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"You have to look at the cost of doing nothing … looking at this price scrape issue, the profitability piece, or even innovation, if you're not doing anything … it's probably going to cost you more in the long run." — Todd Hassenfelt, Ecommerce Director at Colgate Palmolive
It goes without saying that you can’t copy and paste your brick-and-mortar distribution strategy onto the digital shelf.
The two types of marketplaces are fundamentally different, so they require fundamentally different approaches to what you sell and how you sell it.
But how do you successfully create a unique distribution approach that works for your e-retailing strategies? Todd Hassenfelt, ecommerce director at Colgate Palmolive, and Lauren Livak, director of the Digital Shelf Institute (DSI), sat down together to explore this question.
"It is a very, very different strategy, with very different levers that you need to pull," Livak says. "When you're thinking about the digital shelf, you have to think about balancing supply chain, temperature, weather, location — it all is factored in when you're thinking about the profitability of selling your products online."
Hassenfelt and Livak discussed this topic in a recent webinar, "Set the Right Distribution Priorities," which is also available as an episode of the "Unpacking the Digital Shelf" podcast.
In this discussion, the two dig into what brands need to consider when establishing ecommerce distribution strategies — exploring everything from packaging to profitability and beyond.
There’s a broad range of logistical factors brands need to consider when selling online, but one of the most salient ones is packaging.
How a product looks and what its unboxing experience is like will have a different impact when something is pulled out of a shipping box instead of picked up in a store.
According to Livak and Hassenfelt, these factors need to be considered alongside other, ecommerce-specific concerns like size, weight, labeling, and sustainability.
"Talking about packaging, I think you should never be happy with where you're at, necessarily. You should always be looking at continuous packaging improvements and making sure that the organization knows that this is constantly going to be evaluated again," Hassenfelt says.
Brands need to carefully consider how they can establish an approach to packaging that centers around the customer experience without harming profitability. Depending on your products, you may need to take into account additional granular concerns, such as:
Finding the answers to these questions isn’t "one size fits all" according to Hassenfelt.
"SKUs are looked at from a profitability standpoint by SKU, and price scraping can hurt you if you're just in the ‘stack it high, let it fly’ mentality," Hassenfelt says.
Avoiding price scraping is one of the most difficult parts of establishing effective e-retailing strategies. There are some distribution-based approaches that can help, but only if done while also carefully considering how they’ll impact the customer experience and profitability.
Still, it’s possible to strike that delicate balance, and Livak and Hassenfelt give some insights into how.
One of their suggestions is to consider ways you can package products so that they’re grouped together. Variety packs, club sizes, and similar approaches can help you avoid price scraping while also making a more appealing package for the consumer. Variations in size, even by channel, can also help.
However, there’s no silver bullet and no strategy that will work for every single product.
That’s why Hassenfelt calls for moving to a specialized approach to every single SKU — despite how intimidating that sounds.
"If you’re on the call right now from a supply chain perspective, you’re likely thinking, 'Oh my goodness, how do we do this? Is it a unique SKU for every retailer?' No, not necessarily," Hassenfelt says. "This is where you have to have something in between. So, you prioritize the retailers, and based on their unique strategy — again, always keeping the customer first — but if you can figure out who is price-scraping who … then mix and match, or mismatch, in essence, the SKUs, so it's not as easy."
When asked about the challenges of hitting minimum order quantities (MOQs) with such an individualized approach, Hassenfelt concedes that it would be difficult.
But, he adds, "You have to look at the cost of doing nothing … looking at this price scrape issue, the profitability piece, or even innovation, if you're not doing anything … it's probably going to cost you more in the long run."
When developing strategies to reduce price scraping, it’s important to make sure they also contribute to profitability.
Livak and Hassenfelt remind listeners that profitability works differently on the digital shelf than in-person.
Brick-and-mortar stores evaluate profitability based on how the overall brand is performing. Ecommerce sites, however, judge the profitability of each SKU individually.
This can have significant consequences, as some sites will remove SKUs from search results if they aren’t realizing a profit.
According to Livak and Hassenfelt, profitability is a topic they could spend an entire additional webinar on and still not touch on everything.
Related to distribution, though, the key takeaway is to make sure profitability isn’t damaged by strategies to improve packaging and reduce price scraping.
"Again, nothing is a silver bullet. [So] collaborate with your retailers. How do you make sure that profitability isn’t hurt[ing] both sides? This is all about finding win, win, wins — the consumer being the third one." — Todd Hassenfelt, Ecommerce Director at Colgate Palmolive
Part of finding these wins involves improving sales through better marketing incrementality (again, this could be the topic of its own webinar).
But Hassenfelt’s key piece of advice is to invest in marketing that is centered on the consumer and makes sense for the retailer, rather than staying in the “internal vacuum” of your brand’s typical strategy.
Judiciously choosing when you use things like paid search and understanding how content can turn impressions into conversions are all key components of selling online, and distribution improvements will be less effective without taking these factors into account.
Committing to developing an individual ecommerce strategy for each SKU naturally requires prioritization.
Livak advises categorizing each SKU in terms of growth and profitability to determine which of them to prioritize when it comes to developing new strategies.
SKUs that are high growth and high profitability are ready to scale with roughly the same strategy you’re already using, while low growth and low profitability may warrant conversations about whether that SKU should be sold online at all.
High profitability, low growth SKUs are your tried-and-true products that you know will drive ecommerce profitability. For those, you can focus on things like improving content and organic search to capture even more loyal customers.
The priority SKUs to focus on when improving your distribution strategies are high growth, low profitability SKUs. These are the SKUs that have the most potential to earn more for you with some distribution changes. Here, you can dig into whether packaging could be improved, if price scraping is harming what you’re able to earn, and other similar factors.
This will require some element of testing and learning to get right. Optimizing e-retailing strategies does not come down to fixing one factor, but to adjusting multiple factors in concert.
In the meantime, the retail landscape is constantly changing, and brands need to be ready to change with it.
All this means that brands need to "plan for pivots, not for perfection," in Livak’s words. Ecommerce distribution can be complex, but changing what you can, where you can, ultimately adds up to growth in the long term.
Listen to the full podcast episode to learn more about how you can adjust your approach to ecommerce distribution for maximum profitability and growth.
