The traditional role of a manufacturer is to mass-produce products and sell them in bulk to retailers (or distributors) who provide the infrastructure and services to consumers that wish to purchase these products in the retail market. There has traditionally been a sharp distinction between the wholesale market and the retail market. However, the advent of online retailing and drop-shipping has blurred these lines to a point where manufacturers are now active competitors the retail market.

In the past, this was considered a no-no. For a manufacture to sell direct to consumers meant losing their wholesale accounts, as well as tarnishing their reputation as a reputable manufacturer. Over the past few years, many manufacturers have struggled with the notion that they’re doing all the legwork (product development, purchasing, warehousing, shipping, etc.) while drop-ship retailers are reaping all of the benefits oftentimes at a higher margin than the manufacturer themselves make. We’re finding that more and more, manufacturers and distributors are turning to retail eCommerce websites in an effort to expand their customer base and increase sales. And who can blame them?

It’s a scenario that many online retailers are going to face time and time again in the near future (if you haven’t already, consider yourself lucky). How they’re doing it is the interesting part. Most of them will setup separate business entities to run these sites in an attempt to cover up the fact that they are selling directly. So “technically” they aren’t selling direct, but they drop ship for this “other company” that happens to be run by the same management (or even a parent corporation).

So what’s the big deal?

Imagine yourself as an online retailer of the ever-popular example blue widgets.  You buy them from Blue Widget Manufacturing, Inc. for $10 a piece.  They may be drop-shipped, or you may even inventory them yourself.  Factor in your costs, and markup, and maybe you sell that Blue Widget for $20.  You’ve sold it successfully for years, and found it to be a very popular product with your customers.  All of a sudden you notice a trend that sales for these blue widgets are declining - is the fad over with?  Has their popularity diminished?  Are you losing sales to a competitor? Only then to find a new website, bluewidgetsdirect.com and are amazed to see that they’re selling the exact same blue widgets for $10 - your cost!  You look in comparison shopping sites and see them listed right next to you - at half the price!  How many consumers do you feel are going to buy it from you when the next guy has it for half the price?  Who are these guys and how are they selling blue widgets so cheap.

When you find your products online selling for your cost or close, the first thing you should investigate whether you’re dealing with a retail website of your supplier.  One dead give-away that you may be competing with your manufacturer here is if all of the products on the site is only from the same manufacturer.  Most manufacturers want to increase the sales of their products, not a competitor’s, so they may only carry their brand.   Aside from that, if the manufacturer has covered their tracks in an attempt to appear un-associated with this retail website, there’s a few things you can check:

• The address:  If it’s in the same city, or even close to the manufacturer consider that a sign.
• The phone number: Call it, see who answers.  Many times they’ll just setup a toll free number and direct that to their office where the same secretary will answer both lines.  Get the name of the person you’re speaking to, then call the manufacturer to see if it’s the same.
• WHOIS: Perform a WHOIS query on the domain, see who has it registered.  If they were smart, they would have listed it privately.
• Use a tool such as DomainTools.com to run a search against that domain and compare against the manufacturer’s website.  If the IP addresses are close, or if it’s using the same host those can be giveaways as well.
• Read their policies: Many times these sites will use the same return and privacy policies and forget to replace one company name with the other when they perform the ol’ cut and paste job.
• Use Yahoo! Site Explorer to see who links to the website.  Chances are, in their SEO linkbuilding efforts of the retail site they created some links on their existing manufacturing website to the new retail site.  If that’s the only retailer they link to then that’s a good indicator.
• Use a Corporations Search (like this one in GA) to find more information about the company running the retail website (if you know the company name).

If these tactics lead you nowhere, ask your sales rep at the manufacturer directly.  I’ve had people tell me “no it isn’t them”, or that it’s just a customer they drop-ship for, and a number of other fallacies.  But after conducting an hour of research I was able to gather enough evidence to prove otherwise.

Not only is the manufacturer violating the inherit trust established in a manufacturer - retailer relationship by competing against their customers, they’re also low-balling the retailer by selling at, below, or even near cost vs. selling at full MSRP.  On top of it all, they’re hiding the fact that they’re selling retail because they know it is going to piss off (excuse my french) their retail customers and in many cases lying to the customer in an attempt to cover up these practices.

I can’t think of an online retailer that wouldn’t be disturbed by the fact that their manufacturers were selling direct to consumers at a lower price.   You’ll find this practice much more prevalent with manufacturers who do provide drop-shipping services.  If they’re setup to handle individual orders then they’re one step closer to selling directly themselves.  You’ll find that manufacturers that ship in bulk only avoid single product shipments like the plague. They’re inefficient, costly, and a drain on their resources.  For that reason, they’ll be much less likely to sell retail directly.

