Practical Ecommerce

Manufacturers Find Reasons to Sell Online, Survey Says

Manufacturers that make and sell products under their own brand or brands may see increased revenue and deeper customer engagement when they sell directly to consumers online, but competing with wholesale customers and the challenges of managing consumer relationships can be daunting, if not damning.

Released June 10, 2014, a Forrester and Digital River survey of 109 “U.S. sales channel decision-makers at brand manufacturing organizations” about half of which had already begun ecommerce operations showed that these manufacturers are enjoying new revenue and better customer engagement.

It is important to note that the survey, which is titled “Be Direct: Why A Direct-To-Consumer Online Channel Is Right For Your Business,” is not statistically significant, meaning that its findings can only be applied to those surveyed and not expanded or extended to the larger community of manufacturers. Nonetheless, the insights the survey provides may help manufacturers that are considering selling directly to consumers and bypassing or at least competing with loyal wholesale customers in the retail sales channel.

Direct-to-consumer Sales Increase Revenue

According to the Forrester and Digital River survey, manufacturers that sell directly to consumers enjoy increased revenues.

“In the U.S., online retail spend will grow at an annual compounded rate of 9.9 percent between 2012 and 2017, online retail will account for 10 percent of total retail spending. As consumers’ buying behavior turns increasingly digital, companies are realizing revenue growth in their online channels. Brand manufacturers have told Forrester that their online sales in 2013 grew 28 percent over 2012. Our study supported this finding, revealing that 76 percent of brand manufacturers’ online channels are producing sales revenues at plan or higher. Moreover, brand manufacturers expect that their direct-to-consumer online channels will become the highest generators of sales within the next two years,” the Forrester authors wrote.

Specifically, survey respondents believed that their direct-to-consumer online sales would amount to 34 percent of total revenue, while wholesale sales to retail businesses would account for 30 percent of total revenue.

Deepening Customer Relationships is a Keep Driver

The organizations who participated in the Forrester and Digital River survey also reported that improving consumer relationships was a key driver behind the decision to sell directly and in many cases compete with traditional wholesale customers for the same online sales.

The organizations who participated in the Forrester and Digital River survey also reported that improving consumer relationships was a key driver behind the decision to sell directly and in many cases compete with traditional wholesale customers for the same online sales.

“The trend toward customer obsession,” wrote the survey authors, “places a lot of value on customer relationships. Accordingly, developing more meaningful customer engagement is a strong driver for the development of a direct-to-consumer online channel. When asked about the drivers for developing a direct channel, 72 percent of respondents identified ‘building a closer relationship directly with the customer’ as a key factor. The No. 2 reason given was ‘demand from consumers,” which shows that the desire for interaction through this channel goes both ways. However, the benefits of selling [direct-to-consumer] are not confined to the online channel. Companies report that they’re seeing gains across multiple channels.

For example, 82 percent of respondents reported a generally improved relationship with customers, and 76 percent reported a similarly improved customer experience.”

Ecommerce Operations Challenging

Manufacturers that have generally sold their products wholesale to retailers may not have the appropriate experience and organization to manage an ecommerce business, and will need to add employees, infrastructure, and software.

“Most manufacturers do not have a dedicated ecommerce department. They often (wrongly) make ecommerce a function of their existing sales groups, when the group really needs its own profit and loss management and executive ownership. But building an ecommerce team is hard, particularly in terms of attracting seasoned online merchandisers,” the survey report said.

According to the Forrester and Digital River survey about 45 percent of manufacturers found developing the internal expertise needed to run their direct-to-consumer businesses challenging or even very challenging.

Although the survey did not offer specific examples of what form these challenges might take, there are some obvious inferences. For example, manufacturers that had previously focused on selling to retailers rather than directly to consumers may find customer service a challenge. There is a significant difference between selling to and dealing with a professional buyer and selling to an individual shopper. If nothing else there will simply be a greater number of customers to manage.

If the manufacturer has not already been doing drop shipping or some other form of direct-to-consumer shipping, order fulfillment may also be a challenge. Ecommerce businesses receive in bulk and ship individual orders and products. But manufacturers are accustomed to shipping large orders to business addresses. Here again there are significant differences, and just because a manufacturer has experience shipping does not mean it has the expertise to ship to consumers — at least not without a bit of practice.

Alienating Retail Customers

The survey respondents seemed to believe that venturing into direct-to-consumer sales had impacted relationships with retail customers too much.

“There is a common fear that creating a direct-to-consumer online channel will lead to conflicts with other channels. When we asked manufacturers without a direct channel what roadblocks were preventing them from developing one, ‘fear of alienating channel partners’ was the top response. However, the responses from those that had actually implemented a DTC channel told a very different story. Most respondents indicated that their direct channels had positive impacts on their other channel relationships — and only 9 percent reported a negative impact,” the survey authors reported.

