Retail models: The rise of the direct-to-consumer model
For decades, retailers served as the go-between for manufacturers and consumers, offering the former access to local markets and the latter expert advice and value-added services. In recent years however, there has been a growth in the number of manufacturers adopting a direct-to-market approach, selling directly to consumers rather than through the traditional retail network.
A shifting environment
In the past, manufacturers relied heavily on working through retailers to get their products in front of customers, with retailers having the infrastructure, expertise, manpower and retail space that many manufacturers could seldom afford to establish themselves.
This is still very much the case in the world of mobility, with retailers still being the conduit to consumers, however, the dynamic has seen a shift over recent years with the internet making it easier for manufacturers to promote and sell their products directly to consumers.
Whereas direct sales often meant brands would have to go out to find customers, the online world with the power of search engines signposting people to websites is leading to a shift where consumers now go to manufacturers.
Recently, Gaurav Mishra, CEO of ROWHEELS and the former executive president and head of global sales of Ottobock, announced that the Wisconsin-based manufacturer is to shift away from its traditional dealer network model and will sell its new ROWHEELS Revolution 1.0 wheelchair directly to US consumers as part of a new, online vision for the company.
“With our ‘Ready to roll out of the box’ model, we provide a differentiated customer experience not yet seen in the industry, including ease of ordering, premium packaging and quick delivery,” commented Gaurav.
“I believe we can lead the adoption of this innovative disruptive model across similar assistive devices and disability medical devices: cut the cost, pass the savings to the patients, facilitate shorter waiting times and deliver a great patient experience.”
On this side of the pond, companies such as Adjustamatic are investing more into establishing their own retail base, with the adjustable beds, rise & recliner manufacturer launching two new retail outlets in Southampton and Macclesfield this year.
Discussing Adjustamatic’s retail approach, Darren Thomas, Head of Retail at the company, commented: “Establishing a retail presence has enabled Adjustamatic to develop a wider market, with people of all ages and mobility levels having the opportunity to try out our products and appreciate their general health and lifestyle benefits.”
Why sell direct-to-consumer?
Establishing a direct retail channel with consumers is undoubtably a costly endeavour for manufacturers that can yield a number of strategic advantages.
Prices and margins
A key factor is price. Traditionally, manufacturers made low margins and sold on volume to retailers to make profits, allowing retailers in turn to make their margins by selling to the end-user and providing value added services, such as advice and assessments.
Manufacturers looking to sell products nationally or globally, this trade model was the most cost-effective means of distributing their products, as the expense and difficulty of establishing their own retail network that could profitably serve customers proved too expensive for all but the largest of brands.
“I believe we can lead the adoption of this innovative disruptive model across similar assistive devices and disability medical devices” Gaurav Mishra
In the digital world of today however, the internet and in particular social media and its ability to allow companies to target and market cheaply to very specific demographics has opened up a world of consumers all in one place.
Increasingly, more manufacturers are developing their own retail shops on their website, with readily available and affordable online payment tools presenting brands an opportunity to enjoy margins conventionally reserved for retailers or offer lower prices to customers.
Highlighting how the direct-to-consumer model allows consumers to enjoy lower prices, Gaurav commented: “ROWHEELS Revolution gives wheelchair users a better option at an affordable price via an ecommerce platform that challenges the inefficiencies of today’s healthcare system.”
More control over the consumer’s retail experience
For many manufacturers, when their products are sold through a distributor, they have little control over how that product is sold. By selling to a consumer directly on the other hand, manufacturers are able to gain more control over the customer journey.
This, according to Companion’s sales and marketing director David Harrison, is one of the key benefits of a direct-to-consumer approach.
“The main factor for us is control,” he said.
“Control in the respect that we are one hundred percent confident that the service being provided and thus the ongoing reputation of our brand is nothing but exemplary and protected. In short, the most important benefit to this approach is delivering first class customer service and satisfaction.”
The direct selling arm Handicare, Companion specialise in providing Handicare stairlifts and bathing solutions directly to customers.
The sentiment is echoed by Tim Ross, National Sales Manager of mobility scooter specialist TGA.
“When selling direct we do have good control over quality and service, however, we continually strive to ensure dealers emulate or even exceed our commitment levels!” he commented.
TGA started selling solely from its headquarters in East Anglia but as the business developed over the past 30 years, it has evolved into a nationwide scooter specialist reliant that says it is reliant on a dealer network.
This ability to gain more control over the consumer experience, from how the products are merchandised and sold, also provides direct-to-consumer manufacturers access to invaluable and vital consumer data.
Acquiring valuable data for long-term relationships
For savvy manufacturers, it is the power of establishing in-depth, long-term retail relationships with end-users that makes the direct-to-consumer channel so appealing.
