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The other day while holiday shopping,
I found myself in a major national bookstore
chain poised and ready to pull the trigger
on a purchase, when my wife suggested
I look up the price of the item from a
competitor. Armed with my iPhone, I was
able to price shop on the Net and discovered
I could save $6 on this one purchase from
a certain ubiquitous e-tailer. Since I
was already planning on placing an order
of sufficient magnitude with this purveyor
of e-commerce that would guarantee me
free shipping, and the purchase in my
hand possessed no timeliness factor, I
abandoned the bricks and mortar retailer’s
merchandise and left the store to go surfing
later. You’ve no doubt heard of
virtual cart abandonment; welcome to the
era of real world purchase interruptus.
While the consumer in me might enjoy
the pressure to push down prices this
competition creates, the marketer in me
cringes at the way this dynamic creates
leverage that erodes prices and margins.
The scenario described above is perhaps
the ultimate proof that a truly Darwinian
rule of law has taken hold – that
with the pervasiveness of money back guarantees
and liberal return policies creating a
level playing field – that it is
pretty much price, and to a much lesser
extent availability, that drives the marketplace.
That being the case, and with a scant
few retailers dominating the marketplace,
how on earth is a manufacturer or marketer
suppose to compete and make a reasonable
profit?
The answer
is direct response. Because with direct
response a marketer can go directly to
the consumer, set their own retail pricing,
and at least have a leg up as they do
their level best to protect that pricing
against other distributors of the product
who will grind down gross revenues and
profits. I say level best because invariably
the marketer will have to combat grey
market product which may show up on eBay
and the Internet as well as counterfeits
should they be so fortunate as to have
an enormous hit. One example: an extremely
successful marketer of fitness programs
distributed exclusively on a direct basis,
recently discovered counterfeit product
being sold at an extremely reputable club
retail chain, proof that no one is safe
and that vigilance is the watchword of
the day.
The Electronic
Retailing Association (ERA) is taking
a lead on this issue by establishing anti-counterfeiting
procedures and policies – agreements
that it is asking all who register and
attend the Great Ideas Summit in New Orleans
at the start of February to adhere to.
While this doesn’t prevent shady
characters from lurking in the alleyways
of the French Quarter and drafting off
the show, marketers should be aware of
the issue and make sure they do sufficient
due diligence on the partners they select
to help them go direct to the consumer.
When you consider
the amount of capital required to develop,
manufacture and market a product, direct
just makes sense. After all, the average
product goes through a traditional product
adoption life cycle that begins with pioneers,
before graduating to early adopters, early
majority, and so forth. In particular,
nothing creates awareness like direct
response television because its longer
lengths give marketers the luxury of time
to truly tell their story, establish their
unique selling proposition, and differentiate
benefits and features from the competition.
Creating a direct sell-through groundswell,
and its attendant profitability, is the
perfect platform for launching into the
broader marketplace later in the late
majority and laggard phases of the product’s
lifecycle where margins will no doubt
be sacrificed in the name of volume. It’s
the classic quality versus quantity conundrum,
something that tends to get lost in America’s
infatuation with big as better. But when
you think about it, what would you rather
have: big top line numbers you can tout
or perhaps thinner total revenues and
a fat bottom line you can sock away as
you build and diversify your business?
Shakespeare may not have been an economist,
but he was on to something when he wrote,
“Ay, there’s the rub.”
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