Manufacturers Have Much To Lose, But More To Gain Online - Twice

Manufacturers Have Much To Lose, But More To Gain Online

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TWICE: Manufacturers have been rather slow in formulating their Internet policies. Will this be the year that authorization opens up?

PAYNE: I think the Internet is a great opportunity for the manufacturers, and it's our sincere hope that they will be embracing it this year.

Also, there's risk in not embracing the Internet. I mean, millions and millions of customers are there. These are higher-income, higher-demographic customers looking and hungering for high-end consumer electronics from the top brands in the industry. They want to buy it there, they want to buy it in an authorized way, and now is the time.

Slow and cautious is a good strategy, and it is wise to consider your options. But I don't think it's wise to treat the Internet as a black box. You should evaluate individual retailers' strategies and business models, and see if there are synergies between them and the manufacturer.

The opportunity is immense to meet the needs of the customer and better inform him, which is always a goal of the manufacturers. Making sure the customer knows the product they're buying will hopefully lead to efficiencies. That hasn't been exploited on the Internet in this product category yet, but it will happen if the manufacturers embrace it.

Lower return rates due to better information; the efficiencies of centralized distribution versus having to distribute the products to hundreds of stores; the ability to forecast and monitor demand and merchandise on a real-time or near real-time basis; and the ability to not have to cherry pick a line but to be able to carry an entire assortment of product. We think all these attributes and many more can, over time, through a partnership between the retailers and the manufacturers, make this the most profitable channel of retail for the manufacturers.

So it is our belief and hope that 2000 is the year that manufacturers will truly embrace the Internet, and we hope a lot of manufacturers will be announcing policies this year.

HEIBLIM: This is a headache for manufacturers because their distribution structure was set up with brick & mortar stores, and many of the marketing policies and approaches that were very successful in that world really don't function all that well in this space.

Some of them are taking the issue head on, and are moving very quickly. But many others are not. This, like many industries, is the story of the shoemaker's children without shoes.

Without naming names, there are some tremendously powerful technological companies out there whose own internal operations are hardly sophisticated. Many of these companies have internal issues because they aren't necessarily all that prepared for the electronic world.

But many have made big headway mentally, in that they've at least lifted their heads out of the sand and are saying, "Okay, we have to do something." But I think the problem for many, many manufacturers is they don't know what that is. And they're trying to figure that out.

Companies that can establish the ability to help the customer are always an attractive outlet for brands. Always. And the fact is the Internet holds the promise of offering the best type of customer service by offering the best information and the best connection with the consumer possible. So inevitably this will become a major, truly important channel for this industry and for any other industry.

SADOWSKI: It's all about their risk management. They have a brand, and the valuation of their company in most of these cases is based on the value of that brand. They've spent millions and millions of dollars in national advertising and branding campaigns to build it up. Clearly their risk is that their brand will be devalued by the way their product is presented and sold on the Internet.

Although it can be very frustrating to retailers, only that very cautious, considered approach will enable them to manage the risk that this new medium entails. It will allow them to make the decisions that are going to maintain the long-term valuation of their brand in the marketplace and that will ultimately satisfy the customer. Whether it's this year that it happens or whenever, the slow, considered approach that a lot of the vendors are taking is actually the right one.

We're also very confident that the Internet consumer, as this thing develops, is going to understand the difference between authorized retailers and unauthorized retailers, just as they do at the brick & mortar level. Eventually they're going to gravitate to the higher level of service that the authorized retailer can provide in concert with the resources of the supplier.

JEANS: I agree with that. I would say, though, that in this space, as vast as it is, there should be some closure in pretty short order by a lot of manufacturers, because they do have to manage the risk and the brand. Yes, they have channel conflict with brick & mortar that they have got to deal with. And then there are the three guys in a frat house who put up a website and start selling stuff. That's what we all want to avoid getting involved with.

As e-tailers like ourselves develop credentials online and a customer base that demonstrates it wants to buy the kind of products that these manufacturers sell, it's going to be very hard for manufacturers to say, "No, I won't do that." So if I'm a manufacturer, managing the risk as you said, I'd sure as heck want to get there before my competitors do with a well-articulated strategy about how I'm going to do business on the Internet.

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