More selling channels, more problems? Ecommerce expert and author, Brian Beck, joins us to discuss the power shift transformation in the marketplace and the channel conflict it can create. In this post-COVID era, ‘value’ has a whole new meaning.
Brian Weinstein: Welcome everybody to Sippin’ and Shippin’. I’m your host, Brian Weinstein. We’ll be kicking it here every other Thursday quenching your thirst for an insider’s take to enhance your customers’ experience. Grab your drink of choice. Kick back. It’s sipping and shipping time.
All right, welcome everybody to another episode of Sippin’ and Shippin’. I’m your host, Brian Weinstein. We would not have an army with harmony unless I had my sidekick Caitlin Postel with me this week as always.
Caitlin Postel: Hey Brian, how are you?
Brian Weinstein: I’m doing well. I’m doing well. And today we have a very special guest, Brian Beck from Enceiba, Managing Partner. How are you today, Brian?
Brian Beck: Doing great, Brian. Thanks for having me. Hi, Caitlin.
Caitlin Postel: Hey Brian.
Brian Weinstein: Absolutely our pleasure. So today we are going to talk about channel conflict. Brian, I think this is something new to you, right? It’s not like you’ve written a book on this or anything.
Brian Beck: That’s right, Brian. Well, yeah. So yeah, in addition to my work at Enceiba, I wrote a book called Billion Dollar B2B Ecommerce. That was four years of work, Brian. I see why people don’t write books every day.
Brian Weinstein: Right, right, right.
Brian Beck: But I’ve been in the field for almost, now over 20 years. I took my 17 years of operating experience as a VP of eComm and CEO, COO in the eCommerce space and put it to print. One of the key topics is all about this channel conflict because I have a whole chapter on it, aligning channels and managing channel conflict because it prevents a lot of B2B companies from taking action on their opportunity in eCommerce and digital transformation. So yeah, it’s a topic that’, I don’t know. It’s near and dear. I don’t know how dear it is, but it’s near to my heart.
Brian Weinstein: Right. Right. And I have to imagine this has evolved a lot. So we haven’t seen it as much. We do so much in our space in fashion, right? A lot of these brands are originating as digitally native brands. But where we heard about it a lot is retailers sort of trying to force people’s hands on managing their eCommerce channels or their sales channels. How are you finding that? Where does the retailer stand today?
Brian Beck: Yeah. So it’s interesting. I mean, yeah, if you’re, and by the way, I was in the fashion business for a little while. I ran eCommerce for PacSun, which is Pacific Sunwear. So I’ve been in the apparel space, so I understand that aspect of it. Where I see a lot of it, and in my world these days, Brian, Caitlin, is on a lot of it’s in the more traditional B2B markets where companies are selling to other businesses. If you look at it from an apparel perspective, it’s… and I have a case study, for example with VF in my book, which is kind of that space, VF corporation. The conflict comes when the manufacturer, principally when the manufacturer of the brand, the company that has traditionally been in selling through channels like to retail, when they start, or distribution, when they start directly to the end customer, the consumer in the case of B2C and the business buyer in the case of B2B, and that’s a disintermediation of the traditional channel.
So in other words, if the end buyer doesn’t need the middle anymore, the distributor or the retailer, what have you, they’re threatened by that, right? So it puts new pressures on that distribution channel, on the retailer, on the dealer, on the distributor, whoever is selling the product to the consumer or to the business buyer to make sure they’re adding tremendous value to that customer because, ultimately, if they’re not, and the manufacturer starts selling direct, guess what happens? That sale goes to the manufacturer.
Brian Weinstein: Right.
Brian Beck: So manufacturers are afraid of that though. I mean, sometimes they’ll come in and they’ll be afraid of… they won’t take action because of it. So that’s the key.
Brian Weinstein: So when you talk about the channels, right, you can sell directly to consumer. You can sell to brick and mortar retail, right. You can have marketplaces, online marketplaces. You’ve got your brick and mortar partners who are selling to their customers online. You could be selling to distributors, right? So it’s all of those channels that present that conflict, is that correct?
Brian Beck: Right. That’s right. And it’s the interesting thing is ultimately the brand or the manufacturer has the control in this situation, and the economics are powerful, Brian. When you talk about going… When a company sells directly to the end buyer, the consumer, the business buyer, there’s a lot of margin between that wholesale price and that retail price. So that said, brands, manufacturers, they have to respect the traditional channel at the same time. They have to respect the retailers, the distributor, whoever’s selling their product because ultimately, in many cases, that’s a lot of their revenue. And a lot of those channels do add value, but they add it in different ways.