This situation is likely to cause strain on the retailer - manufacturer relationship.  In most cases, if the manufacturer is already selling online, you’re going to have a tough time trying to get them to stop unless you’re one of their top customers and you threaten to stop purchasing from them.  I think the goal in this scenario is to try to at least get the manufacturer to level the playing field by selling at full MSRP to give you a price advantage, or, to give you better pricing so you can attempt to compete with their direct retail site pricewise.  Either way, the manufacturer’s have a distinct advantage so it will be interesting to see what direction this takes in the next few years.

Knowing what’s being said on the internet about you, your company, or your product can provide valuable insight and feedback from the marketplace. How do companies manage to keep tabs on that sort of information? Google Alerts. Google Alerts allows you to “subscribe” to any information indexed by Google either weekly, daily, or as it happens.

You should at least have alerts setup to monitor anything important to you and your business. This would include your business name, your website address, competitor’s addresses, product names, etc. If you sell a widget A, setup an alert for “widget A” - this will allow you to see who else sells it, how they sell it, and what they sell it for, as well as anything in the news about it. You can monitor virtually any term or phrase you’d like, so whatever affects your business is game for inclusion here.

A great example of this in practice is in a previous post about Integrated eCommerce Solutions - I mentioned a few product names, one of which being Everest software. Shortly therafter, the CEO, Edwin Miller was posting a comment to that very article. Is Edwin Miller an avid Blue Acorn blog reader? I highly doubt it - he’s not even my target reader. But, I’d be willing to bet that he has a Google Alert set for particular key terms (such as his software name) that notified him of my posting. In fact, he’s probably getting another one right now for this post as well! And he’s not the only person that’s caught wind of my references.

Keeping tabs on what people are saying about you can help you in knowing market perceptions, as well as address any concerns. As an eCommerce merchant, you’ll want to pay particular attention to reviews about your products, your site, customer service, etc. and be able to address them as quickly as possible.

What is integrated eCommerce? In it’s most basic form, it is the integration between your eCommerce system and your back-office applications, namely ERP and CRM. The concept has been around for years, as businesses scrambled to automate their back office systems in an effort to increase the efficiency of their operations. Disconnected systems cost more time, money, and resources. But only within the last few years has this concept really become a reality for small businesses with a large portion of their operations stemming from online sales. Don’t get me wrong, there’s been a few players in this realm for years with limited success, one of which being Everest Software, but in this author’s perspective there hasn’t been any promising offers until recently.

For eCommerce merchants this means orders placed on the website come directly through to ERP, with customer information available for CRM functionality, and of course real-time inventory and product information coming directly from the warehouse, and accounting and sales information all running out of the same system. For years, eCommerce merchants have developed integrations between a number of systems (for example most shopping cart packages have an export/import feature for QuickBooks) in order to realize a taste the benefits of a connected system, but many of them fall short of full integration and are often consumed with maintenance issues and data redundancy.

Two products available today come from Netsuite, and Interprise Solutions.

Netsuite has actually been around for a number of years now, and has been a pioneer in integrated backoffice systems. Particularly focused towards small to medium sized businesses, Netsuite has received rave reviews both from a backoffice and corporate perspective. They compete in multiple software markets, in CRM with SalesForce.com and Microsoft CRM, as well as in the ERP and eCommerce space. They really have been on the forefront of the SaaS (Software as a Service) products which basically means that you don’t buy software in the traditional sense, it is offered to you as a service for a monthly fee. This usually means that the software is hosted in some datacenter, and you access it over the web. So one negative aspect of the platform is the lack of flexibility in deployment - it has to be hosted, and it has to be hosted by them. Netsuite’s entire set of functionality sits within their product, there is a somewhat large partner program for enhancements, web design, and the like, and they’ve seen tremendous growth over the years - both from online retailers and non-internet retailers.

Interprise Suite is a relative newcomer, introducing their product just in 2006. This product offers a similar functionality set as that of Netsuite, touting itself as an “all-in-one” eBusiness Application. However, there is a sharp distinction between Netsuite and Interprise Suite - namely, it’s flexibility. Interprise Suite is a smart client based application, I know, these client-server based models were popularized back in the 90s, in which SaaS has taken over since then, but Interprise Suite has seemed to have mastered this model. Let me explain why in one word - performance. First of all, you have an option of hosted this application, or managing it in house - big plus. Secondly, by leveraging a “thin client”, they’ve minimized the data transfer necessary for the application to run. Let me explain further, with typical SaaS applications, like Netsuite, Microsoft Dynamics CRM, Salesforce.com, etc. you are essentially loading a web-based application through the internet. Which means that not only data must be transferred for a page to load, but also all of the images, scripts, and html to render each page. This typically means that those applications take at least a good second (or 2 or 3 in some cases) for each page to lead. However, with Interprise Suite, all of the application specific files are installed locally, and only the data is transmitted between server and client. Which means a more responsive load time. It’s also built on a WebServices platform, which makes it extensible and allows for custom developed modules by 3rd party partners. Another major difference between the applications is actually it’s handling of the eCommerce component. Namely, Interprise Suite leverages well established ASPdotNetStorefront in the shopping cart layer of this package. The settings and such are all maintained in the IS application, but the interface is controlled by ASPDNSF. So for developers and eCommerce integrators already familiar with that platform, it will be an easy transition to this system.

