October 31, 2003, 12:00 AM

Defusing the channel conflict issue

Branded goods manufacturers are flourishing on the web—not just with information sites but with full-blown e-retailing operations.

Four years ago, when Levi launched its web store, it declared that Levi.com was the only place consumers could shop online for the leading jeans brand. It was a huge red flag for retailers, who were understandably concerned that manufactures could use the web to go directly to consumers and bypass their stores. Major retail chains reacted angrily to the Levi initiative, and some even threatened to pull Levi products out of their stores. Levi quickly did an about face, converting its web store to an information-only site, and to this day web shoppers can view all styles of jeans on the Levi.com site, but they can’t buy them there.

As this month’s cover story reveals, however, the Levi experience did not set the pattern for other manufacturers to follow. In fact, branded goods manufacturers are flourishing on the web-not just with information sites but with full-blown e-retailing operations. And this time, retailers are more accepting of and less threatened by manufacturers’ e-commerce web sites.

How this change occurred is a fascinating example of the power of consumers in our free enterprise system and the power of the Internet in keeping commercial enterprise free. Levi failed in attempting to monopolize the online sales of its branded products, but retailers nonetheless have accepted an undeniable fact that consumers-not all, but some-want to shop online for branded products at the manufacturer’s web site. Their reasons for doing so are no doubt varied. Some may have more trust in the manufacturer’s brand than the retailer’s brand. The manufacturer’s site may provide more information on the product than the retailer’s does or better post-purchase service if a problem arises. Whatever the reason, the simple fact is that some consumers prefer shopping at a particular manufacturer’s site, and in a free enterprise system, it is the consumer-not the retailer or the manufacturer-who gets what he or she wants.

That doesn’t put the retailers at the mercy of the manufacturers. Retailers have their own brands that command the loyalty of millions of shoppers, a fact that manufacturers are ill-advised to ignore. So to maintain good relationships with retail chains even as they seek the higher margins they can get by selling at retail versus wholesale prices, branded manufacturers are aggressively pursuing online business but without Levi’s cut-off-your-nose approach. Today, at hundreds of manufacturer web sites, shoppers are given choices. They can buy goods online directly from the maker of those goods, or they can link to a retailer’s web site to buy them there, or they can search for a store near them that carries the brand. The manufacturer gets a fair shot at the retail markup but without sacrificing the goodwill of merchants who retain the bulk of the shoppers.

In this process, the web links manufacturers with retailers as never before. And in the end, it is the consumer who wins. Consumers get additional shopping outlets-the web sites of the manufacturers-and many more players competing for their business. It means that merchants have to work harder for that business, be more knowledgeable about the branded products they sell and provide an even higher level of customer service and support. That, in turn, raises the bar for manufacturers who want to use the web to sell direct to consumers. And none of this would have happened were it not for the fact that the web is the ultimate free market-the place where anyone can shop, the place where anyone can put up a store.

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