The Financial Times recently published a short article, P&G web move is challenge to retailers, which piqued my interest from the opening line: “Procter & Gamble is testing its ability to use the internet to sell its toothpaste, household cleaners and nappies (diapers) directly to US households, in a potential long-term strategic challenge to its retail partners.”
The web site, www.theEssentials.com, is being administered by a third party, which supposedly “owns” the products being sold, out of sensitivity to the company’s retail partners. To be fair, there are many high-recognition consumer brands besides those of P&G on the site. Nevertheless, this initiative puts P&G directly into competition with its retail distribution network.
Question is, why do it? The article suggests retailer private label competition as a major reason for this development. It’s no secret that retailers who have focused on marketing their own brands have made significant gains in sales and profit margins, at the expense of national brands.
Response? Manufacturers of all kinds of products are beginning to sell directly to consumers even while they continue to use retailers as a major distribution channel. Direct online sales eliminate the middle man–the retailer–enabling manufacturers to lower prices to consumers, if they choose to. That makes national brands very attractive and competitive with store brands. Still, there is the question of the manufacturer-retailer relationship here. . .
It will be interesting to see the retailers’ response to this move as it gains momentum. According to the Financial Times article, Wal-Mart, P&G’s largest customer (no surprise) “is hiring a strategy executive. . .assessing the potential effect of direct-to-consumer sales by its own suppliers”. No surprise here, either.
As this new marketing strategy unfolds among CPG companies, it will be interesting to see what happens on all sides.
Questions:
* What do you think of this move on the part of P&G? Is this “only a test” and doomed to fail or will it be here for the long haul?
* Will the company be able to sell direct to consumers online without undermining its relationships with its traditional retail partners?
* Do you think the consumer who purchases products online is a different customer than the one who purchases in brick and mortar locations?
* Would you buy basic necessities direct from the company online, or do you prefer to purchase these items in a local retail store?
* Do you think this online strategy will cannibalize P&G’s sales at retail?
I’d love to hear from you.
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Ted,
As always, excellent reporting. I believe that any retailer who doesn’t see the need for an online presence is inviting its own demise. Right now, shoppers come in three kinds: 1) those who only shop retail outlets; 2) those who only shop online; and 3) those who shop both outlets and online. As the population ages, the 3rd category will experience fast growth but I believe that online shopping will eventually become the norm for most people.
What will become of retail outlets? They will become customer service centers and exist in large malls, upscale suburbs and large cities only. Their objective: creat enhanced customer experiences.
I shop both online and offline, but I don’t see myself using this website. Now, if they had a system in place where I could favorite my regularly used products (they have an order history, but I’m betting it’s a different look) and a way to do automatic reminders or shipments (perhaps with suggested frequency of reorder for an average user), that would be pretty cool and might lock me in to using their brands instead of bouncing around to whatever is cheapest or most attractive at a given moment like I usually do. The way it’s set up now doesn’t really make my life easier so what’s the point? I still have to go out and buy other things, like groceries, that I get at the same stores.
As it is currently set up, I think that it will cannibalize the retail sales. Customers are going to find the site for the brand names they already use and buy them here instead. There’s not much incentive to do add-on purchases, especially since there’s no “free shipping at X$”level.
Thanks for adding your thoughts to my post, Lewis. Great observations here. If retailers want to succeed today, two things are necessary. First, they have to approach consumers through the use of multiple marketing and sales channels. Second, they have to create consistent, positive customer experiences.
Question: what do you think of P&G’s tack of competing directly with its retail distribution chain, though? I’d love to get your thoughts on this. Thanks, Lewis.
Beth,
Thanks for checking out the P&G web site and for making such astute observations. You’ve hit on a number of points consumers care about. If sites like this don’t present an obvious advantage to customers, why use them to purchase products? If there aren’t incentives like additional savings, free shipping, periodic reminders or email opt-ins with special discounts for preferred customers, etc, why not just buy these items in your grocery store?
