In the first part of our blog, we saw how channel conflict is one of the main obstacles to B2B taking full advantage of the digital sales channels available to them. Covid proved that many businesses could reach their end users successfully without relying on the wholesalers, distributors and resellers in the traditional chain of distribution. As the global economies emerge from the crisis, the D2C sales model is looking increasingly attractive, and we outlined several approaches and practices that could help you open a direct sales channel without alienating your distribution partners.
This second blog is about the largest source of disruption and channel conflict: the marketplace.
Every brand has to determine a marketplace strategy – and be prepared to change that strategy because circumstances change rapidly, and few brands get it absolutely right the first time.
If you and your products aren’t on a marketplace, chances are your reseller will be there – with some or all of your assortment, often at lower prices. And if you do sell on a marketplace you are probably competing against one (or several) of your distributors.
A channel conflict if ever there was one.
The decision for a brand to go on a marketplace can be straightforward. If you have a good product and price it correctly, the sales will look after themselves. You sacrifice total control of your branding, but for most businesses that is a price worth paying for some or all of their assortment. You pay a fee of course – usually between 10% and 15% – but that is unlikely to be enough to fund a direct channel.
The other side effect of marketplaces is channel conflict, but there are ways to overcome this issue:
Many brands sidestep direct competition by spinning off a new brand. An example of this is Heineken launching a webshop for craft under the Beerwulf brand name. The goal of the rebranding is not only to sell more craft beer online, but also to create a better connection between brewer and consumer.
Although Beerwulf is owned by Heineken, it operates almost completely independently, reporting to the Heineken CEO just once a year. This separation was seen as essential for Beerwulf to reach its strategic objective of disrupting the market – something that is almost impossible to achieve if you are embedded in a huge and established organization such as Heineken.
The independence from its “parent brand” has given Beerwulf the agility to make quick decisions to adapt the customer experience which it monitors very closely to boost retention.
Perhaps Beerwulf sales encroach on Heineken’s own market share but that is seen as a short-term challenge. By creating an independent brand, Heineken and Beerwulf can together drive the consumption of traditional lager as well as craft beers in the 10 European markets where Beerwulf is active.
You can change your brand name, or take your brand to a new market. A brand with a strong position in the Benelux could decide to respect the loyalty and success of its established reseller network and establish a presence on a German marketplace, in a new market. This is a good way of experimenting on a different sales channel without stepping on anyone’s toes.
Every brand and every product has different considerations. If you traditionally do not hold a lot of inventory you are not best-placed to go on a marketplace. Other brands use marketplaces to sell surplus stock or sell old versions of their product at discounted prices. A lot depends on whether your resellers buy your entire assortment, or make a niche selection. If they don’t sell everything, you can take those “missing SKUs” to a marketplace without being in direct competition with your resellers. If there is channel conflict you can control prices by offering your resellers a hefty discount in return for a commitment that they do not sell below a certain price on their online channels.
The decision is individual and complex. You must do what you can to get this right, and yet allow yourself to get it wrong. There is no secret formula for the mix of channels that is optimal for your brand and your products – this is something every business needs to work out for itself.
In the next section we shall look at some brands that thought they had it figured out, and then changed course.
The men’s grooming business Beardbrand traded successfully on Amazon; 10% of its revenue was generated on the platform. But Beardbrand took the view that its presence on Amazon was constraining the growth of its D2C channel. It resolved the channel conflict by exiting Amazon, a bold move. Beardbrand leveraged its decision by dedicating a page to it, optimized to rank in search results. The page alerts customers that if they spot a Beardbrand product on Amazon it is either counterfeit or stolen or an arbitrage play by rogue resellers. By being completely transparent about its strategic U-turn, Beardbrand enhances the authenticity of its brand. Beardbrand’s decision to maximize its most successful channel has paid off; overall sales have gone up 20%. This does not mean the brand will never sell on Amazon again because circumstances change. Nothing is set in stone.
This has certainly been the experience of Nike in its on-off relationship with Amazon. For many years, Nike declined to sell on Amazon to protect its brand and enjoy the higher margins of a direct sale. You could still buy Nike products on Amazon of course; third-party distributors acquired them at wholesale prices for resale on the marketplace, cannibalizing sales at Nike retail outlets. In 2017, the brand relented; as part of a pilot program, Nike became a wholesale vendor to Amazon. The experiment lasted less than two years. Nike felt its status as a marketplace vendor clashed with its D2C objectives, and in 2019, the brand pivoted again to maintain a store on Amazon’s Seller Central platform.
Amazon itself experiments. The digital pioneer came full circle with its omnichannel strategy when it opened its first bricks-and-mortar bookstore in Seattle in 2015. However, in March of this year, the company decided to shut the 68 Amazon Books, 4-Star, and Pop Up physical stores it has rolled out across the US and UK.
The takeaway is that B2B businesses have to constantly track and adjust their channel strategies in a market and technology environment that is continually creating new challenges, even for Amazon.
The technology that makes it possible for a brand manufacturer to start selling directly to its end user also enables it to mitigate conflict with its traditional distribution partners. But there is no “manual” for this; every brand comes to this uniquely.
A few takeaways:
In the end, as always, it is the customer who decides if you have got it right.