Online retail not only offers sales potential for retailers but also for manufacturers. How can retailers and producers subsequently avoid getting into an uncomfortable competitive situation online? Andreas Bauer, CPO of 004 GmbH, argues in favor of a joint online and offline strategy of producers and retail from which ultimately both benefit.
Mr. Bauer at 004 has recently researched the online potential for manufacturers in different industry sectors in a collaborative study with the ECC Köln. In your opinion, what are the main challenges for retailers and manufacturers when they enter into the world of eCommerce? The most important difference here is clearly the channel conflict that in most cases is more pronounced with manufacturers than retail businesses. Manufacturers often primarily distribute their products via wholesale trade. When manufacturers subsequently plan on entering the world of eCommerce themselves, it translates into a loss of sales for the wholesalers of course. If he or she then removes the manufacturer’s products from his portfolio, it can result in a loss of sales of up to 30 percent, depending on the percentage the wholesaler holds in the respective industry sector – and this can quickly threaten a manufacturer’s existence.
That’s why manufacturers should focus on lean solutions with reduced consumption of resources when it comes to investing in eCommerce to minimize business risk in case of negative sales trends. A retailer naturally doesn’t experience this kind of problem in the same way since he sells directly to the end customer and does not depend on ”intermediate steps“ to generate sales.
What’s more, this is often about very fundamental problems. The manufacturer needs to first get a feel for the wants of the end customers since he was after all primarily focused on wholesale demand until now. The internal processes and structures at many manufacturers – such as marketing for example – are not designed to reach the consumer directly. This requires a certain level of flexibility on the part of the manufacturer, of course. Without the willingness to meet these challenges, however, he won’t be successful in online direct distribution.
What concrete advantages does a manufacturer’s own online direct distribution offer? After all, selling through retailers works pretty well… The benefit of direct distribution is quite simply the increased profit margin. By avoiding intermediate steps like wholesale trade, I can increase my own profit as a manufacturer. However, you should not forget about the risk a manufacturer takes by investing in his own online distribution channel. This also varies depending on the industry. A fashion manufacturer is able to sell his products directly far easier than a company in the construction industry, for example.
