Cue the Imperial March

The Death Star is approaching! Run for your lives! All is lost!

I got an email the other day from Motivation Strategies Magazine and in the middle of it was a "click here" ad promoting Amazon's Incentive program. "Contact us today" it said. "We have a turn-key solution" it said.

Amazon presents us with a serious competitor at a time when Brands are already jittery from the Coach departure. Their catalog of product, and their aggressive pricing should create heartburn for several types of merchandise providers.

But more than that, Amazon's interest in our business may signal a sea change in the way programs are merchandised and/or fulfilled. Larger end-users are demanding more real-time solutions, more reporting capability, and a wider variety of products than they did. And as larger accounts go today, so goes the rest of us tomorrow.

I'm hearing that many Special Markets Managers are nervous--that what happened at Coach can happen to them. The general level of anxiety is as high as I ever remember it, and Amazon will only add to the stress. Amazon is already expert at the things many Brands hate to deal with--the one-piece shipments, the constant need for shipping information, and so forth. I am pretty sure that most suppliers would love to see Amazon succeed because in many cases they're already doing business with them--a single source for a large part of the Incentive business? It's a gift from the Gods.

But Amazon has "holes" in its value proposition. First, they are pretty inflexible as an entity. If you have the technological expertise to tie to them, things could be pretty groovy. If not, you may have to settle for an "off the shelf" experience that your clients might not prefer.

I was speaking to a major player in the Incentive market (not the one you might think) and he told me that the client base is asking for more and more customization in their programs. That reminded me of something they taught me in Grad School 11 years ago--that "mass customization" was something that would eventually take over consumer products. So far, Dell has been about the only company that has mastered it.

Our market, however, requires different solutions for different clients, and if you cannot customize your offerings you will find yourself irrelevant. Amazon's main weapon is price--a Weapon of Mass Destruction to be sure, but not the only one needed.

But what Amazon WILL bring us is more sensitivity to what clients want, which is CHOICE. It's not enough anymore to offer just merchandise--end users want travel, and experiences, and Gift Cards, and God knows what else. It reminds me of the advertising I hear on XM Radio--"it's everything, all the time".

We need to start re-thinking our definition of "competition". It's no longer "everything that costs what our product costs" but more of "everything that's provided to a consumer, regardless of whether the supplier is in our business or not." This change will cause tectonic shifts for the "typical" Incentive program provider over the coming months.

As if we needed another reason to stare at the ceiling at night...


Pete

Brands and the Promotional Products Business

A good friend of mine is a Promotional Products Distributor and he sent me this thoughtful reply to my blog on Coach. It's interesting to get the perspective of a "customer" and it raises some serious questions about the relationship between Brands and resellers. So, without any further ado, I give you Matt Siegel, Industry Veteran and Guest Blogger. Enjoy...


When is a Brand Just a Commodity?

I recently came across a definition of the word “commodity” that read… “a largely homogeneous product, traded solely on the basis of price” … this definition would normally bring to mind images of produce, livestock, fossil fuels and other items sold in the commodities market. Would you ever think that Coach products (lets use them as an example since they are no longer a player in the incentive industry) would ever be considered a simple commodity?


Lets consider a well known commodity such as wheat for example. Wheat is sourced from many different farms and sold at market. Generally, it is all traded at the same price; wheat from farm A is not differentiated from wheat from farm B.

Ok…now lets take that same paragraph and make only two substitutions…lets take COACH and substitute it for WHEAT, and lets also substitute RESELLER for FARM…the paragraph still reads well and still makes sense….Hmmmmmm…interesting…

Are you with me so far?

Now lets look at a typical selling / buying scenario for a branded incentive / premium item. Reseller A presents a creative incentive application based on a grouping of Coach products (oh what the heck, lets continue with them).

Buyer X loves the products, concepts and execution of the proposed program. Buyer X’s company has a very typical policy of requiring 3 separate bids when purchasing product that is in excess of a certain dollar amount. Buyer X then takes the products that were presented and puts them out to bid for at least two other resellers. These other resellers have invested no time or resources whatsoever on this project to this point and are getting the chance to bid on it as well.

So now the phone starts to ring at Coach and all of the resellers are quoted the exact same pricing from the Incentive/Special Markets group on the exact same quantities. The resellers all know that the Coach products have been put out to bid and all of them bid as low as they possibly can without risking any monetary loss so that they can save face with Buyer X and continue to be viewed as a competitively priced “vendor partner”.

Hmmm…this is starting to sound familiar. I remember now… “COACH is sourced from many different RESELLERS and sold at market…”.

While Coach spends millions of dollars on differentiating their brand from others in the marketplace, their products just became a commodity… “a largely homogeneous product, traded solely on the basis of price”.

This is the reality of today’s incentive market. Resellers are no longer able to make a profit selling a commoditized brand. In addition, the demands being put on the resellers by the buyers are increasing and the margins are decreasing. Major buyers are paying in 60 days plus while suppliers are more demanding for money up front than ever before, even when credit ratings are good.

Resellers are held accountable by buyers when product doesn’t deliver properly and more and more suppliers are not able to or willing to make good on these circumstances because of their own internal challenges. So why would you want to sell at margins that do not make good business sense?

Which leads us to the next question…Are resellers indeed being “fickle” or are they simply trying to make money?

If a reseller can sell an item and make money, or they can sell an item and not make money, which item do you think they will want to sell? I see no “fickleness” in that at all…in fact, it is very predictable! The answer is simple really, if you want to sell more through resellers, become valuable to them! There are many ways to do it, but I will leave that for another conversation…

As for Coach’s decision to leave the industry…it may just be a stroke of genius! Commodities are sold based on supply and demand…Coach has just shut off the supply. The only way to get Coach product is from Coach themselves. Coach is no longer a commodity being sold on the commodity (incentive) market! Coach is a brand again!!!

If the Coach brand is truly as valuable as they believe it is, then whether the incentive industry resellers are selling it or not, the masses will still want it. So if you think that a company like Pfizer will not be able to get 2,500 Coach Briefcases if they want them for their national sales meeting next year…Think again! It just won’t be through the traditional Incentive marketplace.

And at the same time, Coach will eliminate the need to process and ship the thousands of 1 and 2 piece “sample” orders that add to overhead and simply dilute the value of the brand out on the street! Not a bad tradeoff. They may have helped themselves more than they already know by making their brand harder to come by.

There is a fine line that a brand needs to walk…you never want Yogi Berra to say this about your brand… “That brand was so popular, nobody bought it any more!”