The Financial Times recently published a short article, P&G web move is challenge to retailers, which piqued my interest from the opening line: "Procter & Gamble is testing its ability to use the internet to sell its toothpaste, household cleaners and nappies (diapers) directly to US households, in a potential long-term strategic challenge to its retail partners."
The web site, www.theEssentials.com, is being administered by a third party, which supposedly "owns" the products being sold, out of sensitivity to the company's retail partners. To be fair, there are many high-recognition consumer brands besides those of P&G on the site. Nevertheless, this initiative puts P&G directly into competition with its retail distribution network.
Question is, why do it? The article suggests retailer private label competition as a major reason for this development. It's no secret that retailers who have focused on marketing their own brands have made significant gains in sales and profit margins, at the expense of national brands.
Response? Manufacturers of all kinds of products are beginning to sell directly to consumers even while they continue to use retailers as a major distribution channel. Direct online sales eliminate the middle man–the retailer–enabling manufacturers to lower prices to consumers, if they choose to. That makes national brands very attractive and competitive with store brands. Still, there is the question of the manufacturer-retailer relationship here. . .
It will be interesting to see the retailers' response to this move as it gains momentum. According to the Financial Times article, Wal-Mart, P&G's largest customer (no surprise) "is hiring a strategy executive. . .assessing the potential effect of direct-to-consumer sales by its own suppliers". No surprise here, either.
As this new marketing strategy unfolds among CPG companies, it will be interesting to see what happens on all sides.
What do you think of this move on the part of P&G? Is this "only a test" and doomed to fail or will it be here for the long haul?
Will the company be able to sell direct to consumers online without undermining its relationships with its traditional retail partners?
Do you think the consumer who purchases products online is a different customer than the one who purchases in brick and mortar locations?
Would you buy basic necessities direct from the company online, or do you prefer to purchase these items in a local retail store?
Do you think this online strategy will cannibalize P&G's sales at retail?
I'd love to hear from you.
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