Agata Mossop, VP Channel Development at Lenbrook International, shares her insights on how to build a distribution network suitable for a particular brand, combine the direct-to-consumer approach with selling through distributors and attract the attention of the customers of an online shop.
Aleksandra Hołownia, Dealavo: In recent years, you have cooperated with distributors and explored e-commerce markets in different countries – in Canada, the United States and also in Europe. Have you observed any significant differences between these markets?
Agata Mossop, Lenbrook Canada: The biggest difference between the American market and the European market are the prices. In the USA and Canada, we use the MAP (minimum advertised price) system. Every retailer or e-tailer that becomes a customer of Lenbrook signs an agreement with us that obliges them to maintain the price above a certain level. Amazon, obviously, is an exception and does not sign such agreements.
In Europe, the situation looks different. According to the law, if an entity becomes our dealer and sells Lenbrook products in their shop, they automatically get our consent to sell products online at any prices they choose. This means that in Europe we have to select our partners wisely because we do not have some of the instruments that are available to us in the United States.
As for the end consumers, there are no significant differences in our approach between different countries. For example, we use the listings that we create for Amazon in the United States also in Canada and on the European markets – very often, we use the same photos and product descriptions.
A.H.: Do the differences in regulations concerning prices at retailers in the United States and Europe affect the number of distributors you cooperate with on these markets?
A.M.: Regardless of the market, we are always very selective in choosing our distributors and partners. We offer top-class products that are sold in specialised boutiques, and our distribution network is narrow. Despite the fact that we have greater control over our partners in the United States, it does not substantially affect our approach and we do not significantly increase the number of dealers we cooperate with. This results from the fact that the number of customers who are willing to buy our products online is rather stable, so if we increased the number of distributors, the share of the individual sellers would decrease. Every one of them would get fewer customers and even if the number of customers would grow overall, the increase would not be significant. In order to ensure close cooperation with e-tailers, it is important for us to make sure that the sales of our products bring them high results. If the sales decreased, their motivation to work with us would decrease as well. At the same time, we do our best to choose only those partners that ensure high-quality cooperation.
A.H.: Distribution is considered to be one of the main factors that affect the brand perception. How, in your opinion, can one build a brand using distribution and prices? Or maybe there are other, more important factors?
A.M.: Building a brand is a key issue, and factors such as distribution, prices and marketing elements (for example, packaging) play a significant role.
Distribution has to take into account the needs of a specific brand. This can be illustrated by the example of Lenbrook, which manages 3 brands. Two of them will celebrate their 50th anniversary next year and the third one, Bluesound, will have been on the market for 10 years by then. The products from this line are of superior quality than those sold by the competition, i.a. in terms of sound. That is also reflected by their prices – our products are usually 20% to 40% more expensive than our competitors’ products.
When we were introducing Bluesound to the market, we had an idea to use the existing network of distributors and work with the partners who had been already offering products of our two other brands. This would obviously have been the easier option for us, but we soon realised that the distributor had to match the product. Bluesound, in comparison with the two other brands, is more often sold online and does not require an extensive engagement of the seller. The selling process is much quicker – customers less often want to try the products first or take them home. That is why our choice of distributors changed to better address the needs of the customers of this particular brand.
The company has to decide how widespread it wants to be and in how many channels customers should be able to buy its products. You can build a brand more slowly and start by offering your products in luxury boutiques and after some time sell them on a broader scale, maybe on Amazon.
The other approach is to begin by selling your products in the biggest chains. This will definitely be a more expensive venture, but it may also be a more lucrative one. In this situation, you have to carefully analyse the competition, promotions, margins or even displays in the shop. The fact that the products are on the shelves of a big shop does not mean that they will sell well.
Prices are also very important, as well as online positioning and reaching the right customers. Another important aspect you should take into consideration is whether you want to build your brand’s image with the use of, for example, co-branding or maybe you want your brand to be promoted by a celebrity who can become its image. If you decide to do this, you have to check whether there is synergy and make sure that the person you select will be suitable for your end customers.
A.H.: What is the difference between online and offline brand positioning? Do you have to take any new factors into account?
A.M.: Many elements are similar. If a customer sees the logo, colours or product names, their reaction should be the same, regardless of whether it happens online or offline.
The difference is that we, at Lenbrook, have always wanted dealers who sell products offline to often change the displays and products they present in the shop. Sometimes, all it took was moving the system from one room to another. At other times, it was necessary to change the decor in the shop. Customers like to see something fresh and new. Some distributors had problems with fulfilling our expectations because they lacked marketing experience.
Online selling is much easier. You can easily change the feel of your website and offer a new experience to your customers. You have to be careful, though, because it is also easier to make mistakes, for example, by translating content with Google Translate.
