Mom 'n Pop say no to the web - brave or stoopid?

22 comments

Ok, not exactly mom 'n pop then, but, if you were asked to pick a sector that would be likely to not want their product sold online, (and, if you, as one of their affiliates, were found doing so, you'd be cut adrift), what would it be? Some luxury product where the human touch is everything? Wrong. Something that might touch on cross-border issues? Wrong again.

Nope, this is a company that has decided that they won't sell their stuff online, and neither may anyone else. And they sell vitamin supplements.

This is a piece from Business Week entitled A Family Outfit vs. the Internet, and it's about a US company who are determined to stay resolutely offline.

... last month, the president of Standard Process, Charles DuBois, sent a letter to the thousands of chiropractors, acupuncturists, physicians, and others that resell its 175 different vitamins warning of its new "zero-tolerance Internet policy as part of our resale policy." Moreover, "advertising pricing information online will not be tolerated."

The penalty for violating the policy? "Immediate account termination," says the memo. In other words, any Standard Process distributor who flouts the directive won't be allowed to sell its products.

It's quite a long opinion piece, and ends up pretty much where you'd think it would:

Standard Process may have guts, and it may even be able to slow the encroachment of the Internet on its world, but I suspect that, in longer term, it can't win. Its path is one of coercion that the Internet, for all its warts, is gradually wringing out of nearly every industry imaginable.

Comments

Idiots

When they go bankrupt I'll hopefully be first in line to piss on the remains.

clueless

nature abhors a vacuum ...

in another life i'm involved in wholesaling

When you have to protect your distribution channel (in both directions, but particularly downstream) you have to make some hard choices about your turf and your ability to scale. Here's an article that might be analogous; The Man Who Said No to Wal-Mart

"I could go to my grave, and my tombstone could say, 'Here lies the dumbest CEO ever to live. He chose not to sell to Wal-Mart.'"

But before you write him off as the dumbest CEO ever read this article; The Wal-Mart You Don't Know

You've obviously never had real businesses.

Manufacturers REGULARLY control the distribution of their products for a number of very good reasons. A few would be to maintain exclusivity, price control, and quality control.

Standard Process isn't allowing people to sell their product online because they can't control the price, marketing, and the overall image a random website would give their product and company.

You need to know that these doctors, chiropractors and accupuncturists all buy the products from Standard Process at more or less the same price and are all contractually obligated to sell the products at a second, higher, fixed price. Next, you need to know that selling in specialty stores allows SP to make more profit per bottle than selling online ever could. This is because specialty stores make sales because of knowledge and professional recommendation. Online stores make sales because of bargain prices.

Imagine SP has its products in 100 stores. If some entrepreneurial buyer takes the product online and sells it for a few bucks less than the control price, guess how that's going to affect the sales in the 99 other stores. Do you think it's worth it to SP to possibly move a few extra bottles of fish oil if it's going to cause them to lose half their distrbutors?

rcjordan is spot on -- don't you think there's a good reason you can't buy Nike shoes or Banana Republic t-shirts in Wal Mart?

are all contractually

Quote:
are all contractually obligated to sell the products at a second, higher, fixed price

How does that mesh with US anititrust laws about price-fixing?

Because price fixing...

... takes place between competitors in the same industry. Price fixing at the antitrust level (which is illegal) would be if SP and all it's competitors got together and said, we will not sell x product at any lower than x price -- effectively creating a monopoly on a product and inflating its price, a la the mess at Samsung.

But ...

... the individual stores are competitors, and if their prices are fixed, what's the difference?

Price Fixing

Price fixing on the product level across multiple distribution channels, means higher profits for the company manufacturing the product. So while it may not violate any anti-trust laws, the only people who it's good for are the greedy manufacturers.

For the record I used to sell high end watches (Movado, Omega, Tag Heuer etc) which were priced fixed, so I know something about how the game works.

how the game works

If you're a middleman for a much sought-after product (and even some commodities) you are very often operating under contractual agreements for geographic territory, type-of-business (government sales are usually closed, for instance), the type of facility and how much/where display space, ad co-ops, yada-yada. You are also made very aware that "what the highly-branded manufacturer giveth, the highly-branded manufacturer can take away" and give to your competitor.

Seller vs Manufacturer

... the individual stores are competitors, and if their prices are fixed, what's the difference?

The individual stores have a choice in what product they choose to sell -- the manufacturer setting the price does nothing to diminish the availability or feasibility of other choices.

graywolf -- sure, part of it can be boiled down to greed, a desire to earn more, but that's business. Of course, price fixing does also help distributors maintain profit margins that it could be argued help in maintaining quality of service. And from a manufacturer's standpoint, if brand image is a big part of your business plan, it makes sense to keep control of your trademarks. I'm sure in the high end watch industry (especially in the high end watch industry!) you would have heard of the concept of diversion, and its dangers.

Still 'n but ...

Not an area I know much about, but as product goes, this doesn't seem much like of a sellers' market. And that's what this was about, to me - surely more King Canute-ish than canny?

You may not be able to buy Nike shoes in Walmart, but you can sure as shit buy them online.

CNN - Why big retailers are shuttering stores

Good example,

a better one than I had really thought it was. Many online stores that sell Nike products are in the grey market, and those stores that are permitted to sell Nike online adhere to Nike's strict pricing policies.

Real Business

Obviously there's a shortage of TW readers that have ever worked in the real world, let alone owned a physical business. As in, one that exists outside of myspammymfasite.com.

A few would be to maintain exclusivity, price control, and quality control.

