Price Points Podcast EP 2: Why Brands Should Differentiate Assortments

[00:00:10.580] - Grace

Hello and welcome to price points by Omnia Retail.

I'm your host Grace Baldwin. And today we're continuing our conversation about brands in the direct to consumer, also known as D2C, channel. More and more brands are making the move DTC in order to gather more data, build better relationships with consumers, and ultimately earn more sales. But this move presents an issue to brands' relationships with their biggest customers: retailers. By moving direct-to-consumer brands can quickly become direct competitors to the retailers who also buy and sell their products. So how do brands avoid this channel conflict.? In an interview with our partner A.T. Kearney a few weeks ago, which I'll link in the show notes, Jean-Paul and Roger told us that a differentiated assortment was one of the key things for brands to successfully move direct consumer.

But what does that mean, and how do brands actually go about doing that? To answer that, I asked Hidde-Roeloffs Valk, one of our consultants here at Omnia. Hidde has been with Omnia for two and a half years. But before he worked as a consultant at the leading pricing consultancy Simon Kucher and Partners and has a master's degree in finance from the University of Amsterdam. Hidde loves pricing and knows everything there is to know about it and would happily talk for hours about any aspect of the practice. It's because of him that I started on this whole journey about brands in the direct to consumer market.

So without further ado let's dive in how brands can differentiate their assortments as a way to voice halacha. Please welcome Hidde Roeloffs Valk.

[00:00:10.580] - Grace

[00:01:39.660] - Hidde

Yeah I'm Hidde a Solution Consultant for already two and a half years now here at Omnia. Before it is I was at Simon Kucher, a strategy consultancy with expertise and pricing where I did projects for the German brand Miele for instance the paint manufacturer AkzoNobel. So I took a particular interest in consumer goods and retail so which is why I also joined Omnia where I help retailers and brands improving our pricing and marketing with our software.

[00:02:08.730] - Grace

So this month we're talking about brands and how they're starting to move to direct to consumer and more specifically we wanted to talk about why their assortments and should brands differentiate their assortments and why they should. So why should brands differentiate their direct to consumer assortments if they're going to make this move is they're going to reason why they should make that difference.

[00:02:27.510] - Hidde

There's a few reasons and most of times they would like to improve the brand experience. They can manage more of the brand experience by differentiating their assortment across these channels. Of course sales is always important and they can get increased to sales obviously because they're increasing the amount of ask you use. They're eventually selling. Another thing that's really important for basically all companies nowadays of course is get data to the retailers they often do not get any or some sales data. But selling directly consumer they can get way more data they can see on their website which products are people interested in maybe not buying or are buying. They just have way more information they can manage on and maybe improved our products even more. Not only for themselves but also for their retailer. So it's also beneficial for the retailers in the end by improving that.

[00:03:19.920] - Grace

So it's less about sales and more about experience in product innovation not always about sales.

[00:03:26.310] - Hidde

It's always about sales. So yeah but it's a way to to capture more sales.

[00:03:32.310] - Grace

And so what are some examples of companies that are already differentiating their assortments?

[00:03:36.780] - Hidde

The biggest one I would say nowadays is Nike. It's a huge example of mass personalization where consumers can in fact make their own product. True easy to use website. And they have some great manufacturing process for that to easily make those it only takes two weeks to get shoes in your colors and your style. It's pretty cool. The prices are a bit higher of course but there's just a lot of margin to capture there.

There are these these water bottles you see every day in the office which can can personalize. So it makes it easier to recognize for people so there's a lot of there's a feature benefit for people there. Otherwise everyone has the same color and you just be confusing drinking other people's water bottles so those are two two examples.

But there's also another example where brands make unique SKUs. That's one thing I saw at Miele. They may make for specific retailers or maybe for one large retailer they make a special product special SKU where maybe one feature is added or the color is a bit different that people might like so that this retailer has a unique EAN code and the product is less matchable and it can increase their sales and their relationship with these retailers. So that's what we call a different kind of differentiation strategy. So on the one hand with Nike mass personalization which is really the consumer level and on all the side you have the uniqueSKUs for a specific channel or specific retailer which is not present personalized but different in some way.

Yeah.

