March 7, 2021

Brand Ecommerce v Channel Ecommerce

Dr Peter Mowforth

What’s the difference between an ecommerce vendor that sells their own branded products and an ecommerce vendor that sells other companies products. The answer is almost everything.To an extent, every business is part brand and part channel. Examples of businesses that are almost exclusively ‘brand’ would be Ferrari, Levi, Tiffany, Gucci, M&S, Vogue or Apple. Examples of almost totally channel businesses might be written on the sides of white vans advertising plumbers and painters, “copycat” restaurant names (Taj Mahal Restaurant) or keyword loaded online businesses (cheapinsurance.co.uk). The strength of the brand is measured by nothing other than search volume where the search intent is to find that particular organisation, business or entity

Customer Types : If you are a channel business then it's most likely that you are one of many online suppliers all competing for online retail (B2C) customers. With brand owner / manufacturers, the main strategy should always be directed towards wholesale (B2B) sales. As a brand, you will always gain a few B2C sales but this is generally ‘icing on the cake’ rather than core business. Amazon is both a channel and a brand. It started as pure channel selling books. Now that it sells it’s own products (Amazon Prime, Kindle, Alexa and Firestick) which make it a much stronger brand. Brands have to differentiate and distinguish their products through features and USPs.Margins : Because pricing strategy can be controlled by brand owner/manufacturers the primary differentiator for channel businesses is price. The result for channel businesses is that to make significant profit you have to scale and dominate in order to succeed. Tight margins are often a key issue for channel businesses but less so for brand businesses.Product Range : Brand owners invariably carry a much smaller range of product SKUs than channel businesses. To scale to high volume, channel businesses invariably sell a wide range of products from a wide range of suppliers. Cross selling and upselling are important KPIs for channel businesses.Websites : Good brand sites are invariably bespoke. Their job is to articulate and communicate the unique brand proposition through top-class design and unique content. Simple template designs are usually not strong enough for expressing brands but are sometimes suitable for channel businesses. Some channel businesses can have hundreds of thousands of SKUs so topics such as site search, filters and categorisation are important. An important point is that even when a business sells to both B2B as well as B2C, they still only need a single website to do it. Having separate sites for retail and wholesale customers can double your costs with no value to the business. In fact, merging the two into one can often boost the business by applying all the marketing wood behind just one arrow. Both customer types will have found you by almost identical searches. The only difference is that B2C customers will expect to buy without logging in and pay using standard Payment Service Providers such as PayPal. B2B customers will expect to login and see their own ‘special’ prices and offers and then pay using invoices, bank transfer or alternatives. On top of all this, you have to ask how you differentiate a B2B customer from a B2C customer. If somebody wants to buy a pallet load of your product they may well start by buying a small packet so as to see how you operate and what your product is like.Marketing : While brand owner manufacturers have many advantages for ecommerce, their one great weakness invariably comes back to marketing. The reason is that brand owners almost always hugely underestimate the effort needed to market and promote their brand. Gaining search volume for your brand can cost eye watering amounts of money. Once customers are aware of the brand and have been convinced that that brand is the one to buy, the customer focus shifts to being able to buy it quickly and easily at the best price from a fast and reliable/trusted supplier - i.e. a channel business. Some channel businesses spend a lot of resource on social media to try to gain customers. This is usually a mistake. The better strategy is usually to focus on other forms of marketing such as marketplaces, paid advertising and newsletters. Brands are often niche suppliers. If an online  B2C customer wants to buy a packet of standard tea or some sausages they would not go to the brand supplier. Instead they would most likely visit their usual supermarket that consolidates a huge range of products and then buy from there. Not only will the consolidated experience be better but the delivery charges make more sense.Value and Exit Strategy : Brand businesses can have a much higher valuation than channel businesses. A channel business is simply a pragmatic value based on turnover, profits and opt-in customer database size and quality. Brand businesses are much harder to value. If you own a brand that is on-trend, with good search volume and some form of protected status (Patents, Trademarks, R&D etc) then, provided someone wants to buy you, you are probably in the best possible place to be in the world of business.When professionals and business owners discuss ecommerce they very often group all the businesses together under the same umbrella. This can often be a mistake that misses the essential difference between what is primarily a brand business that sells it’s own products and a channel business that sells other people's products. Understanding the difference will help ensure that the clients you work with will get a solution that is fit for purpose.

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