Mass merchandisers are redefining what’s needed to launch a product through indirect channels, and the fact that bargain-hunting prospects for many products use the high-priced channels to do research and buy online anyway is making Web product introductions a path to greater profits for manufacturers. Web-based product introductions are the strategy of choice for many manufacturers trying to control the two most critical variables in the marketing mix: products and price.
Manufacturers are finding that consumers don’t price shop on the Web as much as many analysts had predicted. In fact, for many manufacturers including Dell, using Web-only specials that are actually higher in price and more differentiated in product features, is a strategy that is working today. The flattening of prices due to pervasive knowledge of competitive pricing via the Web has not happened. In fact, the converse is true for many manufacturers who are pursuing Web-only product introductions to protect margins and product lifecycles from mass merchandisings’ pervasive influence.
Strengths and Weaknesses
What is so alluring to many manufacturers about Web-only product launches are the following benefits:
- High-touch channels no longer used for research by bargain hunters. Consider the fact that many auto purchasers do their research in dealer showrooms and on test drives then buy their cars on the Web for 20 percent less or more. The same holds true for PCs, high-end electronics, and even designer shoes.
- Greater potential for price leadership and clarity. For nearly every consumer goods manufacturer there is constant pressure on their prices when mass merchandising is their only channel. Manufacturers who are entirely Web-based on certain products are finding that there is greater control over bundling, price promotions and greater clarity in tracking the impact of pricing and product strategies. On the positive side of this strategy, there are decreased distribution costs, the opportunity to create a unique selling proposition and seek out differentiation, much greater control over pricing and best of all, the chance to compete on value and differentiation rather than just price. On the downside, there are increased advertising costs, potential of low-cost competition in low-end product categories, and the cost of creating an online channel.
- Product customization to a level not possible in retail. If you want to see best practices in customizable retail products check out NikeID.com. When Nordstrom introduced their online shoe store it was considered revolutionary. Nike has gone a few steps further (no pun intended) and brought online shoe sales to an entirely new level. While other competitors race to keep up with Nike, their site shows just how customized products can get in a Web-only product introduction strategy and deliver lasting differentiation. A further benefit is that Nike can now record preferences by customer for material type, base, accent, heel, swoosh, lace, midsole, outsole, and toe jewel color. Your shoes’ tongue can have up to eight characters, and the heel, two characters. Finishing off the design of a pair of Air Zooms, the site again prompts asking if I want to add your own message across the back strap of the shoe. Showing “YOURID” on the back of a US$140 pair of shoes taunts you to dare to customize. It is in-your-face up selling and it is effective. Nike uses all this data to create sales patterns used for guiding forecasts when the shoes are sold in traditional channels.
- Greater control of the customer experience. Consider the progress car manufacturers have made in guided selling and configuration. Auto manufacturers have worked very hard to make a multitude of systems behind their sites transparent and well integrated so that when prospects are browsing for information they can easily get a quote, find a local dealer, or even buy the car online. This also alleviates the massive amount of time their high-cost channels spend educating bargain hunters that buy on the Web anyway.
For all these strengths, Web-only product introductions also have their drawbacks. They include:
- Multi-channel research and buying is a prevailing trend. Consumers especially are getting accustomed to and even expecting multiple channels for the products they are interested in. The higher the price of the product, the greater the expectation of in-person sales assistance and guidance, which is counter to launching products entirely on the Web.
- Pressure from channel partners to launch through traditional channels. Wal-Mart’s expertise at launching new products through its distribution network is a direct result of the retailer’s ability to quickly turn product launches into margins at the store level. Manufacturers who pursue Web-only introductions and sustaining product sales face conflicts with mass merchandisers and a few eventually move Web-only products to traditional channels. A case in point would be Gateway and the evolution of their relationship with Best Buy.
- Leaving traditional channels open to competition. This happens when a manufacturer brings a revolutionary product to market first and only on the Web and its competitors quickly develop and sell a lower-priced product into traditional channels. Apple’s iPod was able to hold off an array of competitors who went after mass merchandisers including Target. In response, Apple signed with Target and Wal-Mart, which now has 154 products on WalMart.com for example dedicated just to the iPod.
Who’s Doing It Right
- Dell – With over 60 percent of total orders from Web sales, Dell has successfully pioneered the development of Web-only product introductions through an orchestrated strategy of putting their hottest and most differentiated products on their front page with quick links to customizing systems and getting guidance during the process. Dell’s ability to execute vertical marketing strategies online is unmatched in the PC industry, mainly due to the commitment the company makes to excellent content. Their Achilles Heel right now is service. If you have a Dell and don’t want to go through their Integrated Voice Response (IVR) system check out the shortcuts that Rocketboom has.
- Nike – The NikeID.com site delivers on the promise of a very unique, personalized and differentiated buying experience and product, and shows an aspect of best practices in Web-only product introductions that is tough to duplicate. Forecasting insights gained in the next several months will also make their launch of shoes now available only on NikeID.com much smoother than would have been the case otherwise.
- Staples – This office products distribution company has been evaluating, testing and working with the best software companies to perfect the idea of putting Internet kiosks in stores that can report price and availability instantly. What Staples has found is that it takes a significant amount of educating consumers to change how they purchase, and the Internet kiosk can either take the order or print out a list of the ordered goods for traditional checkout. Staples is also working to perfect Internet-only product strategies around specific items.
Bottom Line: As the holidays approach, look for more manufacturers to rely exclusively on Web-based product introductions to retain pricing and product control, and to get greater insights into what their most loyal customers are buying.
Louis Columbus, a CRM Buyer columnist, is a former senior analyst with AMR Research. He is the author of several books on making the most of analyst relationships, including Best Practices in Analyst Relations, which can be downloaded for free.