Top 10 Questions Manufacturers Ask About Selling Direct

In the seven years since I founded Shopatron, I've consulted hundreds of branded manufacturers on eCommerce projects, in more than 20 industries. Although there are important differences across industries in how manufacturers do business, there are many similarities as well. Distribution and pricing strategies drive how marketing and sales programs are developed and executed.

While most manufacturers I've encountered understand the Internet as a fast-growing consumer shopping tool, it has been challenging for some to pinpoint what role a manufacturer should play for shoppers. Manufacturers should make sure their web sites have great product information and should help shoppers understand what their brand stands for. But should a manufacturer be engaged in selling direct to consumers? Isn't that what online retailers are for?

I've answered these questions and others to help prospective customers make informed decisions about eCommerce. Here's a list of the top 10 questions I've heard from manufacturers thinking about selling direct, plus my answers. I hope you find this simple resource useful in your decision-making process.

--Ed Stevens, Founder

How can I expect my brand at wholesale to stay strong if I compete with my wholesale customers?

Retailers think of brands in terms of products, like consumers, but they also think about how a brand works for them as a business. Most of all, retailers like brands that sell well. Manufacturers considering a direct to consumer business should consider carefully the effects on sell through at retail.

If the manufacturer integrates retailers as order fulfillment partners (i.e., with Shopatron), eCommerce will improve sell through at retail. Online orders fulfilled help turn inventory faster than is possible with store foot traffic alone. If the manufacturer opens a direct to consumer business and fulfills directly (not through retailers), then there will be no improvement in how quickly products turn on retailers' shelves.

Data sharing is even more powerful in building a strong wholesale brand with retailers. When retailers are partners in eCommerce, online sales data is shared. Retailers can see what's selling from the manufacturer's own web site, which instills confidence in merchandisers and buyers.

If selling direct and fulfilling all the orders, the wholesale brand will suffer unless the products are extremely popular and jumping off shelves. When hot products slow down, as is inevitable, retailers will revert to the strategy of looking at ways to turn inventory faster.

The brand's reputation as a brand that sells better is what matters with retailers.

Would the sales at my web site really be incremental?

58% of shoppers begin their product research at a manufacturer's web site. The incremental sales opportunity, driven by the traffic of convenience-oriented shoppers, is significant.

By definition, shoppers looking for the fastest way to buy a product do not want to shop. Convenience shoppers want to buy and be done. A manufacturer can only meet the needs of a convenience-oriented shopper by selling direct.

A client in the water sports industry, who sells his product online at full MSRP, marveled to me how customers buy at full pricing while it is possible to search on Google and find the products cheaper in minutes. The only explanation for this is convenience. Shoppers pay for convenience because time really is money. It is the brand's responsibility to give shoppers the level of convenience desired, especially when shoppers are willing to pay for it.

On the web, convenience is measured in number of clicks. Options like dealer locators and links to online retailers create more steps for shoppers, which reduces convenience and lowers overall conversion to sales.

How much can I expect eCommerce to grow my business?

Naturally, it's hard to project the performance of a single manufacturer's online store, especially if there has been no commerce on the site before Shopatron is launched.

The most reasonable targets for first year commerce volumes are in the range of 2-3% of total company sales. Second year volumes should increase as the company focuses on driving traffic with online marketing programs. In the second year, an appropriate target range is 3-5% of company sales.

Retailer sell through will increase, and it is normal to experience a bump in retailer orders as well. This effect is more pronounced in industries where Shopatron already has a large installed base of retailers. We have seen some customers gain an additional 2-3% of sales through the retailer network power of Shopatron, while other manufacturers, who operate with small numbers of retailer fulfillers, tend to see a smaller increase.

How should a manufacturer handle pricing?

Some manufacturers launch at full MSRP or equivalent pricing. This can be a useful way to test the convenience premium shoppers might be willing to pay.

In cases of small ticket items, convenience plays a larger role in purchasing. Manufacturers with inexpensive products (ranging from a dollar to fifty dollars) will see average tickets in the range of $20-$50. Shoppers are less willing to spend time with price investigations if they are only going to save a few dollars.

When a manufacturer sells higher ticket items, convenience plays a smaller role in the buying process. It is more important for the manufacturer's site to drive brand value and quality. Pricing can be set at MSRP, although it is more effective to set prices at reasonable, street levels.

At the end of the day, smart retailers understand the concept of gross margin dollars. They would rather see twenty $100 orders at 35% margins (making $700) than two $130 orders at 50% margins (making $120). Some intellectually-challenged retailers have a hard time with gross margin dollars as a concept. We advise manufacturers to do their best to educate these retailers about the benefits of gross margin dollars.

Since retailer participation in Shopatron is completely voluntary, there are no issues whatsoever with respect to price control laws in any country where we operate. Shopatron currently operates in the United States, Canada, the United Kingdom, France, Germany, Switzerland, Austria, and the Netherlands.

What else does eCommerce do for my company?

Selling direct to consumers makes manufacturers better manufacturers. How?

For one, a direct connection to consumers is the most efficient way to gain key feedback on product design and quality. Shoppers, in customer satisfaction surveys, provide invaluable information on how to make products better.

