An Open Letter From An E-tail Partner

admin
manufacturers competition brand identity sales representatives online selling

I'M DIRECTING THIS COLUMN to both the OEMs and the aftermarket manufacturers in hopes that it will eventually help us dealers and retailers when it comes to selling more of their products.

First, if you want us to sell for you, stop fighting against us. Our goal is to sell as many of your vehicles and vehicle-related widgets and apparel items as possible. We're investing an insane amount of time and money to get the world to beat a path to our virtual doors. So why do you do so many counterproductive things that make us not want to (or not be able to) help you?

And what's up with your MSRP models? I'm not talking about setting some insane MSRP that no one in his or her right mind is going to end up spending anywhere close to and that you have no intent of protecting (more on MAP policies later). I'm saying that it would be lovely if you would give some consideration to your retailers' need to make money when setting your MSRPs — especially if you're going through distribution. Every single link in the supply chain is going to expect its cut, whether or not it actually does anything of value to deserve it.

Get rid of every single link in your distribution chain that is not legitimately adding significant value. In most cases, that's going to mean that you should stop using distributors that don't do anything more than basic warehouse and transport. Are they providing e-commerce and multichannel merchandising support? Are they providing both forward as well as reverse logistics and handling customer service issues? Are they providing comprehensive aggregated demand forecasts that are further out than your lead times? Are they providing market and customer research data? Or better yet, are they selling their own lines that compete with yours? If you're not shaking or nodding your head in the appropriate directions in response to those questions, you need to retool your distribution strategy.

Based on your costs and your required profit margin, an MSRP of $99.95 might look quite nice, but by the time it gets to my Web site it's just not going to be worth carrying that snazzy new doohickey if my gross margin is only 13 percent. Sure, retailers can price it for more than MSRP to make a margin that justifies their carrying your product and providing the necessary level of customer service and support, but do you really think that's a good idea, especially if the customer can just go to your site and buy it for less? Which leads me to my next major issue:

WHY ARE YOU SELLING DIRECT?

First you set an MSRP that's unrealistically low, and then you go and sell on your own site at a price that only you can realistically afford to live on. I've got no rational reason to be selling your stuff on my site under those circumstances. It's not worth the headache for a 3 percent net to compete with you. You're supposed to be my supplier, my partner, my friend. Why are you stealing my customers?

I've run into cases in which my site ranked much higher on a Google search for a popular, expensive, highly sought-after line of niche products than the manufacturer's own site. I could have sold the crap out of the products. So could have the other five or six retailers that were also in the Google top 10. But instead the business geniuses at this company preferred to keep their MSRPs at a level that could only realistically support selling off of their site.

I tried to work with them. I laid out the business case. They even agreed that if they did things the way I was proposing, they would probably sell more if they more fully supported their retail partners (especially the ones with vibrant e-commerce businesses). But they had their model, and they weren't going to change it.

Now they get to spend all that extra money handling things like direct-to-consumer marketing and advertising, and retail issues like customer service, and shipping and returns. Instead of supporting and leveraging their retail sales channel (in this case e-commerce) they get to spend their money doing all the things that the retail partners they should have been working with are already doing.

There are brilliant business reasons as to why a direct-to-consumer model can work very well in this era of e-commerce, third-party logistics providers and worldwide overnight shipping. I've got some fairly radical ideas as to why those very business models may be the predominant models for the future of our industry. From what I've seen, most of you guys who are selling direct and selling through the channel have not really thought it all the way through. I might not care if you were hurting only yourself, but I want to sell your stuff because my customers want it.

SPEAKING OF MONEY

If you want quality retailers to promote, carry and support your products, then establish MAP (minimum advertised price) policies and enforce them. Price your products rationally so everyone in the supply chain can make money, and then enforce those prices. (Indeed, I'm not talking about closeouts, excess products or obsolete inventory.)

You've now got a U.S. Supreme Court decision (Leegin Creative Leather Products vs. PSKS, June 2007) which seems to indicate that manufacturers can control how their products are priced in the marketplace. The high-quality retailers that provide excellent shopping experiences and customer service can't do that when they are competing with eBay sellers that are drop-shipping your products and netting 2 percent. Sure, you want to move product, but if that's your only metric, how long are you going to be around?