November 2nd, 2018

Holiday Shopping Lessons Learned — How Brands are Preparing for the 2018 Season

The holiday season is upon us — is your brand ready?

According to Internet Retailer, U.S. shoppers are expected to spend more than $119 billion with online retailers between Nov. 1 and Dec. 31 this year — an estimated 15.5% (or $100 billion dollars) over the same period last year.

This is great news for brands as a whole, but with progressively noisy channels, there’s no guarantee that your brand will benefit from this momentum. Taking into account this season’s predictions, our own experience, and lessons that we’ve learned from our clients over the years, here are our recommendations for setting your brand apart and planning strategically this holiday season.

First, you need a strategy.

To set your brand up for success, it’s critical that you plan ahead and ensure all teams are aligned and prepared to execute. Here are three steps to do this effectively.

STEP 1: Build your plan.

Focus on two important questions: What are you trying to achieve, and how will you measure success? Brand manufacturers may have vastly different answers for this question, ranging from getting new customers to driving record revenue numbers, but the result is all the same: Plan for your success, and then outline how to measure each point over a period of time.

STEP 2: Communicate the plan to all key stakeholders.

There will be a lot of moving parts as the holiday season gets into full swing, and you’re only going to be as strong as your weakest link. Communication is critical to ensuring that everyone is on the same page. Alert the stakeholders of your plan and express your expectations of their fullest extent, impressing milestone and timelines frequently so that everyone understands their responsibilities and goals.

STEP 3: Rely on your data.

Agility is key. The great thing about eCommerce is that you can monitor metrics and make changes in real-time. Swim in your data, and don’t hesitate to flex your strategy to get the outcome you need. This means thinking critically about how you’re measuring your KPIs and also how you’re building your dashboards, as these data points will inform your decision-making as you follow and react to important trends throughout the season.

Key Considerations for the Holiday Season 2018

Here at Ally, we’ve helped many different brands develop their eCommerce strategies year after year. We know what works, what doesn’t work, and what you need to be prepared for when it comes to planning your holiday sales strategy. Here’s our expert advice for pricing, inventory, shipping, and management this holiday season.

Pricing

The holiday season unofficially kicks off with Black Friday and Cyber Monday. Many consumers complete most or all of their holiday shopping for the entire season on these two days. Our recommendation is to discount site-wide across the catalog, while also including specific spike opportunities.

When it comes to eCommerce channels, the best strategy is to recreate what happens in the brick-and-mortar experience as much as possible by including deep deals and doorbusters. A 40” TV doorbuster at Walmart is guaranteed to bring people to the door — why not recreate this strategy to bring the same traffic to your site?

It can be difficult to strike the balance between competitive pricing and pricing to make a profit. We recommend to look at profitability across the entire promotion as opposed to per-transaction order economics. If you’re not sure how to approach discount levels, a good rule of thumb is to start with a 20% discount threshold across the catalog, with doorbuster discounts rising as much as 70% on select items.

Inventory

Long-lead planning for the holiday inventory spike is vital to your overall success — and the sooner you start planning for the influx, the better off you’ll be. To get started, pinpoint where you want to see a return on investment — be that engagement, sales, or profit — and then map your specific goals backward from that final point. With this tactic, you’ll discover what will happen from an elasticity standpoint and allow you to plan for any eventuality.

To optimize your data and provide a better ROI, allocate your inventory by the channel where you want to capture new customers. This works because you’re not just supplying a demand — you’re anticipating the needs of your customers.  

Shipping

Christmas is on the 25th every year, but, without fail, many consumers will still wait until the last minute to order gifts. To make things even more complicated, the day of the week that Christmas falls on can significantly impact your shipping logistics, delivery, and messaging. For instance, when Christmas falls at the beginning of the week (coincidentally, like it does this year), your last days for delivery really fall in the previous week.

“Last day to order” messaging can help dissuade customers from procrastinating. You’ll also want to keep in mind how capable your systems are for managing two key points: your organization as a merchant in terms of fulfillment, and your logistics provider in terms of distance from the origination point to the final destination. To do this, try establishing clear expectations for both your fulfillment process and your logistics provider, and understand what your most likely pain points will be.