A.H.: How can online shops introduce some of that freshness you are talking about? Don’t you think the range of possibilities is rather limited in their case?
A.M.: I think that online shops have many tools they can use. There are some elements, though, that should not be changed. Customers get used to them and perform them automatically after some time. For example, we should not change the navigation on the website, because customers are used to a certain layout of the shop.
What should be changed, however, is the first thing the customer sees when entering the website and the way in which the products are promoted. For example, we have wireless headphones in our offering. Instead of presenting the offer on the website in a typical way, it would be interesting to post an interview with an athlete who uses these specific headphones. They could tell what they really like about the product and describe its most useful features – to grab the customers’ attention. You could also publish interviews with the manufacturer or show “behind-the-scenes” of the introduction of products to the market. What really matters online is to create a personal relationship with the customer. The customer should visit the website with confidence and curiosity, not simply to find the lowest price.
Customers enjoy reading about interesting facts and appreciate it when the shop tries to stay in touch on social media. Such communications should be frequent, but customers should not be bombarded with the content.
It is a good idea to send e-mails and follow-ups to make sure that the customer received the product and has no further questions or comments. Many of our customers appreciate such after-sales contact.
A.H.: As a manufacturer, do you pay attention to the way in which your customers communicate with the end customer?
A.M.: We cooperate only with those customers who meet our conditions and provide top-quality customer service. It is them who are responsible for contact with the end customers on their websites and on local marketplaces such as Allegro. They are also responsible for after-sales support. We believe that the service they provide is of a high quality.
We, as Lenbrook, care about customer service directly on our platforms and on Amazon. We monitor these places to be sure that our branding and our brand are consistently positioned and customer communication is smooth.
A.H.: What challenges does the brand face if it wants to combine selling products on Amazon with the D2C model and cooperation with the retailers?
A.M.: Our brands are exclusive and that is why we didn’t even think about selling our products on platforms such as Amazon a few years ago. Seven years ago, as a test, we tried this model on our domestic Canadian market and it was fairly successful. That’s why we decided to implement it in other markets as well.
However, there are still some of our products that we consider too exclusive to be offered on the platform and that can only be properly presented offline at the retailer’s. We have a broad network of partners who own physical shops and are able to meet these expectations. We do not want to interfere with their business by offering these products online. It is them who have been helping us for 50 years to build our brand and that is why we are convinced that we should not start to compete with them now.
As for our youngest brand, Bluesound, the situation is a little bit different. From the very first moment, we have been communicating to our partners that, in the case of Bluesound, we are planning to build the brand also through direct sales. That is why the products were immediately available on the Internet, and we can see now that this strategy has proven to be effective. To explain this with an example, we can take a look at England, where we cooperate with two distributors. We noticed that, after we introduced products on Amazon, the distributors also noted an increase in sales. As a brand, thanks to the Amazon Brand Registry, we have access to numerous marketing tools that are not available to the distributors. They give us an opportunity to influence the positioning of the brand and the time required for the customers to find information about it, and this also translates into an increase in the sales of our partners.
We also make sure that we do not compete with our partners due to the way we are selling the products on our website. If we plan a promotion on our platform, we inform our partners about it one month in advance, and they can introduce the same promotion on their own websites.
Of course, not all brands function in the same way – there are manufacturers who have special promotions only on their own platforms, which are unavailable for the distributors. We, however, think of the distributors as our most important partners, and we want to cooperate – not compete – with them.
A.H.: So you are maintaining a consistent price policy – also between partners.
A.M.: Exactly. The situation looks similar during the introduction of new products to the market. Tomorrow (10/6/2021) will see the launch of two products that have been available for presales on our platform for two months. Our partners were also allowed to offer presales. Now, despite the fact that we have the products in stock, we are waiting for the date of the launch to introduce them to the market at exactly the same time all over the world, even though we could offer them earlier.
A.H.: So tomorrow is the big day!
A.M.: Yes, although there were some challenges because our production takes place in China.
A.H.: Did you also suffer from problems with supply? How significant were they?
A.M.: We are facing a really huge challenge, and it affects several companies – not only in the consumer electronics industry. The problem mostly refers to components. I have recently heard about a company in Mexico that has been waiting with the launch of several thousands of cars because they are missing a radio plug. I believe that most brands have similar problems.
Another challenge we have to face is ordering containers and organising the place on the ship. A few of our containers have been waiting for 5 weeks to be loaded onto a ship in China.
The costs have also increased. You not only have to wait longer but also pay twice as much as last year. We planned the autumn delivery of components 9–10 months ago, making sure that there is enough space on the production line and on the ship. Despite all our effort, we are having problems. I assume, then, that companies that did not make any earlier arrangements will have really big problems with supply.
