The New Channel Dynamic: Age-Old Partnership Endures

When traditional manufacturers first considered venturing into e-commerce, they did so with much trepidation — and smartly so. They didn’t want to roil the retailers on which they so intimately depend. The retailers, carefully watching the rise of direct sales over the Web, kept the pressure on manufacturers to restrict their efforts to bypass traditional sales channels.

Then manufacturers saw the promise of 40 percent pure profit, and, perhaps best of all, none of the headaches associated with their traditional retail partners. Let’s be honest. Manufacturer-retailer partnerships are truly marriages borne of necessity and e-commerce represented the most amenable divorce option to come along in a long, long time.

So, the rush was on and channel dynamics, the interplay between traditional and Web-enabled sales channels, would never be the same.

Having strategized and implemented initial forays into e-commerce by traditional retailers like Bloomingdale’s and traditional manufacturers like Jacques Moret, we at Knowledge Strategies have learned a very powerful, if mundane, truth about the new channel dynamics: Both parties bring invaluable expertise to crafting a successful online shopping experience.

40 Percent Profit Is Anything But 40 Percent Profit

Let’s look first at the manufacturers and the promise of 40 percent pure profit. As many learned the hard way, actual profit is that 40 percent minus outlays for fulfillment, returns expenses, marketing, sales, shipping and negotiating the intricate legalities of dealing directly with the consumer.

Even more importantly, manufacturers may know how to make superlative products. But too often, they do a very poor job at retailing and servicing customers — which could do irrevocable harm in the long run.

For example, a very successful, well-respected shoe manufacturer recently came to us after its initial e-commerce efforts had disastrous effects. The company, which has a sophisticated, very professional marketing engine, created a seemingly top-flight Web offering that reinforced customers’ desire for its products and respect for its brand. However, the fulfillment system was a mess. Customers placed an order, then waited and waited to receive their shoes, which often never came.

The result: A lancing blow to the company’s most valuable commodity — its brand. The company learned its lesson the hard way.

On the other hand, look at the venerable retailer Bloomingdale’s. Cognizant of the fact that its equity resides in the shopping experience, Bloomingdale’s spent a great deal of effort and money talking with customers before venturing online. Through focus groups, research interviews and detailed functionality testing, Bloomingdale’s gleaned all they could from shoppers. They learned what shoppers wanted from Bloomingdale’s online and what they didn’t.

Bloomingdale’s then coupled this knowledge with its expertise in retail practices. The result is an online shopping experience that broadens and deepens the off-line experience service with sophisticated service features — features that manufacturers have never had to think about.

The upshot of the new channel dynamic is an ironic, and, perhaps very heartening piece of news for retailers. While manufacturers, who control the products, are continuing to disintermediate retailers, retailers have a selling and servicing expertise that is now regarded as a very valuable commodity.

As the savvy traditional retailers and manufacturers ask the tough questions, they’re both going to the other for help. In the best cases, the net effect is collaborative relationships that leverage the expertise of both partners that buttress efforts both on and off-line.

So, What Does This All Mean?

Well, for starters, manufacturers might want to tear up those divorce papers and re-ingratiate themselves with their retail partners — at least for now. The new channel dynamic, like the old channel dynamic, is a marriage borne of necessity.