Only one point I would make, though: if the site doesn’t meet with customer expectations, and they choose to shop locally for these commodity products, P&G won’t be able to cannibalize its retail stores’ business. Having one of the smartest marketing operations in the world, I’m willing to give P&G the benefit of the doubt. I’m sure they will tweak their site and do those things the company needs to, to woo consumers to become direct customers.
Thanks, Beth. Great insights.
Ted,
I think it’s the wave of the future. It would be interesting to see if product sales online take a bite out of retail outlet sales. I bet they don’t. Instead, I suspect the online store will grow new customers and cater to people like my wife and I who shop both online and in outlets.
P&G selling online is no different from Best Buy doing so. And Best Buy’s retial stores don’t seem to suffering from offering online sales that can either be delivered or picked up at the local store. From what I can see, foot traffic remains strong.
You may be right, Lewis. The only thing is this: in the case of Best Buy, we’re talking about a retailer using multiple sales channels. P&G, though, is a manufacturer, and with its own web site, the company is trying to sell directly to consumers while still using retailers for most of its distribution. Many consumer product manufacturers have had company stores in the past, but they’ve also closed many of them. I agree: this clearly points to this as the future direction for product makers. Sites online vs brick and mortar retail outlets.
Thanks, Lewis.
Ted, from manufacturer to retailer? While there are some similarities in the industry, they’re completely different models.
There could be a compelling benefit for those folks who don’t live near a big box retailer, and/or those who often have to drive a prohibitive amount of miles to reach a store.
I’ll be very curious to see the value proposition (as you pointed out, maybe free shipping etc) that will make this venture viable.
You raise a major point, Paul. Being a manufacturer is much different than being a retailer. Still, there are a handful of CPG companies that have the resources to make a stab at this, and even a success of it. Given what P&G has accomplished just since A.G. Lafley took over as CEO, I wouldn’t bet against them. They just might make this work.
Thanks for weighing in, Paul. I appreciate it.
Great observation Ted. However, I think certain shopping experiences need to stay on bricks and mortar. I can’t imagine a regular family doing the week’s shopping online (at least not yet). You still need to go to the store for the fresh or semi-fresh stuff to touch it and see how it looks like. And where do you go for fast food lunch and quality time with the family if you buy the LEGO set for the kid from an online shop.
Thanks, Sami, for adding your thoughts to this discussion. I think you’re right about this: many families probably won’t do their weekly shopping online. Unless they go to their local supermarket site and order home delivery for items they regularly buy, that is. Still, I think Procter & Gamble will do some business on this site if they get it right–if they give consumers perceived value and incentives. The kinds of products they’re selling online do not require sniffs or touch.
As to family time together, many times moms buy groceries. Dads do, too. Many do not bring the whole family–at least not all the time. Notice also that many family members regularly visit favorite web sites these days and shop independently of each other online, as well. Times are changing and people are also slowly changing some of their buying habits. . .making all of this very interesting.
This is an interesting story – one that’s been picked up in the UK, even though http://www.theEssentials.com doesn’t offer UK shipping yet! It’s a bold move by P&G and I question the wisdom of it.
Adding to the fact there’s no value prospect for on-line shoppers i.e. discounted prices or shipping, I don’t see why your average person would go out of the way to buy things like shampoo, VapoRub and diapers on-line when they’d have to wait for shipping. These are the kinds of items people generally need now or in a couple of hours, not two days later. Unless there’s really strong brand loyalty there, I think they’ll just pick up the equivalent on their grocery shop along with everything else on their list.
The only part of the website that I can see becoming a success is the electrical items and brands like Old Spice – things that can be bought as gifts for Christmas. I think we’ll see sales of these items increase on the website, but only marginally.
My overall prediction is the website will have to change considerably (by focusing on the electronics side of their product range or making the site more user orientated, with profiling and re-order facilities like Beth suggested) or shut down. We’ll have to wait for the sales figures before we can say for definite, but I’m not convinced theEssentials will bring in enough profit for P&G and is more like to damage relationships with its retailers.
