The Challenge
“Retailers, brand wholesalers, and brand owners all need to insulate their business models from the threats posed by deep discount websites”
While the internet has proven to be a bonanza for brand conscious, price sensitive, consumers, it poses a significant threat to the sustainability of several existing brand-centric business models. The nature and level of threat an organization faces from deep discount websites is a function of a number of different risk factors. Each of the three business models suffers differently from the unregulated internet marketplace, the risks are amplified or mitigated by how the organization chooses to address the underlying causes.
RetailersWhen full price items in an assortment can be found deeply discounted online, the retailer can have trouble meeting margin and inventory turn goals.
Brand WholesalersOnline discounting can cause brand erosion, diminished exclusivity, and lead to a significant challenge growing and maintaining the retail customer base.
Brand OwnersWhen a licensees’ product is found on a deep, discount website, the brand can suffer equity erosion not only in the discounted category but other categories as well. Retailers may turn away and future licensees may negotiate lower fees.
Certainly some industries and categories face larger threats than others. That said, maintaining the highest levels of channel discipline is one of the foundation blocks of insulating a business from risk. The solution often requires a holistic approach both across departments, and among business partners. Most importantly, mitigating the threat requires an on-going commitment by executive level management.
