Business can be complicated! When you are a manufacturer or wholesaler looking to move into Online Retail there are many considerations. We are going to cover nine key consideration to help your decision-making process.
You have to balance the potential rewards (increase in sales and profit) with channel conflict (including the possible loss in important distribution channels) as well as developing a range of new skills within your business.
While daunting, an online strategy can have significant benefits for your business. A key benefit for any manufacturer or wholesaler of moving into Retail is having much closer links to your end consumer/user of your products. The improved feedback loop can result in faster product innovation and improved responsiveness to the market changes perhaps reducing potential obsolete stock in your warehouse or allowing you to take advantage of a new opportunity.
Here are nine challenges to consider before you start to distribute online:
1. Channel Conflict
Defined as the tension and disputes that arise between channel partners due to impacts on their business performance (generally sales or profit) as both parties attempt to acquire the same customers.
Internal channel conflict within your business should not be underestimated. For example, your existing B2B sales team can feel very threatened by a move to go direct. Beware of catching Shiny New Toy Syndrome (or SNTS) and ignoring your existing channels and teams. Communication will be key to managing this process.
2. Pricing
With a range of new costs now being brought into your business, you will need to consider your product pricing. If you already have a Recommended Retail Price (RRP) this may be a good place to start. Having and maintaining a RRP will go some way towards helping manage channel conflict. Note that you wouldn't be the first manufacturer to find your RRP may not reflect real-world retail costs. You will also need to factor in other costs like shipping, credit card fees and warehouse storage whether these are included your product pricing. If you choose to List on Amazon there is both a final value fee and other fulfilment fees including storage that can be significant for more bulky products.
Beware of surprise costs like shipping for your customer as they will often lead to higher abandoned cart rates.
3. Ecommerce Store
There are now many ways to sell your products online. You can build your own website, leverage a shopping website platform eg Shopify or an online marketplace eg Amazon or eBay or choose any combination of these
This table provides our overview of the main benefits and issues associated with four different eCommerce market options to sell your products.
4. Customer Service
Many manufacturers and wholesalers are not geared to manage customer service issues at any scale. How will you manage the myriad of customer questions you will start to receive. These can range from questions about how to use the product, pricing, defects and returns, discounts, order issues, payment issues, shipping etc.
5. Order Management
There is a significant difference between shipping a box of 1,000 widgets to your retail partner compared to selling each item individually. Cart and order management will need to be factored in your ongoing business operations.
6. Fulfilment (Picking, Packing and Shipping)
This can be a complex and time-consuming process when compared to bulk distribution.
Consider how you will need to change the structure of your warehouse and the resourcing required when selling individual products with the picking, packing and shipping process being unique to every customer.
A key to online sales is the speed of delivery, with Amazon offering increasingly quick shipping options this is an area of increasing competition. A customer will often pay more for faster delivery and the associated instant gratification.
7. Payments
What payment options will you provide for your customer? Payment gateways add extra cost, for example Paypal charges 2.6% + $0.30 per transaction. There are a host of payment providers with different levers on consumer trust and fee structures.
8. Managing Customer Information
Customer data security and management of personal customer information. This needs to be considered in the context of privacy law, mandatory breach reporting and Payment Card Industry (PCI) requirements. Any business with a turnover of over $3m is required to comply with the Australian Privacy Act along with specified smaller businesses. If you are selling overseas other acts like GDPR in Europe also need consideration.
9. Customer acquisition and retention strategy
How will you attract customers to your site? A clear strategy and budget will be required to ensure that you attract customers to your products and build your online brand. A great benefit of advertising online is the improved ability to track performance and quickly understand the performance of any campaign.
If you are ready to start the eCommerce journey and need some additional advice we are ready to assist.
About Us
Clover Global Pty Ltd is an Australian based consulting agency that is primarily focused on helping established Australian small and medium-sized businesses be successful on Amazon. We are Amazon sellers ourselves!
Our services include expert advice on set-up, listing and growing sales on Amazon marketplaces.
Find out more about our Amazon Consulting Services or Get In Touch with us today to see how we can work together to successfully launch your products on Amazon.