Friend Or Foe: When P&G (And Other Partners) Push Direct Selling

Written by Evan Schuman
March 10th, 2010

The growing movement of major league consumer goods manufacturers selling directly from their Web sites is hardly unexpected. But the lack of a defensive reaction from retail IT is. For more than a decade, a mountain of extranet projects has allowed data to flow freely from manufacturer to retailer, with real-time data about pricing, inventory and millions of marketing insights. Is it time to radically reevaluate what is being shared?

The direct-sell CG announcements are all couched in politically sensitive phrasing, with promises that it’s just a short-term test to better understand mutual customers and that some of the data will be shared with retailers. Some even argue that these direct-to-consumer moves will help retailers make more money by allowing the manufacturer to better target its products. (That argument is not necessarily impressive, but making it with a straight face is.)

Procter & Gamble, the $80 billion leader of the consumer goods space, is the quintessential example. Back in January, P&G announced the eStore, which would “exclusively feature P&G products to consumers in the U.S. The eStore is planned to launch this spring, following a pilot of the site with 5,000 consumers that will begin in the coming weeks.”

In a look at the issue, BusinessWeek recently listed quite a few consumer goods manufacturers that are testing direct-to-consumer efforts, including Levi Strauss, Mattel and Columbia Sportswear.

The question is not whether CG players will make a major move to capture consumer dollars directly. The question is, “What should retailers do about it?”

There’s the “do nothing different” approach, which assumes that direct-to-consumer sales will not be significant and that the best use of resources is to do everything to help the chain sell more of that product. Not only is it a short-term profit and revenue boost, but the more money that, for example, P&G makes from Wal-Mart, Costco and Target sales, the less incentivized P&G would be to pour resources into a different channel.

Then there’s the other extreme reaction, based on the assumption that the presumably higher margins that a manufacturer makes by selling directly will outweigh everything else. The real issue here is one of brick-and-mortar versus online. The physical stores from the major chains have next to nothing to worry about from a manufacturer’s direct site. (Those bricks already have a lot to worry about overall, as online and mobile chip away an overwhelming percent of their revenue.)

But the CG E-Commerce trials are a big concern for the online arms of those chains. Discounting becomes a lot more complex when the manufacturer is hustling, too.

Both schools of thought still have to deal with the information-sharing dilemma. The extranet arrangements certainly help to boost sales and especially profits. And yet, in the hands of a rival that may try and steal back those sales, it could be an amazing weapon.


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