“Increasing our on-line penetration is the key to our future sales growth.” This line has been uttered so many times, in so many ways, by so many corporate leaders in CPG, in the last five years that it now falls into its own special class of cliché. On the surface this phrase makes perfect sense. The internet is the fastest growing sales channel, and every corporate leader should make the internet channel a part of their growth strategy. The truth however, is a little more complicated. The economy has been growing at an anemic pace for the past several years, and therefore, the growth of internet sales must be coming at the expense of another sector. That sector is traditional brick and mortar retail.
Are these corporate leaders suggesting that their companies abandon their traditional retail sales channels? Probably not. Unless the sales generated from the on-line channel are incremental, and not cannibalistic in nature, increasing on-line sales will not automatically lead to sales growth.
An argument could certainly be made that very few companies can honestly claim that the internet has actually created new demand, demand that hitherto did not exist. They may have created new points of sale, but not necessarily new demand. Quite the opposite in fact. A disproportionate number of internet sales are probably just sales that historically would have occurred at traditional retail.
Why does any of this matter? In the stampede to grow the internet channel a number of corporations have tried to get their product on-line on as many websites as possible, with very little thought to the longer term consequences. No self-respecting brand would want their product sold at a flea market, yet in the rush to get maximum on-line penetration, a number of brands are now available at the metaphorical equivalent of on-line flea markets. Not only does this seriously undermine the exclusivity of the brand, and diminish its brand equity, but it also creates a very nasty channel conflict problem.
In short, once an item is available on-line at multiple websites, the only way for the web sellers to differentiate themselves from each other, and win the sale, is to compete on price. Real brands don’t compete on price, they compete on a platform of exclusivity, and differentiating features. That’s why they spend so much time and energy on marketing, advertising, and brand management.
The channel conflict problem occurs when the brand’s traditional brick and mortar retailers, those who promote the ideals and exclusivity of the brand, and sell the brand at full price, find themselves competing with on-line low price leaders. These retailers are getting hurt by the brands misguided foray into “on-line sales penetration”. So as internet sales increase for the brand, it’s coming at the expense of their traditional brick and mortar retail customers. This channel conflict makes true sales growth an elusive opportunity. Worse yet, a brand that has undisciplined distribution on the internet risks losing a major brick and mortar retail account.
What should brands do to avoid falling into this trap, and still grow their business? Do the same thing consumers do, shop around. Find a web partners that will promote the brand ideals, offer great customer service, and will honor pricing guidelines. All these websites ask in return is that the brand rigorously maintain a clean web presence, and not sell to “price only” internet flea markets. Seems fair. The brand gets great on-line penetration with great on-line partners, and does so without diminishing the true value of the brand or alienating their existing retail accounts. I think that’s what the corporate leaders have been meaning to say all along.
David Coleman is the CEO and Founder of Brandoogle (brandoogle.com) and can be reached via e-mail at firstname.lastname@example.org. Brandoogle works with both Retailers and Brands to improve margins and combat showrooming using a proprietary suite of software and services.