New Channel Strategies Are Critical To Restoring Industry Profitability

By TWICE Staff On Feb 28 2012 - 8:24pm

Noah Herschman, eBay: It’s interesting to see how the manufacturers are evolving or not evolving their channel management strategies, as the case may be.

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: Those ideas 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.

Luthi: 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?”

Baker: 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: One 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 even more.

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.