Second, the sales data received every day is a powerful way to predict volumes of new products. I recall a story told by David Schofman as he spoke at Internet Retailer in 2007, just after a large golf customer of ours had launched their Shopatron initiative. By tracking early sales volumes of two new drivers and divert manufacturer resources to the more popular of the two, the customer was able to save millions of dollars in capital tied to the slower moving driver model.

Third, eCommerce at your web site gives you the ability to close out inventory retailers don't want, even at major discounts. Some manufacturers have reported significant recovery of margin by direct sales at their web site.

Finally, online marketing is the future of marketing. It is essential to give shoppers the ability to purchase when marketing directly. Not only is eCommerce important for tracking the success of one marketing campaign versus another. eCommerce is something shoppers expect to find when they are in convenience mode.

How much will it cost to start Shopatron eCommerce and then maintain it?

Generally, a basic turnkey store is very affordable. Most customers liken the costs to a magazine ad or two in a trade consumer publication. While custom configuration and special design can increase these costs, it is easy to get started selling and making sales with a basic turnkey store. An online store will drive new business, and maintenance costs are generally trivial compared to the sales generated.

Even in difficult economic times, manufacturers find the economics of Shopatron to be favorable. In fact, our business tends to expand in down turns as more manufacturers look to increase sales. Q3 2008 was a record quarter for Shopatron in new client relationships. Q4 2008 surpassed Q3, even as the economy went into a serious tailspin.

When looking for new sales opportunities, manufacturers need look no further than their own web site. With retailer-integrated fulfillment, Shopatron further drives inventory turns for retailers, which helps manufacturers gain shelf space as well. It's easy for a sales rep of a manufacturer using Shopatron to take market share from a manufacturer selling direct and doing all fulfillment themselves. Retailers are struggling, and they appreciate brands that align with their business interests.

What are some of the issues I should think about if I want to do eCommerce globally?

Obviously, the platform choice will need to be multi-lingual and multi-currency capable. Most international markets are smaller than the U.S., so it is important to consider technology costs for each country. A web-based eCommerce platform is usually less expensive to deploy across borders.

Since customer service is required in local languages, it is important to look at the service capabilities. Some eCommerce providers include customer service and support while others do not. An eCommece provider with a dedicated multi-lingual call center is able to handle customer inquiries economically as costs are spread across a number of clients.

Order management (what happens after an order is placed in an online store) should be configured to comply with local distance selling regulations and various tax regimes.

If retailers are to be integrated as order fulfillment partners, consider if distributors will be helping to manage the online store's product catalog, including pricing and availability. The product catalog must be able to manage different fulfillment rules in different countries.

If you have never done eCommerce before, launch in your primary market, and maybe your secondary market as well. Then, assess the next best markets to enter. Be sure your commerce provider can handle the majority of your markets before choosing.

What is the best time to launch Shopatron: before a major trade show or after?

The best time to launch eCommerce is now. eCommerce adds incremental revenue. If increasing revenue is a priority, there is no reason to delay launching a new channel of sales online. Sometimes, it makes sense to phase in an approach, starting with a limited product line. This can reduce the up front effort to launch and can help the organization gain experience in online selling basics. The sooner an organization begins, the further ahead it will be.

Experience in online marketing and selling is cumulative. Each month lost cannot be gained against competitors who are learning how to improve and compete better online.

The most successful clients we have are the ones who saw the revenue potential of eCommerce and launched as soon as humanly possible.

Is it cost-effective for manufacturers to deal directly with consumer inquiries, shipments, returns, and exchanges?

Offering products for sale on a manufacturer web site will create some inquiries from customers who need order support. Fortunately, online shoppers prefer online self-service tools over telephone agents. A full eCommerce solution (like Shopatron) comes with a complete self help module where shoppers can check order status, edit payment information, initiate returns, etc. Complete solution providers like Shopatron include phone and email support to help customers who don't want to use online tools. Manufacturers also report that online sales virtually eliminate consumers calling customer service looking for a local dealer who stocks a certain product.

It is sometimes necessary for manufacturers to ship orders, even in a retailer-integrated fulfillment system such as Shopatron. The gross profit margins on self-fulfilled orders are typically high enough to justify small package fulfillment operations. In some cases, a manufacturer enlists a distributor or retailer to handle any backup fulfillment required. Generally, it is good for manufacturers to engineer warehouse operations to be capable of shipping highly profitable, yet smaller, orders. Automated interactions between the eCommerce solution and the enterprise accounting system can gain significant efficiencies in higher volume situations.

Why wouldn't I build something like Shopatron myself?

It doesn't make much sense to build an eCommerce platform by scratch, although this may have made sense in the 90's. Today, there are many online commerce solutions available, which have low up front costs and relatively low maintenance costs.

With respect to order management, the recent trend towards in-store pickup has increased the complexity of home grown solutions. Companies with home grown order management solutions have difficulty innovating. A service based order management system is lower up front cost and more affordable in the long run. Like Salesforce.com, online solutions tend to be cost effective and easy to implement.

We always recommend to a customer to use Shopatron for a year or two then build your own, if that is what you think is best. Shopatron comes with a simple, 30 day cancellation period. You can get on and off very easily. We've never had a customer cancel Shopatron and build their own version. That is because we innovate constantly to keep our solution growing with client needs.

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