Re: Estee Lauder sues Excite over keywords

From: Allan Sabo <admin_at_ad-network.com>
Date: Sun, 14 Feb 1999 22:02:32 -0600 (CST)

KIM BROOKS WROTE:
>But my original question is ... if the manufacturers are
>successful, what does that do to their channels?
>
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The short answer is: Depends on who the manufacturer is.

The long answer is: If the manufacturer of a retail product
has significant brand "push" they can use that "push" to
drive consumers away from their existing retailers and to
their own on-line e-commerce enabled site. The retailer
will be left to either accept this tactic by the
manufacturer and attempt to "pull" consumers to their site,
(via keyword advertising, and by providing some kind of
value added service), or drop the brand in protest.

My opinion is: few manufactures have such a monolithic brand
that they could afford to play such roulette with their
retail channels, (at least for now, but if the 'net grows to
true "mass-media" penetration, we might see more
manufacturers attempting to eliminate their retail channels
in the coming years).


KIM BROOKS WROTE:
>In reality, big brands are fiercely protective of their
>"brand identity" and they don't want anybody buying their
>keywords except for them.
>
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

While I agree with you, I also think that the net will bring
upon us a new age of cooperation between manufacturer and
retailer. An era where we will see more a "cooperative
partnership" between the manufacturer and its retail outlets
than that of fierce protectionism. (After all, sometimes
being fair and reasonable is the best way to run a
business).


KIM BROOKS WROTE:
>They also appear to be increasingly convinced that if they
>retail directly, they can a) make more margin; b) build an
>even stronger, more direct identity with the consumer; c) do
>so better than their chain. I'm not saying that these
>assumptions aren't true -- in some cases, they may be very
>true.
>
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Again, I agree with the apparent "perceptions" among some
manufacturers, and that in some (rare) cases they may be
true. But, I feel we need (as a responsible marketing
professionals, pioneers and consultants of this new medium)
to be obligated to informing our "manufacturing" clients
that this strategy does not work for everyone, that it is
highly risky, and may even prove fatal if executed
improperly.

To go off topic a bit I am having a difficult time trying to
think of such a manufacturer that could go direct and leave
the retailers out (with exception to computer and technology
brands). Maybe the Automotive Industry could do it with
select models, like Ford's Lincoln or GM's Cadillac. I
seriously doubt that such brands as Nike, Levi's, Armani,
Mattel, Rubbermaid, Dirt Devil, Black & Decker, Wilson, or
Sealy could pull it off with out losing a significant
portion of their real-world retailers.

I recognize some powerful brands that could go direct.
Problem is, their retail outlets are company owned, and so
on-line is just another corporate sales channel. Those
examples are J. Crew, Victoria's Secret, and Lands End. (We
could split hairs over whether these firms are true
"manufacturers" or not, and I'll leave that discussion for
another time.)


KIM BROOKS WROTE:
>Most affiliate programs pay a pittance relative to an
>old-fashioned retail margin. Maybe because every affiliate
>program I can name is run by someone further down the food
>chain from a manufacturer. For example, Amazon is a
>retailer, not a publisher. Maybe if Simon & Schuster ran an
>affiliate program, they could afford to pay better
>incentives since their Retail minus Cost gives them more
>room. But then how would Amazon.com feel about that? And the
>rest of their retailers? Again, I am all for Affiliate
>programs, but I'm trying to worry about manufacturers
>intentions right now.
>
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

I think that as the comfort level among manufacturer grows,
we will see them looking at "affiliate" programs as a
solution to the potential conflicts mentioned within this
thread. I also think that those firms will need to
experience a learning curve, slowly rolling out such a
program with its top retailers. I also think the margins
will be much better instead of the low percentages we see
offered by retailers who are further down the food-chain and
are only just trying to extend their reach.

To use your Simon & Schuster example: If they went into
direct retailing with an e-commerce enabled web site, we
might see many of S & S's biggest retailers threaten to drop
(or at least give less desirable shelf space). However, they
could be sufficed if they included via co-branded
storefronts (ala "affiliate" program). S & S would be wise
to offer its top retailers just such an "affiliate" program,
complete with regular retail margins. While Amazon might not
like that, I highly doubt Amazon would pull all S&S titles
from its database.

--And Amazon couldn't really place S&S titles on less
desirable shelves now could they?--


KIM BROOKS WROTE:
>I will be blunt and not perfectly accurate, just to get this
>issue in the fray: Any manufacturer that retails directly
>puts itself in competition with other retailers. Which leads
>to a dilemma: do they keep retailing in the background, as
>most do on the web, to keep the conflict less in-your-face?
>Or do they try to actually make it a successful, profitable
>venture, thereby alienating parts of their chain and taking
>business away from some retailers? I think the answer may be
>different for each company, but I haven't even seen the
>question asked openly yet. Thoughts?
>
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

I would like to add a third option which seems to be a
reasonable alternative and much less precarious for
everyone. The manufacturer (who attributes MORE than 25-30%
of its annual sales from retail channels) should NOT even
consider entering direct on-line retailing, but instead
should assemble a co-branded storefront that will empower
existing retailers while preserving healthy retail margins.
In my mind, that will be a manufacturer who is going to use
the net to do business better.


Allan Sabo
Executive VP of Strategic Marketing e-sports!
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
E-SPORTS! is located at http://www.e-sports.com
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phone: 216-228-0260
e-mail: asabo_at_ad-network.com


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Received on Mon Feb 15 1999 - 09:08:54 CST