While integrated solutions do provide a lot of business value, one thing that’s important especially for businesses where eCommerce represents a significant portion of their business: Performance. And this is something that needs to be addressed on a number of fronts:

• Hosted Solutions: The SaaS industry has had plagued for years with service outages. If your business relies on eCommerce, you’ll want to get references as well as research the performance of any hosted system. Also, because there is much more overhead involved in hosting these systems than say, a traditional eCommerce website, you will be better off looking at dedicated hosting for your system to dedicate the resources available. And, furthermore, bandwidth is something to consider. The data centers hosting these applications should have incredible bandwidth to handle the volumes of data coming through both from visitors to the website, but also users of the backoffice systems - remember, everyone’s using the same data, from the same servers.
• Speed: Database indexing will be paramount for any of these systems. Because of the volume of data stored, a simple search for a product by a customer on your website may take much longer than in a database with only eCommerce data. I actually see this as one of the biggest drawbacks, the bigger the system, the more overhead you’re going to have, and when it comes to the experience your shoppers are going to receive on your website, that, in my opinion, is the most important factor in choosing any eCommerce system. If the performance is slow for your users, sales will suffer.

All in all, the concept of an integrated system is something that most organizations are working towards, with customized solutions to tie in back office applications, special SQL queries scheduled to run constantly to sync data between apps, and other hodge podge hacks as businesses look to reap the benefits of an integrated solution. These two solutions offer promising alternatives, and as they grow, look for them to be major players in that space. I personally would love to see a combination of systems, a separate but integrated approach where the databases are separate, but only necessary data is synced real-time on the backend.

It’s something that practically all eCommerce merchants have to deal with - returns. We all dread them, but it’s a necessary evil. When handled correctly however, it will not only provide a service to your customers, but also encourage repeat business by establishing trust with the customer. Most retailers approach this procedure as a sale lost, but in actuality it presents you an opportunity - an opportunity to gain a long-term customer. How, might you ask?

Some of the biggest concerns that consumers have when shopping online is not only trusting the website at which their shopping, but also not being able to physically see, touch, and evaluate the products they’re about to buy. What if they don’t like it? What if it doesn’t fit? These are some of the risks consumers face when shopping online. One weapon in an online retailer’s arsenal for combating these fears is to have a consumer friendly return policy. And if you do - make sure you let your customers know about it while they’re shopping.

So what constitutes a consumer friendly return policy? This obviously varies by the type of product sold, but in general it involves constructing a pain-free returns process for your customers. Pre-printed return labels, online RMA requests, free returns (as in no restock fees), paid return shipping; these are all examples of methods employed by a number of the top online retailers. For those customers that have to make a return, this experience will be the biggest deciding factor in whether or not that consumer will shop at your site again.

We’ll use a recent shopping experience as an example of how online retailers should handle returns, and more importantly, how they use this process to gain valuable feedback from their customers. For this particular retailer, I’m able to complete the return process without having to pick up the phone, and in a matter of minutes.  From my account on their website, I’m able to pull up past orders and initiate the returns process directly from that screen.  With a few clicks, I was able to print pre-paid return labels, with my choice of USPS or UPS for the return.  I had my return label slapped on the box in no time, with my only inconvenience being driving to the nearest UPS store to drop it off. But as a consumer, I couldn’t have asked for an easier process (except if UPS had come to my door to pick it up) and that has instilled a sense of loyalty - I can trust these guys to shop there again without having to worry about something not fitting, or not meeting my expectations.  They’ve already received another order from me.

But besides the loyalty this retailer has now generated, they’ve also asked me a few (optional) questions to answer during the process. These questions cover why I was returning the product, would I shop there again, how did the product fit, is there anything they could have done to prevented the return, and what they can do to improve the shopping experience/return process. These few questions give them very valuable information about the shopping experience for their customers, as well as identify areas for improvement. What I found particularly nice, was that the feedback given about how “true to size” the product is, is actually gathered and displayed on the product details page as a % of people who thought it fit too small, too big, or just right. A great example of how consumer feedback can then be turned around to help other consumers - beyond the typical 5 star rating and reviews typically employed by retailers.

The importance placed in the return policy for most online retailers is oft overlooked. But, many savvy eCommerce merchants have properly identified how critical this return process can be, and have created an experience centered around the consumer. What return policy is best for you? A simple cost analysis can help you determine if what kind of policy makes most sense for you. But we’ll cover that in a later feature.