Do you really say these things with a straight face?

Besides my life long computer career of 20+ years, I've been involved with retail a few times as well as owning an ecommerce retail site before it burned to the ground a couple of years ago in the southern california fires. I'm well aware of some of the price fixing nonsense that went on out there and it wasn't between vendors, it was the manufacturer telling us flat-out that if they saw us discounting in the paper, online, or any other place they would cut us off.

Not only that, some did it thru a middleman buy only selling thru certain distributors that kept the markups so high you couldn't discount if you wanted to HOWEVER some businesses seemed to be selling the same products cheaper than we could get them for wholesale.

Been there, done that, hate their guts.

So my original statement stands, call me when they go tits up so I can piss on the remains.

Not Even a Smirk

...it was the manufacturer telling us flat-out that if they saw us discounting in the paper, online, or any other place they would cut us off.

That's their right. A company that runs off customer loyalty will only suffer when vendors get in price wars with one another. As a camera manufacturer why do I want Joe's Camera to knock out Anne's Camera by selling my SuperShooter xc66 for a few dollars more than they paid for it? All I do is lose a vendor and lose face in the eyes of Charlie consumer.

certain distributors that kept the markups so high you couldn't discount if you wanted to HOWEVER some businesses seemed to be selling the same products cheaper than we could get them for wholesale.

And in turn what happened. Your business suffered or you switched to a different line. Either way the manufacturer lost, for the sake of a quick buck.

Of course price fixing can be abused. Of course it is abused. That's not the point here. Just because a company decides it doesn't want to go online our first response is that they are ignorant or short sighted, when that isn't always the case.

>Why big retailers are

>Why big retailers are shuttering stores

Mom 'n Pop has some disadvantages and advantages when compare to the big box retailers. As mentioned before, one disadvantage is the ability to scale operations quickly (myriad reasons, but it generally boils down to lack of available capital and manpower). An advantage is that Pop can decide, without worry about share prices, where he can most likely maximize his income over the long-haul, maybe even to the point of milking a cash-cow dry.

Ignorant? It's suicidal IMO

If I can't find the brand online I will most likely never buy it, nor would a lot of people I know. We don't have time nor the inclination to run from store to store, that's so 1990's, and if it's a one of a kind item far enough away from the house delivery is the only way we'll ever purchase.

Manufacturers stuck in brick and mortar offline mentality really don't realize that they are limiting themselves as lazy people like me with the money to burn aren't likely to want to work hard at spending that money. At a minimum I'll do all my browsing online before going to a single store to look at the desired item in person as there is more information available online than you can get staring at the side of a package.

For example, my wife just spent over $100 buying shiny little beads online last night for an art project she's doing for the simple reason it would've taken trips to almost 10 local craft stores to get all she needed, assuming they even had it all compared to one stop shopping at a specialty store online.

I even get my groceries delivered often so guess where my vitamin supplements would come from if I were to buy them?

That's right, online from the grocery store.

The online advantage is HUGE and yes, it's their right to be flaunting retail evolution and behave like a dinosaur facing extinction.

Good for them.

I'll be drinking up waiting...

For some companies...

... you're definitely right, sort of. :-)

In some industries it just doesn't make sense. For instance, many people refuse to buy clothes online, because they don't know how they will fit or look in them. The internet isn't the future for every business, as hard as it is to admit.

I have a watch habit; I buy a few over the top pieces a year. I go to my local jeweler because I know if there's a problem I can call him or stop by any time. On top of that, he's more than competitive with many online stores when it comes to price. Taking that business online wouldn't make sense, he can't fly to San Jose or Anchorage to provide the same level of service.

Service

I go to my local jeweler because I know if there's a problem I can call him or stop by any time.

That's where Mom & Pop can kick Walmart's *ss everytime, and I'm pretty sure Sam Walton even wrote something to that effect in his book. When I used to own a saltwater fish tank I'd only buy from a local fish store even though he was more expensive, because of the service he gave. So can a vitamin company give that level of service and cultivate in customers mind that they are getting a product that costs more but has a higher quality to justify the price.

Because I'm an opportunist I checked the SERP's for standard process and it looks like people are already selling online.

This is news?

My dad's been selling USANA vitamins for a few years now. If you're an affiliate, er, "independent distributor", you can't actually promote their products online except through a corporate-sponsored website that you can customize only a tiny bit. I guess it's one way that the company makes sure that everyone's on the same page.

cynic that I am...

>except through a corporate-sponsored website that you can customize only a tiny bit. I guess it's one way that the company makes sure that everyone's on the same page.

It also helps ensures that [1] no affiliate outranks the company's own site (darn those pesky rogue seo types, ala the Tiger Direct mess), [2] you're locked-in and can't arbitrarily decide to broaden the lines you represent, [3] the company maintains absolute control over use of the trademarks, and [4] all links lead back to them.

Bicycles and ecommerce

Trek USA absolutely forbids online sales of their bicycles. Giant's restrictions are almost as strong. Most of the brick and mortar local bike shops are happy, though there are plenty with a strong online presence who would love to sell $3000 bikes online as well.

Mont Blanc in New York

Mont Blanc is one of the biggest "brands" in the world. When in New York, everybody knows you buy your $800 Mont Blanc fountain pen at Joon on Lex for 2 and change.

Joon.com has a nice website, full of Mont Blanc pens. It also admits that they cannot sell Mont Blanc pens online, and has a very nice "request a price" form.

Of course none of that is actually "selling online", right?

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