I think what we’re seeing is really a culling of the field and it changed. And really, I like to quote Jeff Bezos, right, the man retiring from Amazon ish. He talked about in 2010, he talked about the shifting of power in the traditional business value chain, and the fact that the consumer, he was referring to the consumer at the time, but I think it equally applies to the business buyer, that buyer has more power than they’ve ever had before because they have more buying choices. You just mentioned it, marketplaces. They can buy directly from the brand. There’s vertical, these digitally native vertical brands and digital… in the world of B2B, there’s digital only distributors and vertical marketplaces. So the consumer, the buyer has more power than they ever had, have had, and more price transparency, more options to buy. As a result, the bar’s been lifted for everyone.
So I think that’s what’s really driving a lot of this fear of conflict, but the world has changed. I think you have to acknowledge it if you’re a brand. Caitlin, you have your hand up. I love the way these things work.
Caitlin Postel: That’s right. Exactly. So as soon as you said the word price, my hand shot right up. So how do brands maintain a standard price for their products across all their sales channels? Is it possible and how do you achieve that?
Brian Beck: Yeah. No, great question, Caitlin. You know, price is really the biggest, it’s the big fear factor and it’s also the biggest thing that can cause channel conflict when you think about the map I described. The manufacturers has all this margin to work with that they sell directly. They could, in theory, undercut their channels and offer a lower price. But when the reality strikes, the manufacturer doesn’t want to do that. The brand doesn’t want to degrade its own price in the marketplace. That has a negative impact across the entire… In fact, if anything, they want to increase the price because in general what I find is that the brands, who have worked many years, in some cases hundreds of years, to build a reputation in the market, a brand about something they’re authority at. They want to lift the price, right?
So at the end of the day, what does it mean, what are the tactics a business can use, and this is what I talk about in the book, right? There’s tactics such as making sure that you’re understanding your distribution channels and you’re controlling really, the distribution rights for people to sell online. One of the biggest challenges companies have, and we deal with this every day with Enceiba, well because we manage Amazon programs for brands and manufacturers, and what we find is that one of the biggest offenders on price is Amazon. Yeah, it’s marketplaces. And these marketplaces are designed to drive price down, to drive margin down to bring more value to the customer on a pricing perspective. If you’re a manufacturer though, there are ways to manage that through distribution agreements, through MAP or map policies, minimum advertise price policies.
But you have to really, it’s kind of paradoxical, you have to go in and control Amazon. Rather than sell your product to Amazon and forget about it in what they call a vendor-central relationship, you want to get in and you want to control through what’s called a seller-central relationship, control your pricing and distribution on Amazon and also other places. So Caitlin, there’s a lot of legs to this stool when you talk about managing price effectively. You first need that foundation though of channel control and intellectual property protection and other things. And then have the stomach as a brand to actually enforce things when you enforce your policy.
But at the end of the day, when companies do that, it’s amazing what happens. There’s less channel conflict, and even though you have less distribution sometimes or less retailers selling your product, at the end of the day, your sales lift because everyone’s more confident in buying the brand. Your retailers and your distributors and your dealers feel better about it because they can make more margin and you’re protecting their interests as well. So it benefits everybody. So go ahead, Brian.
Brian Weinstein: So Brian, I was just going to say so going back to people who are considering Amazon as a channel, they have more control if they’re on that, the seller-
Brian Beck: Mm-hmm.
Brian Weinstein: Side-
Brian Beck: Seller-central.
Caitlin Postel: Seller-central.
Brian Weinstein: Seller-central.
Brian Beck: Yep. Mm-hmm.
Brian Weinstein: Because that gives them that price control?
Brian Beck: Correct.
Brian Weinstein: Okay.
Brian Beck: So for many, many year, companies have sort of surrendered control of Amazon. When I say companies, I’m referring to manufacturers and brands. They surrendered control of Amazon in particular to resellers or to Amazon itself. When you sell through something called vendor-central or 1P, you’re essentially handing Amazon the keys to your price and your content and other things. So what I see happening in a lot of cases is manufacturers are now looking to take control back of their presence on Amazon, and that includes both shifting to what’s called the seller-central approach which means you’re selling through Amazon, but you set your own price, you manage your own content, inventory, et cetera, and use a company like you guys to help with fulfillment and other things. That’s really the path that I’m seeing some very large companies pursuing, billion plus dollar companies’ brands that are seeking to manage that price.
So that’s one big aspect of it, yeah, and we help companies through that every day and help them-
Brian Weinstein: And does Amazon push one way or another or they don’t really care?
