Online Distribution Channel Management
Amazon is now the largest seller of products on the internet. It has a 40 percent market share in North America and continues to grow approximately 20 percent year-over-year. Assuming you are now selling via all these generally accepted sales channels, how do you keep it all balanced? These choices will have a lasting impact on your future success.
Every company has distribution channels. Generally, if you sell to bike manufacturers this is your primary sales channel. Then come your global distributors, or in many cases your wholly owned subsidiaries in the larger markets. Next might be your independent dealer network that is often supported by a sales rep force. Finally, there is the fast emerging Direct-to-Consumer channel which includes Amazon and your own branded website sales.
Managing channels in harmony
Fortunately, in North America laws favor brands setting a Manufactured Suggested Retail Pricing (MSRP) policy. With persistence, you should be able to monitor and enforce a consistent pricing strategy. This is at the heart of a unified, or omni-channel marketing approach. If you keep your pricing consistent, then every channel has a fair chance at managing their customers on an even playing field. Your local Managing Director must be diligent at regulating all parties to ensure every channel plays by the same rules!
We could dedicate an entire series of articles to managing Amazon in North America. In general, our simple advice would be to limit your sales to Seller Central, also known as third party sales (3P), because you can maintain MSRP pricing. When you sell via Vendor Central, also known as first party seller (1P), you allow Amazon to set pricing. Amazon will not be undersold, so even if they find one small retailer discounting a few articles, Amazon will drop their price to match or beat this retailer. This starts a race to the bottom in terms of pricing which upsets the entire channel price strategy.
Your brand has to sell online to meet consumers
Another suggestion we make is to limit the number of sellers on Amazon to as few as possible. Personally, we like just one – your company or a single chosen partner. The reality is that the more companies you allow to sell on Amazon, the higher the likelihood someone is going to drop price and destroy your efforts to maintain healthy dealer and channel networks.
What about the other online marketplaces? Walmart is showing growth and success with their network in North America, and most feel they will be the number 2 option for many brands. We avoid Ebay all together. It remains an option for selling used or previously owned products in small quantities, but it is losing momentum and is not a good place to sell new products in volume without destroying the rest of the marketplace.
Approach changing technologies and processes enthusiastically
It is a great time to be a consumer. They have more choices of products, brands, and channels than ever before. We believe your brand has to sell online to meet consumers, otherwise you risk losing sales to other brands that do meet consumers online. Just in case you want to wait another year to get online, consider that GenX, Millennials, and Gen Z consumers are increasing their online purchases. This is a growing trend that will not go away like some bike industry product fad.
The growth of online sales will affect retailers. The strong retailers will keep improving their locations, educating their staff, and employing the same marketing tactics as the brands do with websites that sell to their customer base in order to prosper. The total number of cycling retailers will probably drop further over time, or retailers might morph into smaller footprints that are more service and support oriented locations.
We encourage you to approach these changing technologies and processes enthusiastically. Life is full of change, so embrace it, read, study, listen and learn! You too can learn the new skills to successfully grow your brand and your company. We feel it is a great time to innovate with superior products, but also new channels that often benefit entrepreneurs willing to use innovative DTC techniques to build demand for their products. Think & Crank!
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