Cutting in the middleman

With brick-and-mortar companies exerting their might in e-business, leading-edge vendors are attacking the thorny problem of channel conflict.

          With brick-and-mortar companies exerting their might in e-business, leading-edge vendors are attacking the thorny problem of channel conflict.

          Tempted by thoughts of direct sales to consumers, manufacturers are looking to new collaborative sales technology so they can control content without alienating the channel that brings the vast majority of their sales: retailers.

          A number of startup vendors are developing software services that allow manufacturers to build brand awareness through e-commerce on their retail partner sites.

          Lancôme, for instance, went directly to consumers with a commerce-enabled website more than a year ago. Earlier this month, Lancôme representatives said the company will use iMediation's iChannel software to enable it to sell on partner sites. The first rollout will be at Macys.com.

          "We have many retail partners who have launched sites such as Macy's, Nordstrom, and Saks," says Sarah Williams, vice president of interactive marketing at Lancôme. "They all wanted us to sell products online, but we held back because there wasn't an opportunity to present the brand as we wanted to."

          By using channel collaboration software such as iChannel, Lancôme can control its merchandising experience online the same way it does in Macy's physical stores.

          "The customer experience, whether online or offline, is consistent," Williams says. "We control the content."

          Lancôme is maintaining its own product catalogue, which is available at the Macys.com site. Macy's handles the fulfillment without getting into the content management business for Lancôme.

          That model of the manufacturer handling the content and the retailer performing fulfillment is likely to be the norm in many manufacturer/retailer partnerships, says Gene Alvarez, programme director for Electronic Business Strategies at Stamford, Connecticut-based Meta Group.

          A recent study from Forrester Research, in Cambridge, Massachusetts, found that 70% of manufacturers plan to sell directly online within the next three years.

          "There's a lot of benefit to cooperation," says Randy Covill, senior analyst at the Boston office of AMR Research. "By cooperating, retailers and manufacturers can grow their markets instead of shrinking them."

          Paris-based Lancôme , a division of L'Oreal, expects to go live on the Bloomingdale's website in March and is also working with two other retailers.

          Other manufacturers experimenting with direct online selling include Mattel, Sony, Black and Decker, and Maytag.

          "Some manufacturers are trying to go direct by selling custom-order products," Alvarez says. "Nike is offering custom shoes and General Mills is offering custom cereals."

          But manufacturers often lack the expertise in direct-to-consumer fulfillment. In addition, many are cautious after watching Levi Strauss' attempt to sell direct go down in flames a few years ago.

          That makes the potential market large for solution providers such as iMediation and CrossCommerce, which just launched a service specifically for manufacturers.

          The service provides manufacturers with tools to mitigate channel conflict via customer referrals, revenue credits, and other collaborative commerce strategies. Such services will be critical as more manufacturers look to direct selling," says Seth Geiger, vice president of professional services at consumer survey company BizRate.com. Geiger believes the big categories for such sales will be consumer electronics, toys, and the more traditional PCs and peripherals.

          "But manufacturers are still dependent on the retail distribution channel. They can't afford to alienate their current distribution partners," Geiger says.

          Some retailers may already be feeling snubbed. Saks and Federated Department Stores have both announced plans to run advertisements to promote their own stores, instead of the advertisements they used to run promoting individual manufacturers' brands, according to Covill.

          But for the most part, big brand retailers say they aren't worried about the threat of direct manufacturer selling.

          "We don't see it as a channel conflict," says Paul Onnen, CTO of Nordstrom.com. "With a parent company like Nordstrom, we have very good relationships with our vendors. They will pretty much do whatever we want."

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More about AMR ResearchCrossCommerceDeckerFederated Department StoresForrester ResearchGeneral Mills AustraliaiChanneliMediationLevi StraussMattelMaytagMeta GroupNikeNordstromSony

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