Internet sales are growing and will continue to grow. What are the benefits and challenges for brand owners of this development?
In the November issue of PETS International (see above), I discussed the changes heralded by the advent of the internet. In this issue, we look at the consequences of this evolution for brands.
Brands and brand owners experience some real benefits from the growing availability of information and the ability to reach out to pet parents in ways that were unthought-of not too many years ago.
Brands are now able to target consumers and pet owners more specifically and tailor their messages on the individual level. Plus, their messages can be delivered any number of times or at any occasion. Moreover, mobile internet allows those messages to be sent to consumers when they pass or enter specific stores or areas in towns.
Price is one of the main drivers for online retailers. The normal store price is the starting point and too often there appears to be a fight to be the cheapest provider, which prompts a price war in a race to the bottom.
On the one hand, consumers welcome the lower prices they can get online while at the same time being angry and frustrated by how retailers who have for years sold at the ‘high’ prices rather than the current lower online prices are apparently profiting from this situation. And it is the retail stores, rather than the manufacturers or brands, that are the target of consumer anger.
In the US, there is much less price competition all round, as there is a Minimum Advertised Price (MAP) below which retailers cannot go. As a result, competition is prevalent in other areas such as service, information and other online or offline support rather than the pricing fights that are common in Europe.
Small part of market
Internet sales are growing and will continue to grow, but they still represent a small percentage of the market. Therefore, bricks and mortar still represents the main channel for sales and the main route to consumers for the industry and brands.
Online sales offer brand owners numerous advantages, including:
low distribution costs;
ability for retailers to talk to consumers about their brand;
opportunity to solely focus on the brand and its benefits (the discussion can be about the value proposition rather than ‘just the price’).
Brands and manufacturers need to clearly understand the conflicts that exist and actively seek solutions to reduce or eliminate the impacts of these conflicts.
The differing operational models of online retailers are driven by price and rebates, whereas brick and mortar stores focus on added value services for consumers and advice, which enables the discussion to move away from price alone.
Companies need to make choices about where their products are sold and take control of their distribution and be aware of what is happening to their products and brands.
- Brands and manufacturers should ensure that rebates and margins reflect the value the channel partner delivers, and move away from a pure volume-driven rewards structure.
- Brands need to reward brand supporting activities such as education, nutritional services, and other benefits for consumers available from the retailer. This may be by rebates off price for display or direct funding of in-store activities such as nutritional seminars.
The challenges are very real and are affecting all market players. Just recently, Walmart reported a drop in sales and an even bigger drop in profits as a result of competition from online competitors. The stock market was severe in its response and the share price fell 10%!
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