New Channel Strategies Are Critical
To Restoring Industry Profitability
By TWICE Staff On Feb 28 2012 - 7:24pm
Noah Herschman, eBay:
It’s interesting to see
how the manufacturers are evolving or not evolving
their channel management strategies, as the case
There is a very segmented offline strategy from each
manufacturer — they have the clubs, the big-box chains,
the specialty retailers, and then they have online. And
I’ll bet you, as online sales grow to 40 percent of the
CE business, that manufacturers also develop a segmented
online strategy. They’ll look at online not just as
online, but as the Amazon online segment, the Best-Buy.com
online segment, maybe their own online store
— say a Sony direct online segment — and also an eBay
segment, which consists of, for the most part, local
specialty retailers, independent retailers, the chains,
or whoever it is that we have. Buy.com
is one of our
great partners too.
They need to look at each of these as a separate
channel and try to manage them in a more intricate,
granular way, as they do the offsite channels.
I think it’s about time that manufacturers started to
live that way.
Bernard Luthi, Buy.com:
That’s a very valid point.
But in looking at their channels and trying to figure
out how to keep everyone happy, manufacturers are
convoluting the purchase process for the end user.
They’re no longer looking at the consumer and the
consumer’s buying behaviors and how the consumer
wants to shop, whether it’s in store or online.
One consequence is some of the MAP issues that
all of us deal with, especially on the online side. You
have to drop stuff into your cart and add a ZIP code or
an address before you can actually see the bottom-line
price. That’s got to be the most cumbersome process
for our customers to go through.
Stephen Baker, The NPD Group:
are great. I have never heard them put that way, and it
really makes a lot of sense.
Not to stick up for manufacturers, but one of the
challenges for them is that the product tends to be very
similar or the same across all those different channels,
which makes it difficult and very expensive to differentiate
it. Then the customer starts to compare across all
the different channels, and then they have issues.
It has to be worked in concert with the manufacturers
and their need to find the right demographics for
the right products. They need to be able to sell more
expensive PCs or higher-end televisions to the right
customer at the right time and in the right place, and
also be able to sell chubby LCDs to people who need
chubby things in chubby channels.
There are specific channels that you look at for selling a particular line of products. Looking at the
higher end, especially in home audio, you’re not going
to necessarily blow out $3,000 to $4,000 receivers in
a mass merchant channel.
There are some people who shall remain nameless,
some very large electronics manufacturers, who’ve
made some pretty big [earnings] announcements over
the past six months to a year. If you look at the channel
strategies that went along with those struggles, it’s
because they stopped looking at the end user and how
the consumer wants to buy. They started saying “How
do I appease my merchants?” vs. “How do I take care
of my end user?”
They have to find a way to keep everybody
in this room happy and at the same time keep the consumer
happy. It’s just now getting to the point where
you can profitably create products, channels and programs
that are focused on the right customer through
the right channel with the right device at the right time.
None of this is easy. It’s all coming at us like a
freight train, and everybody is struggling with it. Consumers
are trying to understand what products they
want, how to get them, how to tie them together, and
how much it’s going to cost. You guys are trying to
figure out where to sell, who your customer is, and how
to get the right products from the manufacturer. And
the manufacturers are figuring out how to get the right
product to the customer through the right channel so
they can maximize satisfaction and profitability. We’re
all stuck in the middle right now
trying to get this done.
Paul Ryder, Amazon.com:
Customers are shopping and
learning about products all over
the place in multiple ways. We
have customers that buy $40,000 speakers on Amazon.
Does that make me a super-specialty retailer?
No. People were interested in those products, they researched
those products, and they couldn’t find them
anywhere else. So I don’t think a manufacturer can
segment their consumers by a channel. I don’t think
it’s as clear-cut as everybody would hope.
Rob Eby, D&H Distributing:
This affects distributors
too. Manufacturers come to us with guidelines
and say, “This customer can have this but he can’t
have that,” or “They can have this in that time frame.”
It really puts us in a very difficult situation, and we end
up sometimes becoming the police, so to speak, because
then we’ve got to go to a customer and say “I’m
sorry, XYZ vendor came to us and he broke MAP by 50
cents. Now you can’t have this piece for the next two
weeks.” It’s not easy for us on our end either.
At the end of the day it’s really about where the consumer
wants to buy. At some point we’ve got to figure
out the products and the right way to control it so
we’re all profitable, distributors and retailers.
Fred Towns, New Age Electronics:
The factories look at it from the perspective of how
to keep the plant running the production
line. They’re looking at a PSI [purchasing,
sales and inventory] cycle. We have
to provide a PSI forecast to the factories
for each of the 14 or so channels
we serve — where it’s going, why it’s going,
serial number capture, everything. I
spent a lot of years on the manufacturing
side where they struggle with this,
the fact that they’ve still got to come
up with a PSI and determine how many
they should build.
Dave Workman, PRO Group:
way or another you’re going to hear a lot
of conversation about profitability. There
are a lot of new policies that are going
in place, and vendors and retailers obviously
are all wrestling.
I’ve generally found, however, that it’s
very difficult and usually unsuccessful
to try to establish policies in lieu of
channel strategy. The brick-and-mortar
world has had some level of evolution
in its channel strategy, but the vendors
are wrestling with the web because it
doesn’t follow the same tenets of brickand-
mortar, where product placement is
based on various positions in the market.
And bricks-and-clicks complicate it
At this point we’re struggling as an industry
with what that balancing act is,
and with the legacy categories. It’s not
Internet is bad and brick-and-mortar is
good or anything as simple as that, or
where the products belong.
The questions are being asked by a
lot of manufacturers because you can’t
count on some of these categories for
30 percent unit growth. We have more
mature categories that are straining
profitability, and everybody is going to
step back and ask “How do I make more
money in this business?” vs. how to sell
30 percent more units.
You’re going to hear a lot of conversation
about restoring profitability in
some of these legacy categories. The
watchword is going to be profitability,
profitability, profitability, for vendors
and retailers alike. Clearly something
has to change. The question is how to
get there and finding the right balance.