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Hello all.  We are working on a new consumer product set for introduction in the 4th quarter.  We have targeted two primary sales channels, retail stores and catalogs mailed directly to consumers.  I have sold retail before, but this is a first for catalog sales.  So I have a few questions that I am hoping to get input.

1) Is it typical for a manufacturer to sell to both channels?

1a) If so, is it best to sell a slightly different product design OR package OR under a different brand name to one channel?  OR can I sell the same product in the same package under the same brand name to both?

2) Do catalogers typically sell their goods at a higher price point?

2a) If so, can I sell them at a higher wholesale price?  OR do they expect to make a greater margin?

Thanks in advance for the help.

Doug

 

1. Depends on the brand, product line and stage in the product life cycle. If your brand is hot enough and/or the product is unique you might get away with it. Usually big brands with multiple sku`s are able to sell to multiple channels. What you have to consider is the benefits (exposure, sales process etc) against the risks of ticking off your retailers.

1a. You do NOT want to sell the same product to both channels - this is asking for trouble! If you go this route, give the two channels distinct products or bundle them in such a way that both channels see value. Packaging is not relevant because catalog shoppers don`t really look at the packaging. If you have a high-end product, you might want to invest in packaging that is consistent with your brand positioning but otherwise, brown kraft box is the way to go. You don`t want to invest in building up a brand name - it is tough enough to sell without having to worry about recognition.

2. It depends on the type of cataloge. Hammacher Schlemmer sells products at a premium price point. JC Whitney sells auto parts and accessories at a discount. Catalogs claim that they have high expenses in terms of print production, photography, layout and design but retail stores have inventory investments and costs associated with having a physical presence.

2a. If the cataloger is selling products at a higher price, than you can sell them at a higher price but keep in mind the law on pricing - I  think it`s called the Consumer Goods Pricing Act? In Canada it is "like products for like prices for like volumes". The way around that is with volume discounts, advertising allowances and similar O&A programs. Catalogers do expect to make a greater margin  - especially when you compare them to a Costco or  Wal-Mart.




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A good idea is a good idea NOW![sup]TM[/sup]

ethnicomm inc. | sales | marketing | web | strategy consulting

ethnicomm,
I agree with answer 2, but 1 . . . I`m confused. Looking at it from the pet industry, I never had a retailer ask me what we were doing with catalogs. My perception was that catalogs were much more concerned with what other catalogs were doing. All I can say, is that the issue simply never came up.
We may be both be handicapped giving advice, since we don`t know the product or catalog.
As for packaging . . . man that was a real toss up. If you`re doing your packaging over seas it can really create some inventory issues, but you can also save a lot of money to brown box it.

Jeff,

You`re right - without knowing the industry and the product category, it is tough to provide good actionable advice.

Even if retailers don`t ask what you`re doing in other channels, you don`t want the buyer flipping through catalogs as s/he is doing competitive analysis and finding the product s/he buys listed in the catalog. Often customers come to the retail store manager with catalog in hand asking "what is the difference between this one and the one I bought from you last week? Why are you 10% higher?"

I always say that our job is to make the buyer look good (without going broke of course). Buyers have a multitude of products to review and support and if you make it difficult for them, the support and loyalty could decrease. Better to continually make them know and feel that they`ve made a good purchase decision in going with your products. I would not risk a relationship over potentially poor channel management.

In some of the industries that I have been involved in (for example car care, cleaning, hardware, and pet) we even had to be careful managing sku`s between the mass merch, discount, club, grocery and DIY channels!

As far as packaging goes, I would not recommend CHANGING packaging to suit catalogers but it is cheaper if you go brown box as you say. If the product is packaged overseas, then you`re stuck with what you`re importing until your volume is high enough to warrant channel specific packaging.

I did find that when shipping via courier, the retail packaging never seemed to protect the product adequately. We ended up putting it into another "shipping" carton. This added packaging and labor cost but cut down on freight costs (returns).




