At first glance, selling directly to consumers over the Web looks pretty appealing to most manufacturers. The prospect of capturing full retail margins and gaining more control over consumer relationships, as well as a flurry of e-commerce hype, have invited manufacturers to ask, “Do I really need my retail channel today, and if so, will I need it tomorrow?”
To answer this question intelligently, manufacturers must look beyond the theoretical possibilities of e-commerce to the sobering realities of what it takes to build and operate a successful Web-direct business. Manufacturers also must understand the impact of an internal Web-direct operation on their brands, consumers, infrastructure and product distribution networks.
Levi Strauss, Rubbermaid and many other consumer heavyweights have built and dismantled internal Web-direct operations. Assuming that companies of this caliber had the resources to do it right, why didn't their e-commerce efforts succeed? There are three major reasons.
First, it takes a tremendous amount of capital, energy and expertise to create the infrastructure needed to run a successful Web-direct operation. Beyond the obvious requirements — such as new distribution facilities, Web-integrated enterprise software and expanded IT resources — lay myriad hidden details.
Take customer service, for example. We often have seen that fully one-third of orders that originate on a Web store end with a consumer phoning in a credit card number. How many manufacturers have — or want to have — a large consumer call center to support telesales?
The second reason many Web-direct operations fail is that consumers only make certain kinds of purchases online. Today's e-shoppers are motivated almost exclusively by convenience and price. For manufacturers, competing on price doesn't make sense because it alienates retailers and erases the financial incentive to sell direct. Convenience sales offer the opportunity to realize higher margins, but most manufacturers don't have the infrastructure or customer service focus needed to provide consumers with a truly convenient and satisfying shopping experience.
From a customer satisfaction and brand loyalty perspective, it's critical to let consumers buy products on the Web when they want to. But the simple truth is that most manufacturers will continue to realize the majority of their consumer sales in traditional retail channels, not on the Web.
The value of the extra margins that manufacturers earn on Web-direct sales usually pales in comparison to the toll these sales take on channel relationships. Leading retailers have warned their suppliers about selling directly from their Web sites, and these retailers probably won't welcome rebel manufacturers back with open arms when the manufacturers realize the importance of bricks and mortar, and come crawling back.
This doesn't mean that e-commerce isn't significant or that it doesn't change the retail landscape forever. A certain percentage of consumers will come to a manufacturer's Web site looking for a specific product with the intention of buying it. If they don't get what they want, they will be disappointed in the brand, which obviously isn't very good for business.
Manufacturers, however, can satisfy these consumers by partnering with retailers that specialize in creating full-line product access over the Web. Letting qualified retailers meet consumer demand for Web access to products is much more sane and cost-effective for manufacturers than building and maintaining — and, perhaps, subsequently dismantling — internal Web-direct operations.