Big CPG Is Struggling With eCommerce Marketplaces – Here’s Why
I led Direct-to-Consumer (DTC) eCommerce for a big CPG company six years ago. It was both exhilarating and frustrating in equal measure. On the plus side, I got to act as both brand AND retailer. In theory, I could move lightning fast because I didn’t have to sell initiatives, pricing strategy, and long-term plans to any external parties. The “internal” part of the job, though, slowed me down. My role often put me in conflict with Sales leaders who were concerned that our DTC stores would complicate valuable retail relationships that had been built over decades. Finance challenged budgets for the work since our sales were still a small part of the total business. Why bother, they asked?
Since those early days, the growth of digital-first CPG brands and big moves like Unilever’s acquisition of Dollar Shave Club have recalibrated how the industry sees DTC. The next eCommerce struggle, which presents similar but even more complex challenges for big brands, is marketplace selling (a.k.a. “third party selling”).
On paper, the case for big brand marketplace selling is very compelling. The marketplace retailer brings all the traffic but the brand gets to have full control over distribution, pricing, content, and marketing. Instead of selling products wholesale to the retailer, the brand pays a commission on sales (typically under 15%). When executed correctly, marketplace selling can have major profit advantages.
Even though marketplace selling is gaining share (it’s about 2/3 of Amazon’s sales), the biggest CPGs are for the most part absent. Why? Because they are not “built” for this model and changing that requires that they overcome several big challenges. These challenges can be grouped into three categories: Marketplace Misperceptions, Systems Complexity, and Capability Gaps.
- “Marketplace selling is just for resellers and junk sales, right?” Marketplaces seem like more of a problem than an opportunity to many big firms. Marketplaces are where resellers list expired product, violate MAP pricing, and deploy terrible off-equity content. While these things do in fact happen, usually the solution is to take control of the marketplace, not to avoid it. At minimum this requires a deep understanding of the space (if not direct participation).
- “Selling in the marketplace will hurt my brand.” Data previously noted about marketplace growth would suggest that the shopper doesn’t agree. You can buy some of the elite brands there today. Chances are, your product is already being sold in the marketplaces anyway – just not by you. Wouldn’t you rather control how that happens?
- “I’d have to give up my valuable marketing tools.” This objection is often articulated by brands with established 1st party retail relationships. While it was true historically that some marketing tools were off limits in the marketplace, sellers now have equal access to the shopper. When you factor in marketplace-specific capabilities (like A/B testing and smart pricing optimization, for example), marketplace sellers often come out ahead.
- Setting and managing product pricing: If the brand is also the seller, how should they price? If they stick to MSRP, they will be lucky to sell a single unit. If they undercut their retail partners, they’ll face even bigger problems. Managing pricing in a dynamic environment requires new methods, new processes, and new internal controls.
- Selling, fulfilling, and supporting “eaches”: Big CPGs know how to sell in pallets and truckloads, but it requires a whole other mindset and skillset to sell a single bottle of shampoo or a box of cereal. How will these purchases be tracked? How will they be shipped and delivered to shoppers? Who will deal with unhappy customers when they complain or have shipping questions?
- Addressing accounting and tax considerations: Fulfilling is one thing – accounting can be an even bigger headache. When moving to marketplace selling, new accounts and new tracking processes will need to be established. All of this can be further complicated when 3PLs or Amazon’s FBA (fulfillment by Amazon) comes into the mix. How will you maintain visibility and control over your valuable inventory when it’s not in your facilities? If you want even more stress, read up on the changing world of state sales tax considerations for eCommerce sellers.
- Dealing with individual shoppers instead of abstract segments: Let’s face it – even though big companies have mastered market research, small CPGs usually have a more direct and personal understanding of their shoppers. Often these companies are founded and led by people who are just like their shoppers. Their gut-level shopper understanding allows them to create content, market, and respond to marketplace issues in ways that feel more natural and on-target.
- Responding to competition (including resellers) in real time: Big CPG is great at planning – this strength allows it to deliver massive capital and R&D projects. Marketplace selling, though, is about the “now” – the competitive landscape, which is pushed and pulled by millions of sellers, changes constantly. Big brands need to be able to assess and react to these changes or they risk getting left behind.
- Building expertise on seller processes and tools: Being a good marketplace seller is hard work and requires very specific knowledge. Learning the basics about how to use the platforms and comply with the rules is only the beginning. Successful sellers also possess advanced strategic and tactical understanding and have built toolkits that allow them to automate repetitive tasks, optimize their marketing, and measure progress.
Big companies are good at answering unfamiliar questions but they do so deliberately and through their hierarchies – that takes a lot of time. As we’ve seen, there are many big questions to be answered for CPGs considering marketplace participation. Without a little help, the weight of those questions can make the task of “alignment” very daunting even for the strongest leader.
If you’re that leader, speaking with others who have been down this path before will help you get there faster. There ARE solutions. This is one of my favorite topics and I’d be happy to connect with you if you’d like to chat: https://www.boldretail.com/
Big wins are out there if you’re willing to face the challenges. Good luck to you and stay fearless!
ABOUT THE AUTHOR:
In addition to co-founding Bold Retail, Allan Peretz is an accomplished eCommerce and Shopper Marketing leader with 2 decades of experience on brands of all sizes including SK-II, Samsung, and Pampers. Allan has led over 80 successful CPG product launches across 22 countries (both branded and private label).