Brian Beck: Yeah, it’s fascinating. Yeah, it’s really interesting, Brian. It’s such a fascinating dynamic what’s happening at Amazon. So for many years, Amazon, the retail business, their vendor-central business, they drove their business by buying product and selling it. That was the majority of their volume on Amazon for many years. But about three years ago, they crossed over to now more than 50% of their volume is done through this seller-central mode where they enable to allow the companies to sell through the platform. And quite frankly, it’s more profitable for Amazon in many cases because they don’t have to own the inventory. They don’t actually have to assign internal resources to managing the relationships and buying the product.
So it’s a win-win for them. So they’ve actually been moving away more from the 1P model themselves to enabling the 3P or seller-central model and emphasizing that. But ultimately, it really depends on the category and the brand. If it’s a strategic brand, they want to own the inventory and control the price. So it depends a lot on the brand, but there’s a big push across the board, big trend moving towards seller-central.
Brian Weinstein: And brick and mortar was a little bit resistant to that too, right? I mean, they were trying to force the brands to do what they wanted them to do. Is that correct, and is that still the case?
Brian Beck: Well I mean I think so. It depends on which brick and mortar you’re referring to, but certainly, at the end of the day, businesses want to control the experience to their customer. So to the extent that they want to make sure that they control that through price and et cetera. Yeah, so I would say that is certainly still the case. And of course, if you’re referring to Amazon, there’s brick and mortar to Amazon these days. I just heard they’re opening hair salons in London. Isn’t that crazy?
Brian Weinstein: I heard that.
Caitlin Postel: Wild.
Brian Beck: Hair salon.
Brian Weinstein: Hair salon.
Brian Beck: Wow. Well, think about it for a moment, right? Amazon is always about finding the pain, finding the pain point. Now, if you’re sitting in a hair salon and you’re looking to imagine what you might look like with different color hair or a different cut or what have you, or styling, they can show you that now through artificial intelligence. So Amazon is applying, as they always do, they apply technology to addressing inefficiencies in a process. There’s an example, right. If you’re sitting there and you want to know what my hair would look like if it was dyed red.
Brian Weinstein: Right, right.
Brian Beck: So, they can help you solve that. So we’ll see if it works. I don’t know. I mean, they try and test things and they fail all the time, but that’s one thing that’s very admirable about Amazon is that when they have the pockets to do it, but they have a real culture of testing there.
Brian Weinstein: Yeah, that’s very interesting. So let’s go back to this whole conflict and how you’re managing that. So if you’re on vendor-central, if you’re with a major retailer who’s got… you’re not only in their brick and mortar stores, but on their website, you’ve got your product in some marketplaces, are brands looking at things like masking SKUs where maybe they’re offering the same product under different SKU numbers so it’s harder for consumers to go and search those products out and price shop or how do they handle that conflict when things are out of their control?
Brian Beck: Yeah, in addition to the things I was talking about earlier related to pricing management, that is another tactic that I see brands and manufacturers using to manage the potential for conflict. So yes, Brian, I’m seeing that all over the place where companies will create a specific product line for a channel, a retail channel. Could be for Amazon, could be for a brick and mortar store, it could be for a distributor. It depends on what the product is or line is. But manufacturers are getting smarter about how they’re thinking about their product line. It’s been done for years, but if you look at where they’re investing in trading exclusive products for retailers, for example, I’ve seen it happen a lot in the Amazon world.
And if you think about it, Amazon, the fact is that there’s a lot of trust established with Amazon. 65% of buyers will buy something on Amazon from a brand they’ve never heard of because they trust that Amazon’ll take care of the experience. So when you think about, when you look at the landscape, for example, of brands there, you find brands you’ve never heard of doing millions and millions of dollars worth of sales, and some of those brands are from established manufacturers that are creating brand specific products, different branded products for the channel. And that’s been done, again, for years on through beauty and in fashion, and look at all the private label stuff there. So for channels, right.
So there’s a lot of that dynamic happening online, and in part it’s because they want to avoid sort of downward pressure on price and shopping and things like that. But most important, I think it’s due to channel conflict.
Caitlin Postel: And when does a merchant, as far as timing is concerned, when does it makes sense for a brand to add a non D2C channel? Is it worth the risk of channel conflict?
