Manufacturer/Retailer Relationships: A Marriage Made in Heaven

Ever since the first e-commerce website appeared, manufacturers have been smitten with the idea of transacting directly with consumers in the digital realm. However, some of their early attempts at online retailing offered poor customer experiences and didn't support their relationships with retailers. These days it's a different story.

Manufacturers are investing more heavily than ever in e-commerce sites in an effort to improve customers' shopping experiences and develop one-to-one relationships with them, while others are launching e-commerce websites for the first time. What's more, many of these companies, having learned from others' mistakes, are including retailer location tools, using the information they gather to support retailers' efforts and ensure that retailers aren't left out in the cold.

CPGs Online
One of the big e-commerce stories of 2010 was how consumer packaged goods (CPG) manufacturers discovered the opportunity of online retailing. It began with the launch of 
Alice.com in June 2009. The company's platform enables CPG brands to operate their own e-commerce stores and centralized fulfillment solutions. There are nearly 100 brands currently selling on Alice.com, including recent additions like BIC pens and Hefty garbage bags.

Procter & Gamble (P&G) stepped into the arena last spring with PGeStore.com, which sells the company's leading brands directly to consumers. Company executives have insisted, however, that the venture is an attempt to learn more about online retail so P&G can support, not undercut, its retail partners. In a sign of just how hot e-commerce websites for packaged goods are, Amazon.com announced in November that it would acquire Quidsi, owner of packaged goods e-commerce sites Diapers.com, Soap.com and BeautyBar.com, for a reported $545 million in cash.

For CPG brands as well as other manufacturers, having an online presence "is no longer about putting your brochures on a website," says Sean Cook, CEO at e-commerce solution provider ShopVisible. Instead, websites today provide manufacturers with a way to test new products, sell products at a higher margin, regularly engage consumers and get their products in front of a wider audience. By launching e-commerce sites targeted to consumers, manufacturers can support retailers.

"The manufacturer's main task [for its website] is to provide consumers with product information," says Alan Fulmer, co-founder and executive vice president of Channel Intelligence. "But once they've done that, they need to make it easy for consumers to make a purchase, whether it's via their own site or by directing consumers to a local retailer or retailer's website."

Fulmer reports a "halo effect" for retailers once manufacturers launch e-commerce sites. "Typically about 3 percent of a brand's sales at retail are cannibalized when a manufacturer starts to sell direct," says Fulmer. At the same time, however, overall sales for the brand increase 8 percent, which means there's an opportunity for retailers to increase brand sales.

Benefiting Retailers
Enhanced e-commerce sites that enable manufacturers to interact with consumers can also indirectly benefit retailers. Cell phone accessory manufacturer Incipio, for example, recently partnered with ShopVisible to relaunch its e-commerce site with the goal of significantly upgrading the customer experience by offering ratings and reviews, social commerce, and the ability to order personalized cell phone carrying cases.

One of the biggest benefits of the site is the ability to get immediate feedback from consumers, says Andy Fathollahi, president of Incipio. "Now we have an idea of what they like and don't like, and how to improve our products, which helps us to make decisions for our retailers. Being able to react quickly to customers' needs is amazingly important."

Channel conflict continues to be an issue as manufacturers' online presence grows. But it's less of an issue than in the past, says Fulmer. "Most manufacturers want to support their retail partners."

This is why they include retailer locator tools on their websites. Some manufacturers also partner with a company like Shopatron, which enables any orders via a manufacturer's website to be fulfilled through the nearest retail outlet that carries the product. Shopatron's growing list of clients includes manufacturers Callaway Golf and Alex Toys.

Retailers are also diligently keeping an eye on manufacturers to make sure they aren't undercutting them on price or aggressively advertising online to draw consumers to their websites. "It's one thing for a manufacturer to service a customer who has come to their site, and quite a different matter for manufacturers to compete with their retailers," says Fulmer.

Most retailers understand why manufacturers feel they need to have an e-commerce site, says John Barr, president of K. Hall Designs, a home fragrance, bath and body products manufacturer. "Once they go to our website and see that we're not undercutting them [on price], they don't have a problem with it," he says, adding that retailers recognize that most manufacturers these days have an e-commerce site.

Working Together
Despite all the attention being given to manufacturers' e-commerce sites, don't expect them to drive significant sales volume. Over the next four years, manufacturer sites could generate $8 billion in sales, Fulmer predicts. Compare that to the $32.6 billion consumers spent online in November and December of 2010 alone. The value of manufacturer e-commerce sites is their potential to improve the customer experience online. "When a manufacturer e-commerce site is done right, there's an opportunity for collaboration with retailers, for the pie to get bigger and for sales to increase for everyone," says Fulmer.

Chantal Todé is a freelance writer and editor. Reach Chantal at chantaltode@mindspring.com.