When Adidas states its intent to generate four billion euros in sales from online trading alone by 2020 or L’Oréal boss Jean-Paul Agon declared in 2016 that e-commerce is not the cherry on the cake, but the cake, then other brand manufacturers’ mouths become watery. In times in which retailers are either blackmailing brands with ruinous purchase prices, presenting products poorly or fighting for survival themselves due to declining traffic, brands see e-commerce as the direct path to the customer. They have their digital agencies build generous flagship stores for them and invest time and money to make their internal processes B2C-capable – only to find out a short time later that direct business with customers is not really worthwhile either.
Marcus Diekmann is not very surprised by this. The founder of the agency Shopmacher alarmed the industry in 2011 with his book “E-Commerce lohnt sich nicht” (E-commerce is not worth the effort). He subsequently switched to the customer side and developed digital strategies for the mattress company Concord, the Dutch bicycle manufacturer Accell and the medium-sized company Rose Bikes, among others. In his own projects and as an advisor for various manufacturers and retailers, he is seeing his theory from 2011 confirmed: many brands don’t know what awaits them in e-commerce.
The will is there, but the skills are lacking
“If manufacturers want to implement their own e-commerce strategy and sell directly to end customers via digital media, they have to check their skill set very carefully in advance,” he says. The will to sell online is now there. But the skills, i.e. what is necessary to be successful in direct sales, are still not clear to most manufacturers. According to his definition, there are two levels of “killer factors” that are necessary for successful digital direct sales. And only those who manage to achieve level I have to think about level II at all.
Killer factors, level I:
- Best product policy
- Best pricing policy
- Best reach
- Best willingness to innovate
Killer factors, level II:
- Best services (customer care, payment methods, delivery conditions, delivery times, exchange rights)
- Best features (best UX, digital advice, best search, best filters, best configurators)
- Best organization (processes, employees)
- Flexibility (error culture = test, learn, build bigger)
Only when manufacturers have a good overview of their own will & skill as well as realistic responses to the market, does digital direct sales make sense. Failure can come quickly. This is the case, for example, if another online player offers the manufacturer’s products via its own platforms at lower prices and with better service. “Three to five percent price differences are decisive for success or failure,” says Diekmann. Nevertheless, many manufacturers still believe that their name alone suffices to offer products in a unique way and make them successful.
Instagram is replacing the online flagship store
A typical misunderstanding is that customers expect brands to offer a complete online assortment. For Diekmann, this is of little relevance: “If you haven’t done your homework, an online shop like this is more like a marketing showcase with a purchasing function than a customer service function and not a real e-commerce strategy,” he says. Web shops are no longer in such demand as a source of inspiration anyway. Platforms like Instagram, Facebook, YouTube or Pinterest are increasingly taking on this role.
Instead of investing in e-commerce channels, manufacturers should invest in market power again and become must-have brands that dictate the rules of the game to most retailers and don’t get them dictated by retailers. Intel showed how to do this many years ago. Through massive investments in push marketing directly to the end consumer, Intel has become such a significant brand with “Intel inside” that retailers had to install it whether they wanted it or not.
Supporting dealers digitally rather than selling digitally yourself
At the same time, brands that want to be successful on the long term must invest in digital processes. Well prepared product data and good content for digital retail partners is still lacking. Product availability also has to change. “Pre-ordering has to stop,” demands Diekmann. Manufacturers would need to supply retailers just in time and therefore invest massively in availability. “It’s like pharmacies. They only have a certain assortment in stock, but everything else is provided to the customer on the same day thanks to the good logistics of the wholesalers and manufacturers.” Drop-shipment processes also help dealers supply consumers more quickly.
"The vision of the manufacturers must be to become the best supporter of the retailers with regard to all digital topics"
“The vision of the manufacturers must be to become the best supporter of the retailers with regard to all digital topics,” says Diekmann. As a side effect, you can equip yourself for direct business and, if necessary, flip the switch if you lose numerous retail partners, for example.
The bottom line:
An online flagship store is not a must for brand manufacturers. Those who will be successful are the ones who sell the best products at the best prices and at the same time have a high reach and a high willingness to invest. Otherwise, brands should focus on enabling their retailers.