Brand Equity

:: Brand Equity ::


All manufacturers and brand owners (referred to hereafter as "brands") have huge opportunities in using the Internet to better interact with customers, be they other businesses (B2B) or consumers (B2C). This opportunity ranges from disseminating information to direct selling and gathering market intelligence. Direct selling of products and services via the Internet (referred to hereafter as "eCommerce") drives incremental revenue. According to Forrester Research, brands experience as much as 35% increased sales when products are sold at the brand website when compared to the same products sold at an intermediary website. Add the ability of a brand to up-sell and cross-sell additional products and services, and the incremental revenue becomes very meaningful In 2007, the eCommerce market has been estimated at $3.3 trillion with the B2C component at $127 billion by the U.S. Census Bureau. For 2009, the B2C eCommerce market has been estimated to be $165 billion and continues to grow at a double digit annual rate. Yet, B2C eCommerce business represents only 4% of the total $4 trillion retail market and fewer than 15% of all brands have implemented eCommerce. Some industry segments are adopting eCommerce faster than others with beauty nearing 18%, furniture nearing 13% and electronics nearing 8%. eCommerce requires changes in business processes for the sale, delivery, and service of their offerings. Traditionally, most brands have used "intermediaries," ranging from distributors, retailers and many forms of resellers, to go-to-market as a practical, cost effective way of conducting business. These intermediaries offer functionality for which substitutes must be found for the brand to sell direct via eCommerce. As one example, the brand would need to create a new fulfillment capability. Instead of shipping pallets of product to an intermediary, the brand would now be shipping cases or even units of one to the consumer. Customer service calls and product returns would now come at a much higher rate direct from consumers as the intermediary is no longer responsible for the consumer engagement. Fortunately, the associated, required business processes associated with eCommerce are well known, and 3rd party businesses exist if the brand chooses to out-source this needed functionality.

The #1 issue slowing the adoption of eCommerce is the fear by brands about the impact on their relationship with their existing set of intermediaries, often referred to as "channel."

Traditionally, brands share part of the revenue stream with its channel in exchange for the channel handling some of the needed business processes, e.g. fulfillment and consumer care. This revenue sharing comes in many forms be it through distributor discounts, commissions, etc. The channel protects their turf aggressively as their livelihood depends on the flow of product through them and the associated financial returns. Much has been written about channel conflict and channel management as brands and intermediaries do a "constant dance" as they fight for power, control, and profits.

With the introduction of eCommerce, brands have the opportunity to sell direct to customers / consumers on a 24/7 basis and no longer require their traditional channel for selling, fulfillment, and customer care. Simplistically, some brands think they can ignore the existing channel as they implement eCommerce. In some cases, where the brand is strong and the channel weak, this may be possible. Equally simplistic, the channel sees a brand's distribution strategy as a zero sum game and assumes anyone else's win is their loss. In this case, the implementation of eCommerce is seen as an end run around the channel in which the brand wins and the channel loses financially.

The world of business is rarely black and white. Even for the brand that ignores its channel in implementing eCommerce, there is a price to pay. At a minimum, the channel decreases its loyalty to the brand and, in some way, this likely leads to less of the brand's product moving through the channel as the paradigm of the "zero sum game" is alive and well from the channel's perspective. Any gain through eCommerce can be reduced or overridden depending on the reaction of the channel and the associated reduction in traditional revenue.

The realities of channel conflict are borne out in the numbers. Even with the obvious benefits of eCommerce, currently only 15% of brands have implemented eCommerce.

Of the 90% that have yet to implement, two-thirds state that conflict with their existing channel is the primary reason for lack of action! (Forrester Research)

Many of the brands that have implemented eCommerce have financially addressed the channel conflict or are trying to do so after the fact.

Net, eCommerce is a critical opportunity for brands that comes with cost and challenges to its existing channel. Without addressing the channel issue, some brands fail at eCommerce and most don't implement at all.

Brand Degradation
When brands are offered for sale on non-brand websites, the branded experience becomes that of the partner, who cannot effectively represent any single brand experience when multiple brands are available. Nevertheless, it is in the best interest of both the brand and their partners that the brand message is well communicated. Sophisticated partners do this better by creating stores within their websites but branded products can be greatly degraded with a corresponding decrease in perceived value by partners without sufficient capital and sophistication to do so Selling online with C3 assures brands are upheld while partners maintains their relationship with consumers.

Brand Substitution
Partners cannot effectively carry every product a brand offers any more than brands can effectively serve all of a partner's consumers. However, the most compelling research surrounding product loyalty shows that partners who try to convert brand-loyal consumers to alternative brands are at high risk of losing the loyalty of the consumer. In one of many examples, Ralph Lauren consumers take great issue with retailers who try to offer competitive brands when size or colors are unavailable and often defect from retailers that do not carry sufficient depth of the brand. So, while partners are compelled to try to get consumers to purchase anything in their existing inventory, the better solution is to serve the consumer by offering them the product they want. This can be easily achieved when brands offer their entire catalog to consumers through C3 eCommerce. Now, consumers not finding what they want at a partner location can be directed or assisted to order precisely what they want from the brand website while still at the partner location, with the partner having full knowledge they will profit from the transaction and deliver superior customer service while doing so. In 2008, Federated Department Stores reported over 54% of consumers leaving their store without buying what they came for because the product was not available.

Counterfeiting
Counterfeit products sold through distribution channels and unauthorized outlets are devastating to brand revenue, perceived value and long-term reputation. By selling products at the branded website, consumers are assured product authenticity.

Product Diversion
By offering product at the brand website, consumers are assured of product quality, performance, reliability, authenticity, service, support and warranty. Ironically, product diversion usually begins in response to consumer demand. Diverters look for the opportunity to serve the market in a way that is currently not being served. This initially begins by offering product through underutilized channels, however, as diversion increases, price competition does also, resulting in lower prices. Diverters then seek even lower cost of goods through salvage, liquidations and counterfeit product.

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