Returns

Here’s the reality: Your returns will scale with your order volume, and your best plan of action is to go on the offensive. Besides planning for a minimum returns threshold in terms of reverse logistics, customer service, and payments, you’ll also need to verify that the product you are selling is the one that is actually being delivered. This means understanding the fulfillment process, verifying that each of your listings is accurate, and making sure that the products listed are the same ones that are being shipped.

For instance, it’s not uncommon for doorbuster products to have unique SKUs, which can easily upset accurate fulfillment as the rush of order volumes hit. You should also ensure that any and all temporary warehouse resources are sufficiently trained on the importance of good operational processes and how that maps to all requisite customer experience SLAs.

Another great way to treat returns is to automate parts of your process while customizing other areas that require it. For instance, Ally works with its customers to involve people in the returns process in a scalable manner when and where appropriate. This provides an automated returns process for goods at a lower, say $25, value, while adding a personal touch with an intent to save the sale for customers at higher spending, say $1000, thresholds.

One of the most important things to understand about the customer service experience is that assuring the customer that the product will be returned “no questions asked”. The next thing to remember is to understand why the product didn’t meet the customer’s need. To help manage this process, have a CRM system in place that allows for the disposition of all returns. This feedback can better inform your business and increase customer loyalty when effectively leveraged.

Looking Forward

Unlike years past, the 2018 holiday shopping experience will be vastly different thanks to big retailers like Toys R Us and SEARS no longer dominating the traditional retail sector.

By keeping our tips and takeaways in mind as you build your 2018 holiday action plan, you’ll not only improve your revenue and processes, but you’ll also better understand your customer and cement your place in a retail environment that is swiftly moving to eCommerce.

If you’re looking to build or expand your direct to consumer eCommerce business, partnering with an established multi-channel partner is the best way to get started. Contact us to learn more.  

About the Author: Craig Haynor

Craig has served as the VP of Account Management and Operations at Ally Commerce since 2015. Before that Craig spent 12 years working in various sales, marketing and operations roles for a brand manufacturer in the musical instrument industry. He had a front-row seat to the disruption ecommerce introduced to the company’s traditional retail distribution network, and then to the brand itself as they formulated and executed upon a direct-to-consumer strategy.

Craig Haynor

Posted in Brand Manufacturers, Customer Service, Direct to Consumer, eCommerce Technology, Fulfillment, Pricing

October 24th, 2018

eCommerce Pricing: Why It’s Important + How to Do It Well

Pricing. Warren Buffett once called it “the single most important decision in evaluating a business.” However, brand manufacturers — even those quite adept at pricing in their traditional business channels — generally find direct-to-consumer pricing difficult.  What makes it so challenging?

• More data. Once shielded by their channel partners, who are understandably reluctant to share data with their vendors, brand manufacturers going direct-to-consumer suddenly find themselves swimming in data.  For example, the sales velocity of a single product — and how that velocity changes in response to discounts, price increases, or other factors — can be measured in real time. Organizing and making sense of this data can be quite time-consuming.
• Greater freedom.  In addition to being able to gather detailed data on a minute-by-minute basis, eCommerce suddenly affords brands flexibility to make changes to their business at the same frequency.  Newcomers to eCommerce often struggle to simultaneously optimize their business and avoid overreacting to short-term fluctuations.
• New competitors.  eCommerce has reduced the barriers to entry present in more traditional channels, creating opportunities for startup, “digitally native” brands to enter markets historically dominated by a smaller number of large brand manufacturers. In making the decision to go DTC, brand manufacturers become exposed to competition that they were previously unaware of, often at different price points and with different pricing behaviors than their traditional competitors.  One Ally client, a furniture manufacturer who considered themselves to have only 2-3 real competitors, were shocked to find that their category had over 9,000 products sold across 30+ brands on Amazon. Most of these clients sold their products at a 30-50% discount to traditional competitors. Needless to say that the competition was much fiercer than in the client’s traditional channels.
• New conflict.  Many of a brand’s existing channel partners have an online presence and are sensitive to erosion in their business.  Not surprisingly, pricing is a particularly sensitive topic for them. Implementing and enforcing a MAP policy requires additional effort for a brand manufacturer, but it can help allay channel partners concerns by providing a common set of guidelines for all online sellers (something from which the manufacturer itself will also benefit.).

