P&G starts direct sale of brands online, states a headline reported in the Financial Times. “Procter & Gamble has started to sell brands direct to US consumers online for the first time, in a sign of how digital commerce is shaking up relations between retailers and their suppliers.” (http://tinyurl.com/347qkxc).
During recent lectures given to retail management students at the University of Alberta’s School of Retailing, on manufacturer and retailer relationships, I posed some challenges that I thought might be facing retailers in the future, and they included the following:
- Will you be willing to share customer data with manufactures?
- How will you respond when and if the manufacturer supplies the consumer directly?
- How will you respond when manufacturers set up their own retail outlets?
- How do you make the shopping experience easier and more enjoyable than shopping on the internet?
Clearly point #2 above has now become a reality, and the question remains, how will retailers respond?
The answer to the question depends on whether retailers perceive this initiative, and others to follow, as a threat or an opportunity to more effectively understand and market to their customers. On the surface, it would appear to be the former. Bob McDonald, Chief Executive Officer of P&G, has stated in interviews with the Financial Times: “I don’t feel the need to have every sale go through a retailer.” This sentiment is also being reflected by other leading US consumer brands that are testing these waters through an online direct to consumer web site: (www.Alice.com). Faced with a growing use of the internet and mobile phones for shopping online, branded marketers are being forced into a more direct dialogue with their consumers in order to protect their position in this online market. Given that this is essentially a zero sum game, assuming consumers will either purchase in store or online, these initiatives do represent a threat to both brick and mortar retailers, and online retailers. So what is the positive for retailers?
To understand this we need to understand how the consumer is shopping online, and to a greater extent, how they are using their mobile phones in this process. We do know from recent studies that online shoppers use the internet to check prices at different retailers, and receive digital coupons that can be scanned at the checkout. We also know that recent advances in Smartphone technology allow consumers to scan UPC codes in-store, and compare pricing to other retailers. This certainly intensifies the retailer fear that shoppers will choose to visit retailers’ physical stores to view products, scan codes, then purchase from a rival lower-cost retailer. Is this a valid concern?
TNS Compete, which produces a quarterly study of Smartphone usage, found that two thirds of users had researched information about stores on their phones, while half of them had used phones to look up product reviews. “We are definitely seeing a lot more being used for research than for shopping,” says Danielle Nohe, an analyst at Compete. “If you talk to folks however, price plays a role but it’s not the final factor. Brand and trust are really important as well. So the brand promise; service; and trust; are all tools that the retailers can use to win sales. How can they do this?
Most retail web sites are a reflection of their weekly flyers, and generally feature a litany of price and items under various categories. This is an open invitation to shop based on price, which reinforces the comparative price shopping mode that retailers are hoping to avoid. Conversely, branded manufacturers are moving towards setting up their online web sites to contain product information. The move by P&G into online sales with their www.pgestore.com site reflects product information along with pricing, and also links back to the brand site with detailed information and demonstrations of the brand’s benefits. Based on the Smartphone usage studies for shopping, this would appear to be a winning formula, and could be a significant competitive threat to both brick and mortar and online retailers. From the manufacturer’s perspective however, whether they sell the brand through their new online sites or through their retail channel partners is of little consequence as long as they make the sale. To that end, the manufacturer is willing to share product information with the retailer, and would welcome sharing this brand expertise with their retail partners. as opposed to spending marketing dollars on discounting their products. Wal-Mart has started doing this kind of sharing on their site by imbedding some key brand logos, which when clicked on, take the shopper to the brand’s information and demonstration web site. Over time, I suspect these will become more seamless and integrate the manufacturer and retailer even more effectively.
In the Financial Times article, P&G argues that the initiative represents a direct challenge for retailers, describing it as a “living learning lab” that will “help us listen, learn and collaborate with online shoppers.” Kirk Perry, vice-president of its North America operations, added that the site “will also help deliver new tools, services and features that can ultimately be shared with retailers.” Accordingly, retailers will need to make the decision on whether or not they want to share and incorporate this information in their marketing efforts, or treat their suppliers as competitors.
