Consumer packaged goods manufacturers like Procter & Gamble, which announced last week that it is collaborating with PFSweb Inc. to launch its first full-fledged online retailing web site PGeStore.com, are using such web sites to gain insights into consumers’ behaviors, say analysts.
Under the agreement, PFSweb will own and operate the e-commerce site utilizing technology from Demandware Inc. and provide transaction processing, web site development and customer service. PFSweb, which owns and operates eCost.com, No. 128 in the Internet Retailer Top 500 Guide (a PDF version of the company’s financial and operating profile can be ordered by clicking on its name), and provides similar e-commerce services to other companies such as LEGO Brand Retail Inc. and Roots Canada Ltd, will also handle order processing and fulfillment and determine product pricing and distribution. Procter & Gamble will provide the new site with inventory and concentrate on marketing and merchandising activities.
“This effort by Procter & Gamble is about more than just commerce,” says Bruce Cohen, partner at retail consultants Kurt Salmon Associates. “It’s about innovation and insight for the continued health and growth of their business.”
Retailers traditionally have closely guarded the information they gather about consumer behavior and decision-making. When manufacturers do gather consumer information through retailers, such as what products consumers want to buy, or how shoppers respond to particular packaging and shelf displays, it can be expensive, says Cohen. Friction between the retailer and manufacturer can also develop if, for example, the manufacturer invests in in-store promotions and shelf displays and the in-store execution is not as strong as the manufacturer would like.
An online retail presence can eliminate some of those headaches since it eliminates the need to collaborate with a retailer, says Kasey Lobaugh, retail analyst and principal with Deloitte Consulting LLP. “Right now manufacturers don’t have that much insight into who is buying their products. The closer to the consumer you get, the more you can see how consumers behave.”
Those behaviors could include learning what products consumers purchase at the same time, he says. “Without having a shopping cart on your site, you might not know that the person who buys apple juice is also likely to buy macaroni and cheese. That can help you make decisions that will grow your margins.”
Armed with their own information about consumer behavior, manufacturers are in a stronger position to negotiate with retailers for shelf space and to raise profit margins on products that they know consumers prefer, Cohen says.
The web can also serve as a laboratory where manufacturers test out new products, he says. “Rather than having to send out 50 truckloads to stores to test a new product they can introduce and test new products online before launching them broadly in stores.”
Jim Okamura, J.C. Williams Group senior partner also sees manufacturers like Procter & Gamble using their online stores to test new offerings, as well as pricing structures. “The online retail space allows retailers to experiment by isolating different variables to see what changes impact customer behavior,” he says. “Pennies at a product level can result in billions of dollars for the company.”
Beyond those consumer behavior insights, Procter & Gamble is also positioning itself to learn whether consumers will change their current grocery shopping habits, says Cohen. “This is a play for the evolution of retailing and consumer products, and a battle over the hearts, minds and wallets of consumers,” he says. “Procter & Gamble has to continue its strong track record as an innovator in consumer products, and to position itself to communicate with consumers. Every consumer company is at risk today. In the last two years, we’ve seen the mighty fall in every industry sector when they had not positioned themselves in a forward manner.”