While eCommerce pricing can be tricky, there are clear payoffs associated with getting it right.  One Ally furniture client strategically reduced their prices in a category by 10% and saw their sales in that category double.  Another Ally client in the consumer electronics space faced a manufacturing shortage for one of their top selling SKUs. By strategically raising the price on the products that included this SKU, they were able to maximize the margins and reduce stock-outs, resulting in a 15% increase in their margins.

Here are three tips to help you stay competitive, maintain strong profit margins, and deliver great value to your customers.

1. Evaluate your pricing holistically

Making pricing decisions requires viewing your products’ price through three lenses: relative to the competitive set, relative to channel partners, and relative to your costs. Without a comprehensive approach that considers each of these three factors, your pricing will be off and the profit margin will suffer.  Keep in mind that:

• You may need to take a more comprehensive view of your competitors than you have historically.  Evaluating search results and marketplaces such as Amazon, eBay, Jet or Reverb can be a great way of developing a broader view of the market.
• The economics for eCommerce are quite different than for traditional channels.  Factors such as returns, fraud, and outbound shipping must be considered.

2. Design price tests carefully and understand what is (and what is not) in your control  

Price testing is best done thoughtfully, otherwise, you may find yourself unable to draw meaningful conclusions.  Some critical questions to ask before you begin are:

• What exactly am I testing and how will I know if my test has been successful?  Having a clear hypothesis at the outset of a price test (e.g., the margin lift caused by by a 10% price increase on Product A will offset any volume decline and thus will result in better overall margins) will help clarify expectations and tease out considerations (e.g., accounting for product cannibalization).
• What do I need to measure and how much data do I need to validate that it’s successful?   The volume of data needed determines how long you need to test.  Selecting the right variables is also critical, as sometimes these must be adjusted to account for time, mix or other factors.
• What outside factors might influence my results?  External factors such as competitive pricing moves, changes in marketing spend, seasonality, and inventory issues can all impact pricing results.

3. Constantly optimize your pricing

eCommerce is too dynamic for a “set it and forget it” mindset on pricing.  Brand manufacturers should constantly look to evaluate their pricing, learn what works, and make improvements.  Developing a calendar outlining price testing schedules can systematize price testing in the organization.

Want additional insights on pricing in DTC? Check out our resources page for more helpful info or get in touch if you have more specific questions. We’re happy to help.

Michael Biederman

Posted in Brand Manufacturers, Direct to Consumer, Pricing

August 29th, 2018

Walmart Versus Amazon: A Race to the Bottom on Price

In this four-part series, we’re taking you on a deep dive of today’s brand manufacturers’ top challenges to provide clarity on the current market environment and empower you to adapt faster.

Amazon and Walmart, two of the largest and most influential brands in the world, are in the midst of a retail battle that continues to make headlines. As the lines separating traditional and online retail continue to blur, competition is heating up and the stakes are higher than ever. In an attempt to win customer loyalty in this new era of retail, both are dropping prices at a rapid rate. The result? An uncertain future and dwindling profit margins for brand manufacturers.

Here is a quick recap of each retail giant’s place in the market and how today’s brands can respond to the escalating pressure.

Walmart: The Brick-and-Mortar Kings

On a mission to help customers save money and live better, Walmart is the top brick-and-mortar retail store in the world. With the recent launch of a new website, announcement of free 2-day shipping, and a large investment in new technology, Walmart is taking an aggressive approach to compete for the top spot online as well. In the first quarter of 2018, Walmart grew eCommerce sales by 33% and increased revenue by 4.4%. Despite this impressive momentum, gross margins decreased by 23 points, in large part due to pricing pressures brought on by Amazon.

