Greater adoption of technology and the prevalence of social media have created a direct path to the consumer, shifting the demand and distribution model. That is a threat to the traditional brand model as we know it.
There are about half a million brands in more than 2,000 product categories across the world competing for consumer dollars, according to Nielsen data. And increasingly, many are private labels owned by retailers such as Target, Walmart and Amazon, the latter of which introduced seven new brands along with 150 exclusive-to-Amazon brands in the fourth quarter of 2018 alone.
Consumers have welcomed the influx of private-label brands with open arms. According to a recent Nielsen study, dollar sales of private-label brands across mass retailers, club stores and dollar stores rose 41 percent over the past five years, compared to 7.4 percent for traditional brands. What’s more, dollar sales for private labels increased $13.7 billion since 2015.
There are inefficiencies in the traditional brand model, and Amazon, Target and others are finding ways to bypass them and pass the resulting savings on to the customer. With a direct consumer relationship in place, there is a significant savings in the overall marketing and distribution costs typically faced by a brand. On top of that, the marketplace/retailer has better access to analytics and insights than brands do and can react faster to better meet customer needs.
So, how do traditional brands remain relevant?
Adopt a Marketplace Strategy
First, it’s vital that a brand’s products can be found on marketplaces in addition to the online storefronts of a brand’s retail partners. Be where the customers are, especially on large platforms, such as eBay, Walmart and Amazon. An added benefit of diversifying where products are sold is an increased presence on Google, where roughly half of all product searches are made.
EBay, which in 2018 counted 172 million active users, allows brands to set up their own shops that can be customized. Walmart lets brands sell their products on Marketplace, while Amazon also invites third parties to use its platform to reach customers.
Listing products on these marketplaces will boost brand visibility and increase sales, but with that comes a potential strain on shipping operations. Amazon offers to stock and ship products that need to be shipped to customers with its Fulfillment by Amazon service, but charges fees for storage space and for each shipment.
Outsource Inventory Management and Shipping
There’s another option for brands: drop-shipping via a third-party logistics (3PL) provider. Using this method, brands don’t need to keep their products in stock to ship to marketplaces. Rather, the brand outsources this work to 3PL partners who manage inventory and ship directly to customers. This saves brands money, because they don’t need to dedicate space and resources for storing and shipping products. Once an order is placed with a retailer, the 3PL provider fulfills it.
This arrangement gives brands more control over their customer experience while providing a seamless brand experience to their customers. Typically, customers receive items faster from a 3PL partner due to their closer proximity to customers and it reduces shipping costs for the brand since they can strategically locate inventory with the 3PL partner(s).
By using multiple 3PL partners to manage inventory, brands can also expand the number of marketplaces they sell on as well as their product selection. Better yet, this method allows for brands to test new products and enter other categories, because of the savings they get from not managing inventory.
Invest in Content That Converts
Once a brand’s products can be found on various marketplaces, how can they attract more customers? Content, such as blog posts, Instagram posts, videos and podcasts, have been proven effective. More than half of consumers say that content positively impacts their buying decisions and increases positive feelings toward brands, according to the Content Marketing Association. Not only is content great for attracting new customers, but it’s also effective for keeping your brand top of mind for your existing customers.
Some ways for brands to present content to their audience is through a company blog, on social media sites such as Instagram and through video platforms such as YouTube. Brands should focus on the platforms that make the most sense for their products and customers. For example, coffee company Intelligentsia has been very effective with its brew guides, which feature clear instructions and photos that highlight the company’s products. Red Bull has boosted its sales thanks to videos of athletic feats and crazy stunts.
An Integrated Digital Strategy Keeps Brands Relevant
To stay competitive in the age of private labels, getting on multiple marketplaces, finding 3PL partners, and developing great content is vital for brands. Other things brands can do to win over customers is improving their web site to make purchases simple and easy, creating a loyalty program, and setting up a subscription service.
As we enter the fourth quarter, brands should prioritize these initiatives. By providing a more convenient, all-encompassing shopping experience, traditional brands are more likely to increase sales and attract more loyal customers.
Jesse LaRose is the vice president of supplier growth at CommerceHub.