Often when a manufacturer’s products are purchased through a retailer, the brand misses out on the valuable and potentially extensive consumer data that could be available to them; with that often being acquired by the retailer.
Selling directly to consumers allows manufacturers to establish a direct buying relationship, maintaining contact with a customer and providing the opportunity to upsell, repeat sell and gain more insights and feedback about their products.
According to TGA’s Tim, even though direct sales makes up a relatively smaller part of the company’s operations, it is the feedback from consumers that the company truly values, even leading to the creation of a new and profitable range of scooters.
“For our business to maintain sustainable growth, we must ensure our routes to market remain balanced. Direct purchases are only a minor part of our business when compared to trade turnover. Nevertheless, these sales allow us clearer communication and interaction with end-users so TGA can keep abreast of the latest mobility challenges,” he commented.
“We have always taken pride in talking and listening to our direct customers. Hence our product line continually evolves to meet ever-diversifying lifestyles and conditions. This pro-active approach resulted in the introduction of the folding Minimo family which continues to provide dealers with strong sales figures.”
Why do some companies focus on the trade instead?
Despite more manufacturers exploring a direct-to-consumer approach, others such as Repose Furniture and Karma Mobility have forgone establishing & promoting their own direct retail channels and instead doubling down efforts to develop their trade network.
Commenting on the decision not to pursue a direct-to-consumer model and focus on its retail network, Lisa Wardley, Managing Director of Repose, explained: “We have built a very strong and we believe loyal network of key distributors with significant reach across the UK. We believe that by constantly supporting this dealer network, we have developed stronger partnerships.”
“We understand the business models that our dealers are deploying to reach the marketplace. By working closely with them we are able to understand their requirements for products, support and after sales service. We can help them in their pursuit of business.”
A significant investment
For Lisa, one of the key disadvantages to the direct-to-consumer model is the investment needed to establish a comprehensive retail base.
“It is a model that we have considered many times,” she said.
“It has some value to any organisation in our position but it also brings with it a different type of business model; one with a different or alternative infrastructure that would require significant investment. We are not overly convinced that this model would work for our business at the moment in our planned development cycle.”
Mark Duffield, General Manager of Karma Mobility, also acknowledged the costs associated with the model as being substantial, particularly for SMEs, adding: “As a small business, we could not possibly cover all of the work involved before and after the sale.”
For many manufacturers, establishing a retail base is still an expensive and daunting task, with one of the largest and most important investments being the need for staff with the necessary knowledge and experience to safely sell mobility products.
The need for expertise
Whilst a direct-to-consumer model offers manufacturers the opportunity to have more control over the consumer experience, it also means that manufacturers have the responsibility to deliver a seamless, exceptional retail experience with the aftercare and expertise that accompanies it.
In this respect, the mobility industry is unique from other industries, with the nature of the products requiring a degree of expert advice and assessment in the sales process.
Mobility scooters, wheelchairs, powerchairs, specialist seating and more all need an element of customer service, resulting in a greater emphasis on expert staff and knowledge required in the retailing of the products.
Karma Mobility’s Mark highlighted that the customer service expertise aspect possessed by mobility retailers is the primary reason the company does not pursue a direct-to-consumer model.
“We appreciate the assessments and aftersales care that retailers provide. These are often an afterthought for consumers but can lead to problems if not available,” he commented.
“Assessments and aftersales care are the important benefits gained working purely through a retailer network, making sure that consumers get the right equipment and are supported after they purchase it.”
Local legitimacy and reach
Whilst the internet has created a myriad of means to reach out to specific consumers, be it through targeted adverts via Facebook or using Google AdWords to attract consumers searching specific keywords, the digital world is yet to replace the engagement consumers have with their local retailers.
With TGA’s dealer network being the largest part of its business, Tim stressed the important role local dealers play in the company’s success.
“Supporting our dealer network is absolutely critical for TGA growth. Without this localised access to our products across the UK, we would not be able to develop as a business. This is why we value all our relationships and invest time in building rapport and trust,” he explained.
The view is one supported by Repose’s Lisa, noting the significance of retailers’ access to local markets.
“Many of our distributors have strong relationships in certain key geographical territories and within key sectors – so rather than us trying to penetrate these markets directly we can leverage our joint market positions and brands to better effect,” she added.
With mobility products playing such a vital role in consumers’ quality of life, there is still a large degree of trust needed between end-users and those selling the products. Importantly, it is the good reputations mobility retailers have acquired in their local areas that makes the retailer channel so valuable for manufacturers.
“The value of local knowledge should never be underestimated” Tim Ross
In the past, brands and manufacturers relied on retailers to add a degree of legitimacy to a product. If a premium retailer stocked a manufacturer’s brand, that brand would enjoy the reputational benefits associated with that retailer. It added a degree of validation and this is still very much the case today.