Amazon: The eCommerce Gold Standard

Amazon, the most customer-centric company in the world, is the uncontested winner of the eCommerce space. Amazon’s first quarter earnings allowed the company to increase revenue by 43%. In an effort to compete with Walmart in all aspects, however, Amazon has recently begun building up their brick-and-mortar capabilities with Amazon Go.

Here is a cross-comparison analysis of each retailer’s prices:

Source

Responding to the Retail War

As Amazon and Walmart continue to cut prices to compete with the other, brand manufacturers are struggling to turn a profit. The group taking the hardest hit? Those overly reliant on these third party sales channels to reach their customers.

In an effort to meet each retailer’s growing demands, brands are being forced to rethink their sales strategy. While the answer is far from simple, not all hope is lost. A diversified, multi-channel sales strategy can help brands rediscover profitable growth. Many are adopting a direct to consumer approach to face the realities of a new retail environment and meet the changing needs of their customers.

If you are brand manufacturer struggling to navigate the increasingly complex market, we are ready to serve as your partner in profitable growth. Contact our team to learn more.

Dave Kart

Posted in Amazon, Brand Manufacturers, Pricing

August 10th, 2018

Top Challenges for Brand Manufacturers

An Introduction to a Four-Part Series

No industry has gone untouched by the massive change stemming from recent digital disruption, but nowhere does it seem more apparent than with brand manufacturing. Big brands are working to hold on as smaller brands fight to emerge through the digital noise. New technology is disrupting traditional supply chains and revenue streams, pushing modern brands to pursue growth in new places.

At Ally, we have the opportunity to speak with brand manufacturers on a regular basis about their unique challenges, big wins, and growing fears. Across the board, brands are looking for a way to future-proof their business by unlocking sustainable growth in an unstable market environment.

Here are just a few of the common problems we hear from brand manufacturers on a regular basis. We will be diving deeper into each topic in our four-part series. Here is a snapshot of what is to come.

A retail apocalypse.

Brand manufacturers are being forced to evolve their sales strategies to keep up with an unprecedented pace of change in the retail world. Nearly 9,000 retail stores closed up shop in 2017, and the ‘retail apocalypse’ will continue as shopping continues to shift towards online channels. What will this mean for brands and how can brands build a strong online engine? Stay tuned for Part 1 of this series to learn more.

Fierce competition from digitally native brands.

Established brands are struggling to maintain a loyal customer base as they compete with vertically aligned and digitally native sellers, seemingly sprouting up overnight. Consider Dollar Shave Club and Casper. Both of these brands gained instant popularity and quickly snagged market share despite competing in industries that have historically been dominated by a handful of legacy brands. Casper is especially interesting because the idea of purchasing a mattress online (without testing it out in person) previously seemed inconceivable. This is further proof that the direct to consumer approach is a requirement, not a trend; and no matter how established or impenetrable a brand may seem, it must stay agile and customer-centric to stay relevant.

Race to the lowest price: Amazon vs Walmart.

Competition between the two retail giants, Amazon and Walmart, has skyrocketed, causing prices to plummet. A recent study has shown that on average, Walmart prices are 34% lower than Amazon’s. But this race to the bottom has directly impacted margins of sellers as each attempt to win in the multi-channel space. Brands are required to cut their wholesale prices drastically, and in some cases, brands may lose money on sales if they meet the ‘low price’ demands.

Amazon’s growing dominance.

Amazon, the force keeping all brand manufacturers up at night, has established its dominance with a market share that’s expected to reach 50% by 2021. Brands are searching for ways to play nice with the retail giant without completely eliminating their margins. But as Amazon’s power grows, brands are losing control of the channel and need a viable solution. So how do brands leverage the enormous reach and traffic of Amazon, while building a direct to consumer channel as well?

Thanks to new technology and quickly shifting consumer preferences, today’s brands are facing massive disruption and profit pressures. Only the brands willing to embrace change and the speed of innovation will survive. In this four-part series, we’re taking you on a deep dive of the top challenges brand manufacturers are facing today to help you paint a clear picture of the current market environment and better prepare for what lies ahead.

Dave Kart

Posted in Amazon, Brand Manufacturers, Direct to Consumer, eCommerce Technology, Pricing