Adding Value – Retailers vs. Manufacturers and Affiliates

One thing that is kind of fun to think about with adding value and trademarks is a Retailer vs. a Manufacturer and then how third parties like search firms and Affiliates can either add value, take away sales and how adding value to one store is poaching from another.  It sounds confusing so I’ll focus on a retailer with one product or a brand name that sells to retail shops.  It could be anything from an as seen on tv product to a diet product, a clothing line or even a sports drink.  In this post we’re assuming that the manufacturer has a retail site as well.

The manufacturer is trying to sell their product to customers because they make their best margins on them.  At the same time they also make sales with retail partners and distributors who buy the products in bulk, then sell them in their retail and online stores.  Both generate income for the manufacturer so both are good.  The manufacturer usually has restrictions as well on how they can sell, distribute and market their products. Sometimes they also include price restrictions to keep the value of the brand up.  The reason the manufacturer sells the products to these shops is that these shops have their own customer base and the manufacturer can reach a new audience and drive more incremental sales than they could on their own.  It is extremely similar to Affiliate Marketing in that Merchants partner with Affiliates because Affiliates are supposed to have their own traffic and can add incremental sales to the Merchants.  This is where the issues happen bringing in the online marketing channels.

Before the internet, retailers were a great source for the Manufacturer to sell extra products outside of their own retail shops…if they had them.  This added value and gave them extra exposure to people who weren’t in their stores or didn’t know they had stores.  At the same time, those retailers may end up having sales on the products which could take customers out of the Manufacturer’s store causing them to take a hit, but also making the retailers want to buy more so the manufacturer still wins.  I always shop at Lacoste, but when I know Macy’s or Nordstroms has a sale on the shirts, I avoid Lacoste and go straight to them for the shirts, shorts and socks.  Those sales cost Lacoste money, but because Macy’s and Nordstroms also have their own foot traffic which drives more sales than me avoiding the Lacoste shop during sales, Lacoste still comes out more profitable.  If the sales they poached from Lacoste by having me there instead of in the Lacoste store were less than what Lacoste receives as incremental, then they would be ripping Lacoste off.  Lets take this online where it is a bit different but the same principal applies.

With PPC marketing, bidding on the product name in an Affiliate program for the manufacturer is only poaching their current customers who already knew about them giving them no added value.  The same is for sites showing up for trademark + coupon or URL + coupon codes.  (Assuming it is a made up name or not a general term where others are already bidding on it.)  However, that same term is not a trademark bid but can add value to the retailer as it is an incremental sale for the retailer.  This however takes away some of the value of the retailers online since the retailers are poaching sales that the manufacturer would have had without them causing some damage to the Manufacturer.  This causes a loss and is one of the reasons some smart manufacturers are no longer allowing the use of their products names on trademark and PPC bids.  The retailers can still sell the products in their stores and will still have demand because the manufacturers are still driving an interest and sometimes including their logos with TV, Radio and other ads.  However the manufacturer wants their loyal customers and doesn’t want them poaching sales from their own efforts which is why they no longer allow PPC bids on their product names and trademarks.

This is similar to my post about Are Your Affiliates Adding Value – PPC and Trademark Bidders.  These same manufacturers are also now starting to say no including the products in product feeds for Google Shopping, Comparison Engines, etc… because it undercuts their own efforts, especially if the retailer is discounting them for a sale.  At the same time, if they pull them from all datafeeds, then Affiliates who have their own traffic and don’t rank for the manufacturer’s trademarks, now no longer have access to the products and it can hurt sales for the retailer which also hurts sales for the manufacturer and can cause the retailer to lose interest in buying as much or any product from them since sales are now down.

With that said, the manufacturer may have their own Affiliate program and can start going after the retailer’s Affiliates who were driving sales off of these products.  As they do this, they begin to compete with their vendors which can anger their vendors and also cause an issue with retailer sales which will again hurt the manufacturer when the retailer is thinking about what products to buy and sell.  The manufacturer will usually have a higher commission since there is retail cost and they don’t have to consider all markups across multiple brands and lines.  This becomes more appealing for the Affiliates, but also causes the Affiliate to try and rank for the manufacturer’s trademarks and products.  This brings them back to the non value adding and non incremental sales and then they remove the Affiliates who change links back to the retail stores.

Value adding and trademarks get to be a huge confusing loop on who is adding value and who should be doing what and what restrictions make sense to have in place.  With one client I had that was a manufacturer, the best solution was to ban anyone from using our products in their feeds, bidding on trademarks, etc…  When the retailers got upset about it, we reminded them that we were building large demand through advertising and that is why they buy the products in the first place.  We also reminded them that their foot traffic will be looking for this product and if they can’t find it, they’ll go to their competitors for it and that retailer just lost a sale and gave exposure to a direct competitor.  To create the happy medium, we blocked them and pulled product from them if they didn’t cooperate and the manufacturer ended up recovering a lot of lost income, had the retailers working for them to add value and began to actually find out how customers were coming to them.  Then they were also able to more easily optimize their own efforts by channel with out parasitic interruption from retailers and their marketing efforts.

This sounds confusing when you read it the first time, but try reading it again later and draw it out if you need to.  You can also attend my session at Affiliate Summit East where I will be covering how to work with all types of Affiliates to Add Value and gain incremental sales.  If there is time I will also go into how to measure the amount of loss and gain.  It’ll be a lot more clear there since you’ll be able to ask specific questions.  You can also leave a comment below if you are still confused.

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