In particular, Tim pointed out the key advantage of legitimacy TGA gained by working through established retailers in local areas.
“The value of local knowledge should never be underestimated,” explained Tim.
“This is why our dealers will always be able to offer good quality advice and have a better feel for local needs and trends. Being integrated into local societies, especially over a long period of time, adds real weight to the sales proposition, particularly for the older generation.
“The presence of a bricks and mortar showroom, that is permanent and familiar, can provide a reassuring experience for purchasers. High street premises provide a place to visit for after sales and service along with the opportunity to talk through requirements on a face-to-face basis.”
Even as online marketplaces such as amazon and online customer reviews lower this need for validation – particularly for those products on the lower-end of the price spectrum where quality and branding are less of a priority – for higher ticket mobility products such as mobility scooters, the desire to purchase through a trusted retailer is still very much present in the market.
Striking the right balance
For those manufacturers that employ both a direct-to-consumer and retailer network model, the importance of striking the right balance between the two cannot be understated.
Many retailers will not wish to compete against their suppliers who will almost always be able to beat them on price and conversely, manufacturers do not want to damage the relationships developed with their retailers that may see their products relegated to the back of their retailers’ shelves.
At Handicare’s recent Dealer Day, Clare Brophy, Managing Director of Handicare UK, decided to tackle this issue head on with the company’s OneFamily initiative.
Elaborating on how the company’s direct-to-consumer activities benefits its trade partners, she told THIIS: “Our direct-to-consumer sales activities can do a lot to enhance the brand’s reputation and make it more desirable so our Partners also benefit from increased awareness amongst consumers. I’m confident we have the right balance between direct and partner sales. It’s all about trust. We have been open and honest about our goals and how important our Partners are to helping us achieve them.”
Explaining how Handicare works to strike this balance, Companion’s David Harrison said: “The most important aspect of our business has to be delivering market leading customer service, and this is true for customers looking to purchase a Handicare stairlift either directly or via our Partners.
“We can’t afford for unnecessary confusion between the two areas and as such, operate to some simple rules that protect our and our Partner’s business and also provide clarity to prospective customers.
“For instance, although it is actually quite rare for customers to enquire both with regional/local partner companies and also with ourselves, when this does happen, our commitment to all of our Elite Partners means that we will step back and allow the client to purchase from the Partner. The end result being that the customer has the best stairlift for their need, with no confusion or conflict between two companies pitching the same product from different angles.”
Reaffirming the benefit to retailers of enhanced brand exposure through direct-to-consumer activities, TGA’s Tim Ross commented: “Direct selling facilitates the need to advertise nationally. This in turn benefits dealers through greater brand recognition and higher numbers of customers entering showrooms requesting a TGA product. Familiarity with the TGA range aids the sales process which is bolstered by our national PR and networking, charity support, end-user stories and social media activity.”
Tim also mentioned how the company manages to avoid competing against its own retailers on price, an often-delicate issue for dealers working with manufacturers that direct sell.
“We are always mindful of not compromising our dealer’s business prospects. It is not our intention to ever undercut our dealers and that is very rarely the case. We will always do what we can to support a dealer who is stocking our products and working with us,” stated Tim.
“The reality is that actually there are incredibly few times when there is any conflict. Almost all dealers see the promotion of the brand and all that goes with that as a huge advantage for them. Even the most reluctant dealers still get a reasonable demand for TGA products because of the name that has been established in the marketplace.”
According to Tim, TGA strengthens its dealer sales with local press support in regional newspapers and magazines, PR support for dealers, events and more, seeing trade as the future for the company.
“Direct selling can deliver more margin per product however in terms of our overall strategy, we see trade sales as the main area for TGA growth. Greater turnover and volume are generated by increasing dealer supply so we always focus on improving our trade service,” he added.
“From a commercial perspective, TGA will always look at business relationships from the dealer’s perspective. This is why the benefits of being a TGA dealer far outweighs the disadvantages of us also selling direct.”
Whilst some manufacturers such as Handicare and TGA use their direct-to-consumer activities to bolster their trade network and achieve more market share, it is a certainty that more manufacturers will adopt a more aggressive direct-to-consumer approach such as ROWHEELS in the years to come.
According to a 2017 report by financial advisory giant Deloitte, a key trend predicted for 2018 and onwards is the growth of the direct-to-consumer channel for manufacturers, as ever-improving means of targeting individual consumers online and cheaper fulfilment and delivery methods make the channel more accessible.
What does this trend mean for retailers?
In the mobility industry, the rise of the direct-to-consumer channel will be seen with the lower priced products that do not require a high degree of expertise or assessment. As the channel continues to grow however, it will be another pressure mobility retailers will need to respond to in an increasingly competitive retail environment.
