Buying From the Enemy: The Rise of Direct-to-Consumer Manufacturers and Brands
It is not a trend – it’s the new reality – and it signals a major crisis for third-party sellers.
As if you don’t have enough challenges in today’s constantly changing marketplace, you now have to watch out for those you may have considered allies!
Manufacturers and brands are cutting out the middleman and selling directly to your customers. The driving forces behind this move are what you would expect – profitability, growth and maintaining competitiveness. More and more industries are embracing the direct-to-consumer (DTC) approach, and it’s already wreaking havoc on many third-party sellers’ businesses. If you’re not prepared to make adjustments – and soon – you may not only be out of the running, but sidelined for good.
Just look at these numbers recently published by Forbes business magazine:
- Manufacturers selling directly to consumers are expected to increase by 71% in 2018 to more than 40% of all manufacturers
- Over 1/3 of consumers bought directly from a brand manufacturer’s website in 2017
Turns out almost 50% of manufacturers are creating DTC channels, and of these, close to 90% view these channels as pertinent to both their products and those who buy them. And what do you have to thank for their entrance into the marketplace? Digital technology and supply chain advancements.
Why Manufacturers and Brands Are Selling Direct
You can’t blame the manufacturers – it’s the next logical step. In transitioning their companies to DTC they’re in more control of their pricing, brand image, and methods of distribution. By collecting customer information themselves, they can constantly improve the brand experience, fine tune their marketing strategy, and offer lower prices as well.
Not only that, more and more consumers prefer buying directly from manufacturers and brands as opposed to internet retailers who represent multiple brands. Millennials are driving this shift, viewing the product data of manufacturers and brands as being more credible and attractive. They’re diligent in their research and demanding when it comes to experience and price.
With these changes, third-party sellers are in a tight spot, and many will get squeezed out altogether if they don’t shape up. In a never-ending fight for the Buy Box, many are lowering prices more than they should – selling their products for less profit, or even a loss. Because manufacturers and brands have higher margins and thus more pricing flexibility, you won’t last long if you keep making this mistake.
How to Make Your Third-Party Seller Business As Competitive As Possible
If you, a third-party seller, are going to compete successfully, there are several things you need to do, or do differently, keeping in mind that speed and accuracy are now basic competitive requirements.
To begin with, you need to know exactly what your costs are at all times, and you need a repricer that counts all costs – at all times. This brings up a serious problem. Most repricers only do half the job. Since they only connect to sales channels – not suppliers – they only reprice when your competitors’ prices change, not when your costs change. When product, shipping or sales costs increase or decrease, prices must be raised or lowered manually, which often isn’t fast enough or accurate enough. Items are then overpriced or underpriced which negatively affects your sales volume and gross profit margin. Overpriced, and your gross profit margin suffers – underpriced, and you could lose the Buy Box and lots of potential sales. Not only do you have less capacity to strategize and differentiate, you lose out on the buying power and potential cost savings that increased sales volume provides.
As a third-party seller, you must put yourself in a position to not only win – but keep – the Buy Box and maximize gross profit margin. To outprice and outsell your competitors, you must be able to instantly reprice your entire catalog with pinpoint accuracy as often as necessary – without having to lift a finger.
Diversify Your Products and Suppliers
You need to increase speed and accuracy in other areas as well to stay competitive.
If changing your product mix on a dime by quickly identifying the most profitable new suppliers, and just as quickly, listing their products for sale isn’t a realistic possibility right now, then it must become one soon. Basically, your supplier scouting and listing processes must be streamlined and whenever possible, automated.
Needless to say, you never want to be at the mercy of only one or two suppliers and/or a handful of high performing products. But, product diversification is no easy task. When seeking out new suppliers – do your homework! Now more than ever, you can’t afford to make bad choices.
Research potential suppliers and perform catalog profitability analyses: compare UPCs to current Buy Box prices. Use the results when you negotiate prices.
Create New Listings Automatically Instead of Manually
Next, clean up the product data and get listing coverage on Amazon by matching UPCs to ASINs. All items must be listed for sale within weeks, not months.Matching UPCs to ASINs by hand takes a lot of time and effort!
Hiring an offshore team or paying a bunch of college interns is both expensive and slow, and isn’t exactly scalable. However, using an inefficient automated solution like Amazon’s Inventory Loader (AIL) can cause major headaches.
- AIL only searches for matches by UPC which doesn’t verify package quantity. Products offered in different units of measure (2-pack, 6-pack, etc.) aren’t clearly identified.
- Amazon’s data is only as good as the third-party seller who provided it and tired, over-worked sellers make mistakes. Some products have incorrect UPCs as well as incorrect or missing manufacturer part numbers.
- There can be as many as 10-15 different ASINs for a single UPC – so AIL can, and often does, match UPCs to the wrong ASINs. Then you have to deal with the resulting fallout: customer returns, order cancellations, negative feedback and maybe even account suspension.
To stand a chance as a third-party seller, you need to make your business as agile and responsive as possible. This means having the ability to instantly pivot and diversify your offerings through increased integration and automation. Whether it’s changing prices, scouting suppliers, or listing products, the speed and accuracy of your operations need to be improved.
Open New Sales Channels in Different Countries
Speaking of diversification, not only do you need to be capable of switching up what you sell – but where you sell it. You need to be able to stand up new channels the right way – and fast!
If your listings on the US Amazon marketplace are getting overrun, consider expanding into international Amazon marketplaces such as the EU, UK, or CA. Or try alternatives like Walmart, Jet, Newegg, Fruugo or Wish. Each channel, however, has different requirements. Without a central hub to manage inventory, orders and product data – things can quickly get out of hand. You need to be able to manage the operational complexities created by channel expansion so you can enter new markets like clockwork.
I know. When you put it all together, it’s a lot to get your head around! Knowing all your costs all the time and repricing whenever they change, accelerating both the supplier scouting and supplier onboarding processes, and diversifying your product and channel mix is a tall order. You could take one step forward by investing in a couple less costly, less advanced systems. But if they’re not connected you’re just going to end up taking two steps back.
Staying Relevant Requires End-to-End Integration
The bottom line? Every area of your business – from purchasing to fulfillment – must be connected for you to survive and grow in today’s constantly changing marketplace.
As a third-party seller, you need to eliminate or automate as many of these processes – repricing, supplier scouting, listing products, opening new sales channels – as possible. You need to rethink and reshape these processes so better decisions can be made faster. This requires process automation which requires data centralization which requires end-to-end integration. This will not only free up a significant amount of time, but it will also reduce your operating expenses because people won’t be needed to support these processes.