Price wars force manufacturers to snub retailers in favour Of direct sales

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Manufacturers are being forced to consider more carefully who they distribute to and in some cases are opting to deal with customers directly as smaller retailers force their prices even lower, according to E-Business strategists at leading consultancy Echo E-Business.

Despite recent speculation of green shots of recovery in the economy, many struggling retailers are likely to continuing offering knock down prices in an attempt to maintain sales, and the strategy team at Echo E-Business predict that manufacturers may resort to limiting supplies for the larger retailers only and simply bypass smaller stores completely.

"Search engines and price comparison tools have made it much easier for consumers to compare products, and in an economic downturn, they will be even more price sensitive. When less reputable retailers lower their prices at just above the distribution price, this not only diminishes the value of the brand, but also places stress on the manufacturer and other retailers. I've seen a marked rise in manufacturers wishing to sell directly to customers as well as maintaining the relationships with quality retailers," explains Deborah Collier, managing director and chief strategist at Echo E-Business.

Collier predicts that such consistently low prices may cause manufacturers to work with only more established retail brands who have both a web channel and a store channel. "If the manufacturer is not already online, they may wish to cash in on the internet market, by setting up their own e-commerce channel," says Collier.

But this is not as easy as it may seem and in the recently released Echo E-Business Whitepaper 'The E-Business Revolution 2009', David Walmsley, head of web selling at John Lewis Direct warned that setting up an online presence is not simply about creating an e-commerce channel, but matching the expectations of the customer online as they have in the offline world. He said:

"As brands are built on customer loyalty, it's vital that the web experience can complement real-life shopping. Successful e-commerce should offer all the choices, personalisation and price promises you'd get in store - while capturing the right look and feel to suit your brand."

Collier agrees and suggests that manufacturers without an online presence will need to spend time devising an appropriate e-strategy before jumping headfirst into the world of e-commerce.

"Brands that thrive online are those who understand customer psychology and recognise the interaction of e-commerce and in-store principles. Retailers are much more used to this and so manufacturers will need to spend time getting up to speed with their e-strategy if they are to ensure that their online offering really engages with the end consumer," says Collier.