A.H.: In your opinion, what are the main reasons for the current problems with supply?
A.M.: I think that they are mostly caused by the increase in demand and the pandemic outbreak.
In some of the industries, sales increased drastically over the course of the year. Our company noted a 179% growth in sales. We are not the only one – the demand on the market has unexpectedly increased, and it is difficult to meet.
What is more, because of COVID, factories in China were empty and closed for several weeks and production was stopped. In addition, there has recently been a fire in a big factory in Japan.
A.H.: This was only one of the challenges that a company functioning on the international market had to deal with. The other one was Brexit. How did you manage it?
A.M.: It was quite an interesting time. We had known for months what was going to happen, but, in the absence of specific information from the government, it was impossible to be truly prepared for it.
Previously, we delivered our products from a warehouse in the Netherlands to the UK, where we have two distributors. When it was finally clear what duty rules the British government wanted to impose, the experts on taxes and duties were not sure how to best tackle our problem.
In the end, we appointed one of our distributors to act as an intermediary, delivering products on our behalf to the end customer. We sell products through our platform, the intermediary sends them from the warehouse and then we settle the payment. It sounds easy, but it took us 3 months to find the right solution. For the time being, it works pretty well. If we had not started the cooperation with the distributor, our only option would be to open a warehouse or set up a business in the UK. Otherwise, we would be forced to pay VAT for the consumer, who obviously would have never accepted double taxation. Our cooperation with the distributor was crucial in this situation.
A.H.: This proves that there are numerous advantages of cooperating with the distributors. What, then, are the advantages of the direct-to-consumer model, where you are the direct seller?
A.M.: It enables us to better understand the market and our partners. We know what we can expect from them because we sell the products online ourselves, also on Amazon. We also want to meet these requirements ourselves.
Secondly, it is scientifically proven that some customers prefer to buy directly from the brand. Maybe it is a matter of greater trust or maybe the customers are convinced that, this way, they will have access to better after-sales service and warranty. We all, however, offer the same warranty, and some of our partners even extend the warranty period – our lasts one year, and the warranty of our distributors in Germany or France expires after two years.
Customers may also prefer to buy products directly from us because they think that they can obtain more information this way. Our websites are developed specifically to answer any question the customers may have, for example, via live chat. It is the product manager of the particular brand that answers the customers’ questions allowing for close contact with the brand.
A.H.: In your opinion, what factors should the manufacturers take into account if they plan to start a business in the direct-to-consumer model? Can you even consider price competition if you choose such a move?
A.M.: Price competition simply should not occur between the manufacturer and the distributors. It is not a long-term strategy and it speaks poorly of the brand.
What you should take into account is after-sales service. For example, in Germany, we cooperate with the distributor, but we also sell the products on our platform, where we are able to immediately respond in English. However, if the customer prefers German, then it is our local distributors who take care of after-sales service and we share with them the commission on sales on their market. This is how we pay for their support, and we know that local service is extremely important.
Apart from that, you should also pay attention to the local law – different countries respect different requirements and certificates that you should know about.
A.H.: My next question is about the trends in e-commerce that you have observed. Have any of them in particular attracted your attention?
A.M.: E-commerce shopping is definitely becoming more popular. People also increasingly buy more expensive products online.
The trend that is popular now is to “buy, try and return” or test the products bought online. I believe that companies offering an easy way of returning the goods will be able to respond to this trend. This is particularly true in the case of clothes, but also – as observed on our platform – headphones, which are something the customers want to try out first. Another good idea is to create an avatar that looks similar to the customer. This way, the consumers will be able to visualise themselves, for example, in the clothes they are interested in.
I have also observed more frequent attempts at combining e-commerce with traditional trade. Some e-tailers consider opening a small brand shop on key markets, such as London or New York, to highlight their brand.
Another important aspect is the integration of the systems. Selling is becoming more and more complicated – we sell in many different currencies, in numerous languages and through different distributors, and we would like to have all the information in one place. That is why integrating systems will become so important.
A.H.: At the very end, I would like to ask whether you recommend any books, blogs or articles about e-commerce or business in general?
A.M.: As for information on e-commerce, I mostly read blogs and websites.
However, I can recommend a book titled “Measure What Matters: How Google, Bono, and the Gates Foundation Rock the World with OKRs”, written by John Doerr. It explains what is the OKR (Objectives and Key Results) approach. It helps in creating a certain way of thinking in an organisation to ensure that everybody goes in the same direction. Mostly, it is about knowing how to prioritize objectives and when to say “no”. We have implemented this approach in Lenbrook and we can see that it helps us to define what we should focus on in our everyday work.