[00:05:17.550] - Grace

So yeah. What is the benefit actually from creating a differentiated assortment if you're going direct to consumer? Is it like how does it affect the relationship with the retailers. I'm thinking about the shoes for example. Why would Nike want to have to have something different that you can buy directly for Nike versus something you can buy at every at any given retailer that also carries Nike?

[00:05:41.190] - Hidde

So in terms of Nike it would mostly be building a relationship with consumers which they didn't previously have. Let's say Nike used to sell a the retailers they had no way to build a relationship with these consumers by now having a unique product.

They got all this data they can send them emails they can manage their brand experience more and pull them directly to their website and also the margin is of course way higher if they sell directly to these consumers. So that kind of change is also with the unique SKUs. It's mostly about bettering their relationship with the retailer as that unique SKU is sold nowhere. So they have some benefit and they can incentivize certain consumers to get to that retailer so the retaile'rs happy also and they probably won't sell that unique SKU directly.

So that's a channel conflict you might have. So you need to manage that correctly and that's where a lot of consultants coming also.

[00:06:44.150] - Grace

So are there any categories where differentiation won't be a good strategy?

[00:06:48.620] - Hidde

Well products where it's hard to differentiate as they're substitute products basically. So there's just no way to make it more unique. Shoes of course. It's very personal with laundry machines. You can easily cut down on features and that kind of stuff with razor blades. Yeah you can. You just need to give the best razor blade as otherwise. And other brands will pick up your slack. So you just need to give the best one. Also they're fast selling. So yeah use it one time twice and throw it away so people don't really care about color and anything so so there's there's not a lot of features where you can differentiate basically.

So that would be mostly hardware and FMCG, but food for instance in FMCG you can differentiate and do it like the laundry machine. We're talking about you can have specific flavors of Coca-Cola for instance for a specific retailer where you can do as a brand by giving a unique flavor to a retailer from a certain product you have is really give a token of appreciation you have a good relationship with then you can improve it more and more by giving these unique products so that consumers will go towards that retailer because they have this particular flavor.

So with food it's more easily doable give them some special test some new flavor with them as the first ones and maybe role that out afterwards towards other retailers or maybe you have a unique contract with them for this flavor. So that's what you see sometimes with Coca-Cola for instance.

[00:08:21.860] - Grace

So going back to the razors example again the differentiation there wouldn't necessarily be in your assortment it would be more in your branding and your kind of or your service so the differentiation would be in your service not necessarily the product.

[00:08:35.780] - Hidde

Yeah like the Dollar Shave Club. Yeah. For instance. Yeah. That would be a direct to consumer service. Philips have also done it with basically leasing a electronic razor for women which was a was a great success. So these ranges were high in costs to buy a lot of women one to buy them it was really premium razor so they figured out if we do it on a monthly basis like software as a service we just use a product as a service as they asked I don't know something like 10 euros a month and they could just replace it if it break down and whatever and after a certain amount of time it was just yours. So it is enabled a lot of people that were not willing to pay it but were willing to buy it or very interested to buy this product finally and it increased the sales for this product more enormously of course and they made much more profit because they skipped the retailer in the end. But at the same time retailers were happy but because there were not cutting into their group of consumers because they were hitting a different target group which had less money to spend but we're willing to buy it and they wouldn't normally buy through to retailers. So both types were happy.

[00:09:45.770] - Grace

So what are some of the different ways brands can differentiate their assortment across different channels?

[00:09:52.580] - Hidde

So as we talked about this mass personalization that's that's one way of selling directly to consumers. I think that's one. Second was the unique products. And third one is maybe a different service offering so selling on a monthly basis instead of one huge thing and having some unique customer service or unique brand experience where people can maybe have additional features over the air maybe some software updates which they can pay for.

Those are different ways that brands can differentiate across these different channels and sometimes in collaboration with with the retailer of course. So in-store personalization or special customer experience through the store a new product release where sort of retailer stocked with the product and other retailers get the product later for instance is maybe a time-based unique SKU. There's all different ways to manage relationships with both the retailers and the consumers at the same time

[00:10:54.070] - Grace

Can price be a differentiator for brands?

