How manufacturers are doubling their margins (and winning new business at the same time)
Tuesday December 5, 2017 | By Ethan Morgan
For wholesale-only manufacturers, margin growth is a challenge. Distribution and retail partners push hard to get low buying rates, as they are in turn pressured by shrinking retail margins and lower footfalls in physical stores.
This post is part of our series on direct-to-consumer ecommerce. Check out the topic page for an overview and more information.
Innovative consumer goods manufacturers are taking steps to make their businesses more profitable, by driving sales in new markets. Even better, the margins on those sales can be up to double those on their previous orders. Thanks to the boom in ecommerce and marketplaces, selling directly to their consumers is more than just viable - it's a huge boost.
And while it's true that addressing individual customers costs more than selling in bulk to distributors, this challenge can be eased with technology & services. Now more than ever, manufacturers are realising that change is inevitable, and that the rewards for taking on challenges like this are tangible and significant.
So: these are the steps leaders take to maximise their direct-to-consumer margin improvement strategy.
1. Avoid conflict between new and existing revenue sources
Avoiding channel conflict is a key objective for manufacturers pursuing a DTC sales strategy. That often means not directly entering into competition with retail and distribution partners. To manage this, the business may need to find new markets or channels to address directly, where it can earn the improved margin without damaging distribution relationships.
The most important aspect of finding new channels or markets to address is to run a demand analysis program, so that decision makers understand where their products are actually in demand and quantitatively assess the opportunities available. The available margin that the manufacturer can potentially capture by selling direct varies by channel and geography. This leads us to step two.
2. Be data-driven and channel agnostic
It is vital that leaders set out a clear go-to-market strategy that is communicated to every level of the business. Using the demand analysis to build a business case with agreed metrics and targets for success keeps different departments aligned and incentivised.
Part of this process means judging channels on their merits. While individuals may have their own opinions and input on the relative value of, say, a marketplace channel versus a commerce website, ultimately this decision should come down to the hard science of costs, revenues and time to delivery.
3. Plan for growth
Knowing what comes after a successful launch is crucial to the long-term impact on the business. The main considerations in the mid-long term are:
Having these in mind from the start ensures the project continues to deliver revenue growth and valuable insight in the long run.
It's not always easy to appreciate the resource required to maintain, optimise and grow an ecommerce presence, and this will be unique to each company to some extent. The determining factor will be how many relevant competencies the business has internally and how much of the work needs to be outsourced.
Upskilling, hiring and building an internal team may not be the optimal move for the short to medium term, depending on the scale of the business. With managed service providers offering flexibility to increase sales volume, some businesses can benefit by moving faster and more efficiently.
The sooner the better
Over time, more and more manufacturers will continue to move online to serve new customers for improved returns. In the short term however, there's an added advantage to be gained by moving quicker than the competition.