Dear eCommerce Service Providers, Branded Manufacturers are NOT online retailers!

When I was Head of eCommerce at a major brand, it struck me that various service providers do not fully realize that there is a fundamental difference between branded manufactures and online retailers.

Of course they know it factually: It is common knowledge that brands seldom want to sell below the recommended retail price and we all know why. Yes, there is a channel conflict (or at least the brands fear that it exists) and brands do not want to lose their listings in the big department stores. Brands that produce consumer goods are really in the B2B business, they sell to wholesalers and retailers. We all know that.

But despite that knowledge, service providers and agencies do not cater to the brands needs. We are all in the eCommerce business, right? Wrong!

Here is the kicker: brands do not necessarily want to make money with their online shop.

Why is that?
Mostly brands fear that if they really start competing on price that the subsequent loss in the B2B business will not be covered by the increased profit from the online channel. And here they are right. It most certainly would not. Brands miss a huge piece of the eCommerce value chain: there is no purchasing department. Brands usually only sell their own products (Apple sells also complementary products).

So there is no category management. If you only sell pens, you have a hard time at the back-to-school-season, because you lag notebooks, rulers and everything else that school-kids need on top of pens. So consumer have to buy the other goods elsewhere. At Amazon or at a physical store like Carrefour in France you will get everything at one stop. Matchless.

The other reason is that brands are brands. Marketing is huge! Brand used to happen in the shelves in department stores – in between the products of competitors! Now there is a whole new channel that brands can own (you know, that online thing). It is all about interactions with the fans. And, yes, fans expect there to be a buy button. But it is more about brand experience than profit. To put it in business terms: the online shop of the brand may have other objectives than just sales.

This has many implications; just to point out a few:
– Many sales channels that are naturally used by online retailers are not suitable, e.g. price comparison tools
– Pricing strategies of pure players are rendered useless
– Transaction-based fees for services such as payment or logistics will not reach a high volume
– eCommerce departments of brands are smaller (purchasing and category management are missing)
– No need for a PIM (no, really: you can manage the life-cycle of a hundred or so products just fine with basic tools)
– No need for a recommendation engine
– No need for a high-performance, high-end enterprise solutions

In closing I want to address all service providers, please stop treating branded manufactures like online retailers. They are not. They are just different and they have different needs. Thank you!