Brian Beck: Do you mean adding a new channel for eCommerce? Yeah, I mean, well it’s interesting, Caitlin. Yeah, there’s a lot of, and Brian, you said it early on, and you guys work with a lot of these digitally native vertical brands. I mean, look, at the end of the day, in the consumer space, there’s now, I think, an expectation that brands will have some kind of direct channel, right. I think about companies I’ve worked with, and if you look at what’s happening, it’s fascinating. A lot of these digitally native vertical brands are now being sold in retail. I sit on the advisory board of a large mattress manufacturer, and I’m looking at that market closely. You see companies like Sakla and Casper and Purple and all these mattress companies that have come out of this digitally native brand, some of those products are now being offered in Macy’s.
So they’re competing now in the traditional channel when they started as digitally native brands. So Caitlin, I think the world’s kind of flipped on its head. In other words, you got these virtual, digital native brands that are now moving into retail. So I think the writing’s on the wall. You need to protect your flanks. If you’re a brand, you have to be direct, and I think if you’re not, you’re not giving yourself leverage you need in the market. Because frankly, if you look at the retailers and you look at the distributors and folks that are in the resell business, houses of brands, they have their own brands and they’re buying their suppliers. So it’s happening everywhere. You got to protect your flanks. If you’re not doing it, you’re missing the boat.
Caitlin Postel: Yeah. No, 100%, and what drives my question is I talk to merchants every day who haven’t even made one sell yet through their D2C channel and they’re already having sites of Target and in big box retailers, but are they even considering the conflict that may arise there? To your point, planting your flag first in your own space before you start exploring those B2B channels I guess.
Brian Beck: Yeah, I think the roar though… or the fear, the bark is bigger than the bite on conflict. I work with companies that sell, for example, to Home Depot and Lowe’s and some of the big box stores, and quite frankly, there’s a lot of roar that comes out of those companies when back to the manufacturer or the supplier. But ultimately, they know what’s happening.
Caitlin Postel: Right.
Brian Beck: I mean, they’re not going to stop buying from you, and that’s the fear, right. Oh my gosh, they’re going to move to a different brand who’s not doing it or… You have to be smart about it, and I think transparency and communication is a key. If you go to, and that’s in my book, too, is if you’re being transparent with your channel, you’re telling them why you’re doing it, like you got to control your destiny on the web. It is a place, particularly post-COVID, where people are going to research product, buy product, but also there’s a lot of channel shift that happens, too. People look at manufacturer’s site to research product, make a buying decision, and then go to retail to buy it or distribution to buy it.
But the retail or distribution, they have to be adding value beyond just a transaction. So that’s what I mean by the bar has lifted, right. If you are honestly looking at your channel and your resell partners, start with the ultimate buyer, the ultimate customer, work backwards. Is your channel adding value beyond just the transaction? If they’re not, assume they’re going away in the next 10 years. If they are, then work closely with them, become closer to the channels that are working for your brand. So anyway, does that make sense, Caitlin?
Caitlin Postel: 100%.
Brian Weinstein: Yeah, and we talked about this. I actually talked about this on a previous podcast. I think some of these digitally native brands are coming in, and brick and mortar is obviously reinventing itself as well, so as a different channel and how they’re going to approach things differently. I think when a digitally native brand comes in, I think they’re less fearful of being pushed out because they come in as an established D2C brand. But at the same time, I think the retailer wants to work with them because maybe they’re hot in the eCommerce space. So maybe it’s not… it’s less of a leverage thing but more trying to live in harmony of how those channels can benefit one another, right?
Brian Beck: Absolutely. Yeah, absolutely. Absolutely, Brian. And if you look at the digitally native brands that are successful, they’re solving a problem for that end customer, the consumer or a business buyer or whatever, whoever the buyer is, they’re solving a problem. I’ll use the mattress industry as an example because I’m close to it. What do they solve? Well they solve the confusion of buying a mattress. The traditional way of buying a mattress, think about it, right? The last time you guys bought a mattress.
Brian Weinstein: Right.
Brian Beck: You can’t compare the products. It’s like it’s all fluffy stuff. You have no idea what you’re buying. You don’t know what’s inside the mattress. You don’t know how to compare the mattresses. The only thing you can do is go lay on it in the mattress store and then listen to the salesperson tell you stuff that you don’t know is true or not.
Brian Weinstein: Right.
Brian Beck: So consumers hate that. The experience of buying a mattress is awful. So what these companies have done is simplified it, made it transparent and delivered it digitally and it’s genius. They’re Amazonizing that business, and they become large businesses. These companies are doing three, four, $500 million a year. I’m talking about the Saklas, the Purples, the Caspers of the world. And there’s a lot of them, so that field’s a little thin. But the point is they’re solving something for the end customer, and that’s what Bezos was referring to. That power is now at the end of the chain. It’s that the power has shifted from the retailer to seller to the ultimate customer, the user of the product. So if you’re a retailer in that chain, you’ve got to make sure you’re doing things for that customer that don’t frustrate them, like the mattress, right?
