Web Exclusive: Now More Than Ever — The Case for Selling Direct-to-Consumer

Web Exclusive

Using the direct-to-consumer sales channel is arguably more important than ever, given the dominance of a handful of players in both the e-tail and traditional brick-and-mortar retail worlds.

Think about it: the advent of online retailing has seen national chains fall like dominos in category after category. In many cases, there are only a couple of large chains remaining in a given category (e.g., Petco and PetSmart) – if any at all. A survey of the road kill – those that have either gone out of business or filed for bankruptcy – reads like a who’s who of yesterday’s dominant players.

From casualties in consumer electronics, such as Good Guys and Radio Shack, to once giant sporting goods outfits (Sports Authority and Sport Chalet) to toy retailers, such as KB Toys and the recently bankrupt Toys ‘R’ Us, the carnage is both widespread and deep. Just this year, Abercrombie & Fitch, Eastern Outfitters, J.C. Penney, Kmart, Limited Stores, Macy’s, and Sears have either closed numerous locales or been forced to file for Chapter 11.

The result: less competition and more control in the hands of fewer players. These retail leviathans readily exercise their might, putting the squeeze on product marketers in the form of smaller margins and demands for greater compliance for everything from inventory and supply requirements, to return policies, and discount pricing. Selling direct, on the other hand, allows product manufacturers to wrestle back some measure of control over their fate and possesses no less than five key advantages that every marketer can take advantage of:

  1. You Own the Consumer Relationship. Many online and offline retail giants consider the consumer to be their consumer, and will either refuse to share critical data and/or place restraints on how you market to that consumer. Conversely, when marketers sell direct, they own the consumer relationship and are free to nurture that relationship and remarket to that consumer as they see fit. Having full visibility about who is buying your products is critical. It allows a marketer to determine the demographic and psychographic characteristics of their purchaser segments so that one’s advertising and product development is more effective.
  2. Selling Direct Protects Margins and MSRP. The logic behind selling (or is it selling out?) to big retailers and e-tailers is that the loss of margins can be made up in volume. And while it’s true that traditional brick-and-mortar retail still accounts for more than 90 percent of total domestic retail sales (according to the Census Bureau), selling directly to the consumer is still a marketer’s best chance at maintaining full, robust margins and tighter control over their manufacturer’s suggested retail price (MSRP). Why? Because you get to set the price – not the retail partner. The fierce competition between the biggest players can create a downward spiral where a product’s price keeps getting shaved lower and lower. Companies such as Amazon and Costco collect billions in membership fees, creating a paradigm where protecting your margins is not a key factor in their profitability. Having said that, in order to compete in multiple channels, product marketers must come up with unique offers and product configurations so that products cannot necessarily be shopped on a directly comparative basis.
  3. Marketers Maintain More Control of Messaging, Placement, and Inventory. Selling direct allows a marketer to maintain complete control of how their product is presented to the public within that channel. That means that your product alone takes front and center, and there are no allusions to competitive products like the ones you will see on an Amazon selling page. You control everything: from how the product is featured, described, and highlighted to social proof, such as star ratings and reviews. If you are selling a suite of products, you decide the hierarchy of placement. In addition, maintaining your own site allows you to variable test and determines which messages, images, and video are resonating with consumers. Finally, selling direct allows you more flexibility with your inventory because you get to call the shots in terms of inventory levels and just-in-time delivery – versus having unsold product subject to the purview and demands of another.
  4. Direct Creates Channel Diversification. A marketer who sells direct opens up one more channel to the public, rather than relying solely on third parties. This creates channel diversification, which helps marketers spread their bets among several different selling sources. This additional avenue can act as a backstop when a key retail relationship ends. Better to have the direct channel already in place rather than having to scramble should a third-party relationship go south.
  5. Direct Creates a Defensive Position Against Private-Label Competition. Adhering to the adage, “The best defense is a good offense,” selling direct helps marketers compete more readily with private-label brands on both retail shelves and e-tail sites. An example of private label products would be Target’s Up & Up brand, which is emblazoned on everything from light bulbs to diapers to sunscreen. Similar to “generics,” these products eliminate the middleman and are often sold at prices cheaper than their heavily advertised, branded counterparts. This makes it very difficult for more expensive brands to compete when such products often occupy shelf or online space beside one another.

Rather than looking at the direct channel as cannibalizing sales, all retail partners – whether they be online or offline – ultimately benefit from them. The better margins that manufacturers realize by selling direct are a key variable that allows brands to spend more money on advertising.

Ultimately that advertising drives traffic into the retail partner’s stores and onto their sites, where shopping baskets are filled with many other, unadvertised items. It’s kind of ironic, isn’t it? One byproduct of direct sales is indirect sales. That may sound like a stretch, but it’s entirely plausible that the only thing getting longer is the customer’s purchase receipt.