Move away from solely competing on price
This does not spell the end for bricks and mortar mobility retailers says Alastair Gibbs, Managing Director of TPG DisableAids, stating that mobility retailers need to move away from using price as a means of differentiation.
“TPG DisableAids is a multi-disciplined retailer that places itself in the retail market as a ‘solutions provider’. Whilst we major on a few lines, such as stairlifts, hoisting equipment, bathing solutions and mobility products, we can and do supply, install and maintain many other products,” he commented.
“We use many suppliers, some of which are trade only and some of which go to the retail market directly as well as through the trade.
“Quite clearly if the offering were on price alone we would find it difficult to compete with manufacturers selling their own products.
“However, as a company we would always be looking to enhance the value of what we sell. This may be the local service, it may be speed of response or it may be packaging the equipment with other products to give a workable solution. All of these little techniques make price less of an issue and value of far more importance.”
Establish closer relationships with trade partners
In particular, Alastair pointed out that for many suppliers, the desire to establish their own direct-to-consumer channels can be attributed to the difficulty they have traditionally faced working with retailers.
“I think you often have to look a little deeper into why manufacturers choose to go direct,” he noted.
“It is often because their chosen, or historic dealers have not shown the loyalty to the brand or worked with that supplier to improve the offering which in turn converts into more volume.
“All too often, I see many retailers trying to offer every make of a particular genre of product and this simply means they are insignificant to all of those suppliers. If they restricted their offerings to perhaps just three of four, then they would be able to represent them well and not tempt those suppliers to look for volume in a different route.”
By reducing the number of brands on offer, Alastair says retailers can build closer relationships with trade partners, as well as be able to afford to keep spares on the shelf and have well trained engineers in the limited ranges it does stock.
“It disappoints me when I see public comment from a distributor saying that manufacturers or importers should not compete with them. This almost always is because that distributor has underperformed” Alastair Gibbs
The sentiment of closer collaboration is one shared by Karma’s Mark Duffield, highlighting that the trade-exclusive company is selective regarding which retailers it works with.
Discussing how the wheelchair specialist ensures it achieves good retail coverage without oversaturation, he told THIIS: “It is important that we have good coverage but also that the retailers we are working with are promoting our products, we see it as a partnership – not only for selling the products but also when there are problems.”
The desire to work closer with trade partners was also mentioned by Paul Stockdill, National Sales Manager at Handicare, emphasising how the company’s trade network offers Handicare more than just reach and volume.
“There’s no doubt that a bigger retailer network means greater reach and increased sales but we see our Partners as very much part of our OneFamily,” explained Paul.
“Their market knowledge and experience are invaluable and help us to develop our customer service-led commercial strategy. Our customer service and support doesn’t stop when the orders have been completed and we’re keen to work more closely with both dealers and mobility retailers to make sure both their business and ours are being and doing the best they can.”
How can retailers work closer with manufacturers?
Working closer with fewer brands allows retailers and manufacturers the space to offer more support to one another says Alastair.
“The retailer can work with the manufacturer on marketing strategy and sales training to gain a mutual respect that is no longer price driven,” he highlighted.
“My suppliers will recognise that we wish to work with them for our mutual benefit, rather than hop from one supplier to another when things are not going well. We will feed back any issues or problems and work with them to improve the offering.”
In particular, manufacturers are keen to gather that to acquire that valuable consumer data that often retailers acquire.
For Repose’s Lisa, gathering this data from her retail network helps the brand support the work of the retailers she works with and improve the company’s product range.
“Through a two-way exchange of information, we are able to gain significantly improved information on the end user market. This enables us to keep a leading edge in the development of new products,” she commented.
“We have been able to develop new products in partnership with some of our dealers with the ability to target key audiences that these clients are approaching.”
Gathering and sharing this valuable consumer data is an effective and worthwhile way for retailers to build closer ties and collaborate with their suppliers to enhance the trade relationship.
The need for clearly defined, differentiated propositions
As more internet savvy customers continue to enter the market and ever-improving technologies allow manufacturers to better target and serve consumers cost-effectively, it is likely the trend of direct-to-consumer models for brands is one that will continue to rise sharply in the coming years.
Rather than see it as an omen of doom for the traditional bricks and mortar retailer however, TPG DisableAids’ MD sees it as something that retailers should prepare for and react accordingly to.
“It disappoints me when I see public comment from a distributor saying that manufacturers or importers should not compete with them. This almost always is because that distributor has underperformed and has been trying to sell 10 different types of scooter rather than selling three or four types well,” finished Alastair.
“Added to this is of course that they are trying to remove competition, which is illegal and damaging to the public perception of our industry.
“There is space for us all in an expanding marketplace but those that do not differentiate on anything other than price will find it a very hard place to trade for the long term.”