Put Aside Channel Conflict Fears

According to research firm Jupiter Communications, New York, online shopping revenues will top $44.8 billion by 2002. But as this digital channel gathers momentum, large retailers and manufacturers find themselves faced with a dilemma. Should they sell direct to consumers knowing the move may alienate the stores that sell their products?

Traditional retailers, which account for 59 percent of online revenue, have answered yes. But some still fear an online store cannibalizes sales and isolates partners.

The computer industry is a prime example of this conflict. Compaq originally shunned the idea of going online to avoid the channel conflict that was sure to follow. But keeping up with competitors such as Dell meant giving in and selling direct.

Don’t think this direct sales movement will end with computers. It’s predicted to have an impact on the entire retail industry, but it doesn’t have to be an all or nothing scenario. There are strong arguments that the Internet can create a win-win situation for all.

Perhaps the biggest benefit to offline stores is that, through the promotion of products and services, online sites can drive traffic to physical stores. According to a 1999 Ernst and Young Internet Shopping Study, 50 percent of online households have researched products online, but have purchased elsewhere two or more times in the past year.

In addition, an e-commerce site can stimulate growth in all retail categories. For example, book superstores such as Borders and Barnes & Noble have significantly increased the market for books. This trend will continue with online book and music stores.

By not offering an Internet channel, you may turn away valuable customers. Research has shown that Internet users are more educated and earn significantly more than the general population. According to the J.C. Williams Group’s National Retail Report, Internet users spend 17 percent more on men’s and women’s apparel, 10 percent more on home improvements and 5 percent more on groceries and games. Creating loyalty with this group means offering them the sales channels they want.

A site also increases one-to-one dialogue with customers. The Internet offers the opportunity to gather valuable customer data, including demographics, personal profiles, and shopping behaviors.

The Internet affords the retailer an opportunity to extend its brand by tailoring it for online consumers. Looking beyond traditional ideas about banners, logo and design can help create a unique online experience that differentiates your retail products or services from that of the competition.

You can also use your site to strengthen your overall retail position. Blended online/offline retailers successfully sell products such as cars, apparel, groceries and other goods once thought a poor fit for the Internet.

To date, multi-channel retailers have been more efficient in acquiring new customers and building awareness for online offerings. They can then leverage the browse online/buy offline potential by emphasizing these aspects in marketing programs.

Offering consumers an alternate way to buy or browse does not mean manufacturers and retailers want to steal sales from their offline stores. Few will want to discontinue selling through their long-term sales partners. In fact, according to the Internet Shopping Study, manufacturers would rather provide product information, deal with consumers and promote their brand than generate online sales.

Consumers will always value the “touch and feel” aspect of shopping. While the Net may provide more affordable prices, consumers have proven their willingness to pay more for value-added factors such as personalized customer service.

This doesn’t mean breathing a sigh of relief and looking the other way. One-third of consumers are now online. As they realize the time and money they can save through e-commerce, they will use it more frequently.

Like it or not, the Internet isn’t going anywhere. Manufacturers and retailers alike have little alternative but to be a part of it. That’s what everyone else will be doing.

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