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A good idea is a good idea NOW![sup]TM[/sup]

ethnicomm inc. | sales | marketing | web | strategy consulting

Very Interesting, I can see your point.
The situation i was dealing with involved very small retailers and huge catalogs. Meaning, the retailers physically could not cover a large area of the country. On the other hand the catalogs could cover the entire world.

Thanks both for the reply.  Ethnicomm, you are absolutely correct about the importance of avoiding channel conflict.  That`s the challenge here.

Ideally, I would like to sell both channels at the same time so that I can ramp up sales quickly.  And to build the brand name across channels and create awareness.

Assuming that I sell both channels at the same wholesale price and also assume that the cataloger "I think" typically sells at a higher price point, would the retailer see this as a conflict if the consumer can purchase the product at their store for less?  May drive some sales at the retail level.

But, that`s my big assumption.  That most catalogs sell the same goods at a higher price point.

Yes, the product is in the early stage of its life cycle, so not much leverage there.

Since this is an injection molded product, the product name will be engraved into the tooling.  So, adding a slightly different model would be too costly at this early stage. 

I could however offer the same wholesale unit price to both with different units per package at different price points.  Example, price point at 2 for 19.99 in retail and 3 for 29.99 in the catalog.  Do you think this would be enough to avoid channel conflict?

Other ideas?

Thank you in advance for your advice

Assuming that I sell both channels at the same wholesale price and also assume that the cataloger "I think" typically sells at a higher price point, would the retailer see this as a conflict if the consumer can purchase the product at their store for less?  May drive some sales at the retail level.

I don`t think there will an issue if the product is cheaper at retail. There is a cost for the customer to physically go to a store vs ordering online or over the phone. However, I`m sure the catalog is charging for shipping/handling - this is usually recognized and understood by the retailer.

I think the overall brand exposure will drive sales period - driving sales to the retail level will depend in your points of distribution and the price differential between the two channels.

Since this is an injection molded product, the product name will be engraved into the tooling.  So, adding a slightly different model would be too costly at this early stage.

I have used a label in the past to differentiate products. The product name can be the same but you can add "limited edition", "bonus", or whatever to your catalog products.

I could however offer the same wholesale unit price to both with different units per package at different price points.  Example, price point at 2 for 19.99 in retail and 3 for 29.99 in the catalog.  Do you think this would be enough to avoid channel conflict?

To avoid channel conflict you ideally should offer different sku`s. The catalog unit can include something extra. Without knowing what the product is, it is difficult to come up with some ideas. I will use a handheld vacuum cleaner as an example. You could add a specialized cleaning kit (small brushes, crevice tool that can get into the vents of your car); a couple of wipes/microfiber cloths; air freshener....

The best "gut" test that I use is to put myself in the position of the people who are purchasing your product: the retail buyer, the catalog buyer and the end-customer.  What do each of them value?

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A good idea is a good idea NOW![sup]TM[/sup]

ethnicomm inc. | sales | marketing | web | strategy consulting

Appreciate all the comments and the good suggestions too.

This is what I was thinking also.  Is there anybody here selling these two channels on a national level that can confirm?

Thanks again for the help.

Hi-

Lots of great information. We sell our products to the mass market including Wal-Mart, Walgreens, Kroger and others, but we also sell them on our own through our retail website. We sell our products directly to the consumers for about 30% higher than what they can get them for by going directly to the store. We started doing this in 2004 and it has worked out well for us.

Our mass market customers don`t have a problem with it because we`re not competing with them on price (they all know about it). We also don`t hide the fact that our direct retail customers could save themselves money by heading off to their local Wal-Mart and buying the product right then and there.

Plenty of our potential direct retail customers do just that but whether they do or don`t, they all tell us that they appreciate being told that up front.

That strategy wouldn`t work for every company but for us, it`s been great. Think it through and weigh the pros and cons.

Good luck.
Ron

Great comments.  Thank you very much.