a direct to consumer channel like this requires a brand to be bold and tackle some difficult issues. The existing channel to market that the brand is reliant upon is potentially threatened by an initiative like this. So it has to be approached sensitively and communication with key partners is essential. Whilst there are concerns to deal with, the attractions of being able to ensure that a product is represented effectively online, combined with the ability to have a dialogue with consumers will usually make these issues worth tackling.
The sensitivity of retailers has declined somewhat as more and more brands have elected to implement selling direct to the consumer. A realistic retailer would no longer speculate if a strong brand intended to offer the ability for consumers to buy direct and wonder instead when it is going to happen.
Benefits of selling direct to the consumer
It would be easy to conclude that the primary motivation for selling direct is the ability to enjoy higher gross margins. But whilst this is attractive we would argue that it is not the best reason for selling direct. We believe the key advantages are:
- Having control over how the brand is portrayed on-line
- Catering for consumers who want a more intimate relationship with the brand
- Being able to have an intelligent dialogue with brand enthusiasts
There are some consumers who are committed to finding a product at the lowest cost. These consumers will not buy from the site though they will probably use it for product research. The main target audience for the site is brand enthusiasts who are likely to make multiple purchases over a sustained period of time and who are willing to pay a premium to engage directly with the brand. These consumers place a value upon being able to have a relationship with the brand and to get access to latest products.
These consumers are often keen to enter into a dialogue with the brand and to share their enthusiasm for the products. They are receptive to being made aware of new products and are able to provide valuable feedback that can guide future product plan. The most obvious example for this is probably Apple.
KPMG Crimsonwing and brands selling direct
Conventional on-line retail stores are focused on price. At KPMG Crimsonwing, we recognise that a brand’s eCommerce site has a different emphasis. We also find that larger brands usually have complex requirements for integrating an on-line presence with an existing IT infrastructure. We have considerable experience of creating solutions for brands selling direct and understand the challenges they face.
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