Nonetheless, retailers often feel betrayed when suppliers start to compete with them online.

Perhaps, the only saving grace is when manufacturers sell at the highest price in the market, but otherwise vendors should be careful not to harm the retailers that sell their products.

Summing Up

Manufacturers that build and sell products under their own brand or brands are finding good reasons to consider selling directly-to-consumers if this Forrester and Digital River survey is to be believed. But it will also be important for manufacturers to acquire or hire ecommerce expertise and manage relationships with existing wholesale customers.

Armando Roggio

Armando Roggio

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  1. mattias ekestena, Wipcore June 10, 2014 Reply

    Always have your retailers in mind as a target for your solution to sell directly to the end customer. Involve them early and allow them to be a part of your solution. Doing this will diminish the feeling of being betrayed. Start with at least one feature for your retailers benefit to get them onboard and let the early adaptors be guiding stars for those who still are in doubt. There are som many ways to lift your retailers in the process by givening them helpful tools for their own sales, cretaing leads to the nearest local retailer and by supplying your retailers with market material and documentation for service and use of your products.

  2. Karen June 12, 2014 Reply

    As someone who sells strictly online I will not carry or stop carrying a manufacturer who decides to sell direct to the consumer.

    The company that manufacturers can always beat the company that retails their product online and oftentimes they do.

    In this day and age a lot of people do simply shop for the best price so they won’t care if they could get better service from the retailer.

    I’ve seen this happen time after time in the apparel industry: manufacturers launch their own e-commerce site and offer specials/coupons retailers cannot hope to watch. Meanwhile their brand was built on the back of these same retailers.

    • Armando Roggio June 12, 2014 Reply

      Karen, I believe there are many ecommerce business owners and managers who feel just as you do.

    • Craig Bagdon June 12, 2014 Reply

      I certainly agree with your sentiment, but it is also important to cater to the customer’s needs and wants.

      Many potential customers need or want specific brands. Many potential customers search part numbers and model numbers that are unique to specific brands. While being upset at manufacturers that sell DTC is understandable – you completely eliminate yourself from the potential sale by not offering the brand.

  3. Gena June 12, 2014 Reply

    Manufacturers really run the risk of damaging their retail partnerships when they sell direct to consumers unless they are very careful. If they sell at the highest price or enforce a MAP which they themselves follow, then it can work. But many undercut their retailers, and don’t enforce a MAP, the bottom falls out of the prices, and no one can make a profit except the manufacturer. Bad all the way around.

    • Carlos Rivera June 12, 2014 Reply

      Great point, Gena. I could not have said it better myself!

    • Sean June 12, 2014 Reply

      In one of our fields (plastic model kits), I’d say there is an actual strategy by several key UK manufacturers and wholesalers to eliminate both online and B&M retailers from their distribution chain.

      Rather than just say “we no longer supply to retail”, some have imposed new terms blocking sales via places like Amazon and all non-EU sales, while simultaneously increasing wholesale prices and reducing RRP’s for consumers buying direct on their own websites. There are plenty of other things wholesalers and manufacturers are doing to directly undercut their retail customers (e.g. selling at trade price and claiming the box is damaged, with perfect goods actually arriving), but all of them contribute to a breakdown of trust. It’s a shame the manufacturers are in an effective monopoly position.

      Where the retail sellers still have an edge is in breadth of product knowledge and for customers wanting orders with products from multiple manufacturers. However, with manufacturers having the margins to offer free shipping on even small orders, even this advantage is being eroded as customers learn to waste retailers’ time with emailed queries and then do their actual shopping direct. I wish I could find a way to monetarise the process of answering endless emails for product info !

  4. Serge June 12, 2014 Reply

    As a small manufacturer and online retailer (we make Hands free ipad cases – I have to say that it is a challenge to both make and sell. Sales and e-commerce related operations take up a lot of time and resources. Working with other e-commerce merchants creates its own issues.. Shrinking margins, MAP policing, and perhaps a perceived cheapening of the brand. So it makes sense to work only with the largest, the most reputable ones, and strictly enforce the MAP. i completely agree with others that not enforcing MAP or violating it is a crime.

  5. Mohamed November 25, 2014 Reply

    I’d like to know what will be the benefit for the retailers here?
    If consumers purchase direct online & head to the retailer to pick up the product for free , because he did pay for it online , so what will be the benefit for the retailer here?

    Do the retailer get a commission?
    Do the retailer purchase products direct from the manufacture , or a suppliers? , because if he purchased the products direct from manufacturers and stock it on his shop , so manufacture can pay retailer the commission direct from the beginning instead of this long cycle or give him the full undiscounted price from the beginning .

    Kindly i need to understand this cycle.