[00:10:57.410] - Hidde

So price really important topic here at the same time the brand should should set a price from the recommended retail price towards their own selling price which might be the same might not be the same. And at the same time the retailer needs to set a price for their in their stores online. They might differ might not differ. So there needs to be some way for brands to manage that and price is always relative, products are highly comparable nowadays some unique products might not be but always in some way comparable. And price is always transparent in the retail market nowadays so consumers will always look up the best price or mostly look for the best price and will always compare products versus other products or substitutes. TV for instance. Yeah that might differ with a few features and it's important to know which feature is valued by certain consumer. Anyways the price can be viewed in two ways. Either you will compare it with a retailer as a brand, so I'm Samsung and I might compare my prices of my direct to consumer channel with MediaMarkt for instance. Or I'm Samsung and I'm comparing my price or setting my price towards or in relation with another brand such as LG. So I might say Oh I'm always 10 percent under L.G. and I would differentiate on that in the end. It's a way to increase your sales. It's not the only way but it can definitely help.

Let's say if you're selling directly to consumers your retailers are also your competitors but also your clients so need to manage that very well obviously. And yeah for now it can harm your price perception but it can also benefit your pride perception if managed correctly and it also has a lot of things to do obviously with your supplier conditions which is not a topic I will dive into this month.

[00:12:57.800] - Grace

So it's really more about using price but using it and like thinking about it very cautiously and using it strategically rather than just trying to price yourself will be the lowest price in the market?

[00:13:10.670] - Hidde

I would say it's it's not a differentiator but it's a it should be a fair price. It shouldn't make you different compared to the retailers but it can make you different compared to other brands. It's more about having a fair price to relative to these to these retailers like it's um it's a checkbox for consumers.

[00:13:34.830] - Grace

So it's like an anchor point.

[00:13:36.650] - Hidde

It's definitely an anchor point for the whole retail market. So what can happen is your prices say I'm lowing my prices as a brand, might be that triggers a price decrease over the whole market. So it's definitely an anchor point. It's sometimes always the highest price in the market that that's available and as a retailer if you're above the brand then you won't sell anything off easily. And compared to these other brands it can be a differentiator. Definitely. If your TV is of a higher quality and all also a better price and it's a huge differentiator.

But if your TV is for instance same quality and a higher price then you haven't differentiated and doesn't make sense. That's where the comparing towards other brands really is really important. You need to always have this sanity check. Like is my value of the product in line with the price towards other products of other brands on the market on the market. Yes.

[00:14:39.770] - Grace

So that's a good that's a good transition into dynamic pricing.

[00:14:43.040] - Hidde

So how can dynamic pricing dynamic pricing isn't a differentiator per say it's it's it's a tool it's an enabler to manage these prices and the price perception that comes with it in an automated way based on large amounts of data. So again the data of both the retailers and other brands can fit into the system and uses all of your strategy to to manage it is thereby saving quite some hours making decisions or in an automated way. That really helps so you can use both your resources internally to focus on other stuff. So to ask that brand experience such as analyzing data and figuring out where to improve that assortment we were talking about. So in the end it's it's really an important tool to manage all this to enable you to have an automated way in setting the price based on so much data

[00:15:39.880] - Grace

So dynamic pricing can also help brands avoid market collisions?

[00:15:43.430] - Hidde

Yeah definitely. For instance it can quickly pick up when the price is decreasing in overall market and you might be the one that set off that decrease. And that way you can always increase the price again to get the over market up. That's one way to look at it but also managing stock for instance that would have been done by hand and these algorithms could pick up when you were having trouble with your stock and have an automated way of managing the price for a troublesome stock for instance.

[00:16:13.730] - Grace

Well thank you for chatting with me about assortments. If people have questions how can they get in touch with you.

[00:16:19.460] - Hidde

People could reach me via my email hidde at omnia retail dot com or connect with me via LinkedIn and then send me a message.

[00:16:27.820] - Grace

Perfect and I'll include all of that in the show notes. So thank you.

[00:16:31.370] - Hidde

Thank you.

[00:16:37.040] - Grace

Thanks again for listening to the second episode of price points. I hope you enjoyed it as much as I did. If you'd like to get in touch with him. You can email him at hidde at Omnia Retail dot com or visit his LinkedIn profile which I've linked to the show notes. As always if you're a retailer or brand and want to try dynamic pricing free for two weeks with your feeds you can connect with us here on our website or by calling +31 0 85 208 3140.

Finally if you'd like the show let us know. Send me an email at Grace at Omnia Retail dot com and let me know what you thought or if you have any suggestions for the future. In the meantime though have a great rest of your day.