Consumer products manufacturers (CPMs) are no longer simply providers of goods for retailers to sell. A significant upsurge in online sales is now opening a direct door to consumers, which is being used by a rapidly growing number of manufacturers to engage in online sales for themselves.
It's easy to see how CPM companies can become overwhelmed by the sales choices now available to them. They often face real challenges determining the right path to take. For instance, today's manufacturers now have the ability to:
- Sell direct online through their own websites
- Sell through catalogs and promotional materials
- Sell at outlet stores
- Use alternative channels (e.g., through marketplaces like Alibaba)
- Continue to sell through the retailer's stores and e-commerce website(s)
Which of these many choices is the best strategy for a CPM company to take? How is the company's supply chain positioned to serve these channels? What capabilities does a CPM need in order to optimize sales and maintain solid relationships with all stakeholders? All of these questions and more are being discussed in both board rooms and break rooms across the world. Let's explore how companies need to take the right step forward and address their e-commerce strategy.
Consumer Expectations Driving Change
Holiday 2013 taught us a valuable lesson about consumers and the power they have in the marketplace. Social media, personal technology and consumer sophistication created unprecedented e-commerce demand and delivery times that supply chains could not meet. This resulted in many dissatisfied consumers as packages arrived too late for the holiday.
So what do consumers want and expect in order to be satisfied with their e-commerce purchases? Consumers expect great prices (and the ability to check and compare prices online), a large selection of products that exceed what a store can provide, convenience and ease of use and an experience that is equal to or exceeds what they would experience in the store. These expectations require e-commerce providers to "up their games." The expectations also place extreme pressure on all e-commerce providers to improve consumer satisfaction or, as a result, see a decline in sales.
Marketplace changes are forcing CPM companies and retailers to reassess their supply chains and transform their facilities, processes and technology to keep pace with the demands of consumers. A recent study by the Tompkins Supply Chain Consortium found that more than 24% of companies now offer same-day delivery and 75% offer next-day delivery. Expectations like these mean that major transformations are needed to keep up with the speed of change.
Grabbing the Consumer
The battle for consumers' attention can be won when four conditions are met: superior price, selection, convenience and consumer experience. Whether CPM companies sell through a company-owned website or choose an alternative channel like Alibaba, these important elements must be considered.
Many believe that Chinese e-marketplace Alibaba will provide other opportunities. It is investing more than $20 billion in China logistics over the next eight years. The company recently launched 11 Main, an e-marketplace tailored exclusively to the U.S. market. While time will tell whether Alibaba is able to convert its success in Asia to the U.S., we are about to experience a very interesting period of e-commerce history.
For CPM companies, choosing the right strategy and partners is the first step to growing e-commerce sales. The approach of "putting all your eggs in one basket" is neither the right strategy, nor is using every channel out there. Detailed planning is needed.
Developing a Sales Channel Strategy
The first step in reaching any new position of performance is to develop the right strategy for your specific business. There is no substitute or shortcut.
The blind spot where many CPM companies fail is by not defining a strategy well. Another pitfall is not being able to communicate it to all stakeholders, including management, employees, customers and investors.
A sound strategy has three components with key questions that must be answered before moving forward:
- Target Market: Who are our target customers? How are they segmented? What do they expect and need?
- Products, Services and Value Proposition: What do we provide, and why should our target customers buy these from us? How do we distinguish our value proposition? How do we know how well we are doing?
- Capabilities: What do we need to deliver? How should we do it and is there a compelling theme that differentiates us? What are our critical success factors?
The Path Forward
We believe in strategy before structure, and then implementation.
Once the strategy is agreed upon, begin to understand the capabilities required for each selected channel.
Formalize these capabilities to develop the structural changes needed to support the strategy (e.g., new or modified distribution centers and fulfillment centers, new technology, process changes, or new alliance partners).
Move into implementation with a sense of urgency. CPM companies who plan to wait can miss opportunities and may have a hard time catching up to more aggressive competitors.
The saying "consumer is king (or queen)" has never rung more true than it does today.
Bruce Tompkins is executive director of Tompkins Supply Chain Consortium (www.supplychainconsortium.com).
