E-retail growth does not have to be at the expense of margin
Growing a distribution network is both exciting and challenging. But as your products start selling through more channels, the number of buyers you work with will increase. Intra-brand competition happens, and some e-retailers might hurt your brand to meet their sales targets.
In a perfect scenario, you would not need to compromise your margin to grow sales, and your B2B price would be the same for all your buyers. But in real life, things won’t always go according to plan. Buyers will negotiate, and you will have to let go of some of your expected margins. But does it mean that you have to sacrifice margins to grow?
Here is our take, based on our experience working with big brands and manufacturers in numerous industries. We put together six actions that will help you to avoid growing at the expense of your margin.
Action 1: Set up selective distribution channels
Winning market share is the goal of any business. Two extreme methods that we discourage are intensive and exclusive distribution. Intensive distribution is when you sell through as many different channels as possible. The problem is it fosters intra-brand competition and price wars. On the other end of the spectrum, an exclusive distribution (where you have an exclusive distributor) may be too restrictive and inhibit your growth.
Working with big brands in different industries, we often recommend clients use a selective distribution approach to get the best of both worlds. This is a system in which you identify the specific needs of your brand or products and select e-retailers in line with your needs.
Selective distribution is associated with reduced intra-brand competition and more price stability. Additionally, your e-retail team won’t have as many partners to handle, so they’ll be able to nurture better business relationships. And finally, by frequently monitoring your distribution channels, you will be in a better position to back your negotiations with data.
Action 2: Enforce your MAP (where applicable)
In the countries where they can be used, MAP (minimum advertised price) policies are great tools to prevent price wars and keep your products attractive to most e-retailers. But as your distribution network expands, monitoring volatile prices becomes harder, thus making the policy difficult to enforce.
More e-retailers are using dynamic pricing to keep their prices competitive. As this process is often automated, your entire distribution network may fall in line before your team can spot the problem. This will come back to your brand as an argument from the e-retailers, who will push for a lower B2B price in their next order.
The only way to enforce your MAP policy is to have high-frequency price monitoring in place and to react to unauthorized price drops on a daily basis.
Action 3: Quickly detect the cause of price fluctuations
Although semi-automatic repricing for e-retailers is becoming the norm, its use and implementation vary widely. The side effects of automation are price fluctuations and significant price gaps that can catch you by surprise.
The challenge lies in identifying the root cause of the price change when many e-retailers have already adjusted their price. If you want to become really savvy at reading the price movements in your market, you need to know two things:
- Who usually initiates the deep discounts that everyone else follows; and
- Who follows whom in terms of repricing.
The only way to really understand these dynamics is to have automated, high-frequency price monitoring. In most markets, a three-hour scraping cycle is what you need, but in some very tense and competitive markets, you may have to go down to one-hour scraping cycles.
Action 4: Optimize keyword placement to increase search ranking
Advertising listings at e-retailers is a way to gain more sales and increase the search rankings for your brand’s products. But the cost can rapidly get out of hand as you increasingly depend on ads to fuel your growth.
Don’t forget that you can also increase your search ranking organically by optimizing keyword placement and regularly monitoring your search performance.
Furthermore, make sure to keep an eye on your competitors’ keywords strategy. This will help you decide if you want to compete on the same keyword or focus on more niche variations and long-tail keywords to achieve a higher ranking.
Action 5: Detect and shut down the grey market
The grey market is caused by leakage in the distribution network. One of your e-retailers or distributors has been too ambitious, so its short-cut solution is to get rid of the merchandise at a low price through unofficial channels. As a brand, you don’t want to experience this.
These products will surface around the web and lead to an increase in intra-brand competition. Your buyers will start questioning the price point they are selling at and take the initiative to maintain price competitiveness. If your brand is distributing on Amazon, you might experience losing the buy box to third-party sellers. Not only does this cost you a sale, but also it hurts your potential to sell at MSRP.
Conducting regular web searches for your brand and products’ names will shed some light on this. Identify which results lead to known e-retailers and which e-retailers are unknown. Make a list of suspicious sellers for further investigation. For concrete action, try test-buying the product to examine the quality, the source of this supply, and to trace it back to the supply chain.
Action 6: Synchronize promotion
Promotions are a great way to drive sales. E-Retailers will often ask for your financial support in exchange for a value-added promotion that will boost your product to their front page. On paper, these can be good deals most of the time.
The problem is that in a market where price imitation is the name of the game, a one-off promo can quickly become a new standard market price. Even if the original e-retailer ends the promotion after a week, it does not guarantee that the rest of the market will go back to the original price.
A workaround to this problem is to synchronize promotions at the market level. When you get requests for new promotions, take the opportunity to offer the same conditions to all other e-retailers in the same market. If many opt in, you’ll have a massive, synchronized movement of prices in both directions. This will ensure that promos remain temporary.
Achieving profitable growth for your business is never easy, and it only gets more intense when the distribution network expands. BlueBoard is an e-commerce monitoring solution for big brands and manufacturers. We provide key indicators and conduct analysis for you so that you can make better decisions. Reach out today to see for yourself how we can help protect your margin!