The Hidden Costs of Distribution

Mar 7th

I recently went to a soap shop in downtown San Fransisco called Lush. It is the most expensive soap I have ever seen, and a perfect product for the web. My girlfiriend asked the clerk if they sold online and they said yes, but don't buy Lush soap from Amazon.com.
If you opt into distribution of your product the way to win is to give extras when people buy direct. As a marketing strategy, it is silly to recommend people avoid your distribution partners. Once you give up distribution you move toward being a commodity unless you add extras or are selling a buying experience.

Even companies like Adobe are canibalizing portions of their business to maintain their market position. When considering opting into other networks or doing things that extend your reach and give you more direct control over the conumer experience it is probably best to stay as close to the consumer as possible.

If you are a product on the shelf you have to pay for shelf space. If you own the shelf space you can sell your own product or sell overpriced ads to others.

Published: March 7, 2007

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Comments

March 8, 2007 - 1:01am

I might be missing the point here, but lush also sells direct:
http://usa.lush.com/cgi-bin/lushdb/843?expand=Soap

They also have an affiliate program, I think through CJ.

March 8, 2007 - 1:05am

Thanks Werty. I knew you would know all about Lush. Did you see their new garden variety soap?

My point was the offline salesperson tried to say that one should avoid buying their stuff from Amazon.com (probably because Amazon probably sells it cheaper).

March 8, 2007 - 2:57am

I agree with your analysis. It's all about "value added." You have to make them feel good / better about buying direct then from going to an easier distributor that already has their customer information, easy one click shopping, and more importantly they already use / like.

March 8, 2007 - 12:51pm

One of the reviews for Lush at Amazon cautions people to buy direct at the store as well. I've never been there to confirm, but the review claims that they sell the soap in large bricks there that you can split yourself into whatever size you like. Amazon sells only little 3oz small bars. I think this highlights another great way to differentiate for stores that do both direct sales and work through distribution channels. You can offer products in unique configurations, colors or sizes to encourage customers that love the product to buy direct.

I remember the first time I bought DVDs online was when Buy.com first opened. With each DVD order they threw in a bag of microwave popcorn to watch it with. A really nice touch that left me with a really good feeling and bribed my loyalty (am I that easy?) for quite a while.

March 8, 2007 - 6:58pm

I love Lush stuff. They are very very clever marketers, too. Their marketing strategy is so slick it was featured in No Logo as an example of companies that make a hell of a lot of profit from having underdog appeal. They are now quite a big international company but they put stickers on all their products with the name (and cartoon face) of the person who supposedly made it and their products always look very decidedly handmade. I know they *are* hand made, but they make a point of *appearing* hand made too. The packaging is always very basic. I don't think they were as bad in the US, but in the UK their staff are trained to do the hard sell, which is my only problem with them (apart from the price, though in real consmetics term, they're a lot cheaper than some of the stuff I buy).

March 8, 2007 - 8:45pm

Their stuff is really excellent. My boy gets a touch of excema and we found by accident that the bath bombs that they do really help his skin enormously. Much better than anything that has been prescribed. Mind you, he wont be using them for a week or two as he's just developed chicken pox.

But the moral of the story here is have a really great product and people will happily endorse it for nothing.

March 8, 2007 - 9:04pm

Aaron -

The reason they don't want you to buy from Amazon is that Amazon takes 15% of the purchase for getting the traffic and taking the sale & it still get shipped from Lush. On business on their own site, they don't pay those fees.

Amazon is replacing eBay for many sellers. I work with people who do $100k/month or more on Amazon. One guy went from zero to $40k in his first month.

There is actually a whole "seo" for Amazon selling. White Hat, grey Hat and Black Hat techniques.

March 9, 2007 - 4:38pm

I think the "handmade" thing needs more consideration. My girlfriend handmakes greeting cards as a hobby and one thing I always tell her is not to make them so professional looking! The really good ones she makes look store-bought and aren't ultimately as impressive as ones that have tiny but obvious imperfections.

I am the guy who asked Aaron for a negative review of SEObook - because every one out there was too positive and glowing. Is this the same as ugly-site syndrome?

I'm sure there's a psychological term to describe all this, any psych majors tell us about it? What do you guys think?

March 9, 2007 - 5:28pm

As a distibuter I understand your point. If I was a manufacture of a certain product and told my customers not to buy from my largest distributor what does that say about my executive decisions. Sure they are getting a 15% commision on the sale, but there selling. They should embrace there distributors if they are going to have them.

Mixed signals in a business plan can dilute the future goals. If a company is going to sell direct then sell direct. If a company is going to sell direct and sell to distributors then stay consistant and support all sales avenues.

Dell has been a fast growing company and I have been watching its growth for sometime. At one point Dell was selling through distributors to compete in that Bestbuy, compusa type market and they did not do great so they pulled out. And redirected there focus to selling direct. And they have continued to grow.

What I am trying to say is that if you are not happy or not profiting with one of your currant sales markets then change it. It is easy to lose focus especially if you are sending mixed messages to your customers.

March 28, 2007 - 6:16am

That's just the topic I have to deal here.

Locally, we are forced to use the distribution network instead of our own shop/office. It is more profitable and convenient for us to send people to the dealers instead of having them buy from us.

Is there anything you think would encourage buying from distribution partners?

On the other hand, we might give more personal experience when buying directly. That's a good idea, too. Any more detailed thoughts on this?

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