You’ve made many excellent points here, Gareth, and I thank you. I quite agree with a number of your observations. Interesting to see that P&G’s direct purchase online web site is being anticipated in the UK. . .
Just a couple of things I’d like to say here. First, I do expect P&G to tweak this new business model over time. Especially if it does not meet with customer expectations. One thing they might want to consider is hiring regional delivery services in metro markets, rather than just relying on standard shipping. Many supermarket chains either hire outside delivery services for customers who purchase online, or have their own delivery trucks. Secondly, since retailers depend so heavily on the volume P&G brands deliver to their stores, and even contract with P&G to manufacture private label merchandise for them, I doubt their relationships will be seriously damaged. Remember that Procter & Gamble is the largest fast moving consumer goods(FMCG)company in the world. Having said that, it will be interesting to see how P&G-retailer relationships continue to evolve in the future.
I just love all the comments that things like this spark, a la bricks-and-mortar will vanish soon.
Think back to 1999. P&G did this with a site called reflect.com (cosmetics) that it shuttered in 2005. A great investment in understanding the consumer.
This time it looks like it intends to stick around, but for a soon-to-be $100 billion a year company, don’t look for its non-ecommerce sales to fall to zero in your lifetime.
I think the company is wisely targeting the online-only shopper, with a convenience proposition. Look at what it is selling – for example, replacement parts and pieces to water filters and coffee machines, items that are not worthy of wasting gas to see if Kmart has it in stock.
I think the channel conflict to watch here, then, is not P&G vs. brick-and-mortar, but its new site vs. the likes of Drugstore.com. The latter certainly has the right to say “screw you P&G, you are competing with me, so I will no longer carry your products,” but if i was Drugstore.com I think I would choose to continue to fight for a share of that $100 billion in sales.
Thanks for adding yet more substance to this discussion, Kevin. You’ve brought up some good points, here. I thought that the short-lived reflect.com was an experimental P&G site, designed to glean marketing information on young consumers’ cosmetics preferences. No?
You’re right: by offering hard to find replacement parts, there is a definite value proposition for consumers on the new P&G direct sales site. Still, I believe the company will have to do a bit more to convince consumers it’s worth their while to buy some of these staples online. Do I think retailers will cut back on P&G products due to the direct competition? No. Both entities need each other.
Good point about Drugstore.com. No one has brought this up yet. I’m sure online sites will be battling it out for consumer share much as retailers do vs each other. Having said that, there is no denying that virtual sites and retailers are also in competition for consumers’ dollars, as well. I do think both channels are competing for those ever more elusive dollars.
Thoughtful stuff, Kevin. Thanks again for weighing in.
Sherry,
Thank you for outlining a serious problem facing small businesses in many sectors today. You’ve said many salient things quite eloquently. Several things: manufacturers cannot force small retailers like yourself to adhere to their retail price structure. It’s illegal to do that. Next, I think finding alternative wholesale distributors to purchase your tools from would be desirable. Then you might want to use the Internet to reach out to other small retailers selling tools and hardware and try to set up a purchasing group among yourselves. It offers far more clout and better discounts for everyone so you can price your products more competitively. That’s what the IGA did in the grocery business, for example. Lastly, consider what kinds of additional services you can offer to your customers that the big guys can’t or won’t. Find sources for unusual and hard to find products consumers still want to buy and stock them in limited quantities. Maybe expand into a couple of categories in addition to what you’re carrying, if complementary. Just a few ideas.
Sherry, please hang in there. As competition gets squeezed out and consumers become less satisfied, new businesses spring up to meet pent-up demand. We’re in a tough cycle right now, but better days are coming. All the best to you and your business.
E-Bay is the most anonymous seller of merchandise we can imagine. Many consumers are balking at the idea of purchasing anything of value from a nameless, faceless entity that won’t back up the merchandise or repair anything. . .