Brian Weinstein: Yeah. Yeah, yeah.
Brian Beck: So frustration equals disintermediation, right?
Brian Weinstein: Exactly. Exactly. No, I mean, it’s really it’s amazing how that dynamic has shifted over the years, and really, it just doesn’t matter the wheres or the whens. The consumers want what they want, and they’re going to get it from one channel or another and everybody has to be prepared to sell to them and meet their needs.
Brian Beck: Absolutely. Another great story, when I was researching my book, guys, I was looking at… I was looking for other industry precedents in terms of what is coming to the B2B market, what’s already happened in many cases to the B2C market. I used the example of the car industry, right. The automobile, think about your own journey recently in buying a car if you’ve bought a car in the last few years, right. It used to be 15, 20 years ago, the dealer would have all the power. They controlled the sales process. You didn’t know what you exactly were buying. It’s kind of like the mattress buying process. The power was a lot in the hand of the retailer, in this case the automotive dealer. And their margins were 15, 20% on the sale of the car. Today, fast forward, you’ve got a situation where the consumer has so much power and they have so much information that they can see transparently what they should be paying for the car. It has completely shifted to the consumer.
So those margins which were 15, 20% 20 years ago are now 3%. So what is a smart car dealer doing? They’ve shifted their offerings to something which is service based. When you’re in the dealership, why do you think they push the service plans and the warranties and all that? Because that’s where they make their margin. They’re playing off the fear of the consumer the car’s going to break or whatever, and you’re paying for these maintenance plans. There’s good margin there. But the smart dealers realized that they needed to change their business model. They’re weren’t going to make the money on the car sale anymore. It’s everything else after it, right. So that’s in service, right. So that’s where they make their money, and they’re doing fine. It’s just a changing business.
Caitlin Postel: I thought for sure you were going to say that they pivoted and now they’re selling mattresses online.
Brian Beck: That might be coming, Caitlin.
Caitlin Postel: Guess not. I mean, watching the mattress come out of that little box, I don’t think it works the same for Carvana, but who knows? Very interesting point though and a great example there with the automotive.
Brian WeinsteinYeah. I remember the first time I walked into a dealership and I had everything that I had printed out, and it told me exactly what their invoice price was. The guy finally looked at me and he’s like, “Why don’t you just give me the sheet and we’ll figure out how much you’re going to pay.”
Brian Beck: Save us all some time. Just tell me what you’re going to pay me.
Brian Weinstein: Exactly. Exactly.
Brian Beck: It’s very different than it was.
Brian Weinstein: All right. Well, I think we’ve solved channel conflict. So, our work here is done today. And listen, most people don’t realize this unless you’ve already gone on and looked at our LinkedIn profile, this all originated for Brian and I on the banks of the Raritan down at Rutgers University.
Brian Beck: That’s right.
Brian Weinstein: The Rutgers University-
Caitlin Postel: Nice.
Brian Weinstein: Who, by the way, has the number seven ranked 2022 football class.
Brian Beck: Isn’t that amazing, Brian? Greg Schiano, I give that guy credit. What a fabulous job in a very short period of time. We’re going to be a real contender in four or five years in the big 10, maybe less.
Brian Weinstein: I say that within my organization, who’s got a lot of Ohio State and Michigan people. They all laugh at me because we’re their homecoming game currently. So, but we just landed another big recruit yesterday. I heard some kid from six seven defensive end for Indiana.
Brian Beck: Wow.
Brian Weinstein: So he’s coming from the heart of it and he’s coming to the banks.
Brian Beck: Oh, that’s fantastic. Yep. Yeah. Well, it’s been long suffering, Brian.
Brian Weinstein: Yes. Exactly. All right. This has been episode with Brian Beck from Enceiba and author of Billion Dollar B2B Ecommerce. Really appreciate you coming on, Brian, and I’m looking forward to seeing you the next time I’m in Pasadena.
Brian Beck: Great. Good to see you guys.
Brian Weinstein: All right. Caitlin, you want to take us out?
Caitlin Postel: Sure. Thank you, Brian, and thank you everyone for listening. Check us out at sippinandshippin.com or on your favorite podcast platform. We’ll see you two Thursdays from today. Thank you, guys.
Brian Weinstein: Thank you.