Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
Many manufacturers have come to the conclusion that their fear of channel conflict can no longer restrain them from selling directly online.
There was a time when manufacturers of branded consumer products were the kings of American business. These were the companies that commanded huge margins, reported big profits and paid big salaries to their chiefs. They made kitchen appliances, TVs and radios, cameras, household cleaners, toiletries and hundreds of other products consumers knew and demanded by name. Pity the merchants who didn’t properly display the best-known brands.
In the three decades after World War II, stocks of these makers of branded goods were the bluest of blue chips-Kodak and Polaroid; P&G;, Gillette and Bristol-Meyers; RCA, Westinghouse and GE, Amana and Maytag. Analysts tracked their every move and their ticker symbols dominated the quote machines of every Merrill Lynch office. These producers spent millions to etch their brands on the psyche of a burgeoning middle class. They worshiped at the altar of what was then the trinity of mass marketing-NBC, ABC and CBS. Their names were linked with the most popular TV programs and everyone could recite their slogans. The most desired positions for college grads were in the sales departments of these branded juggernauts because that was the path to the plushest corner offices in the land.
That is not what American business looks like today. The power of these consumer product brands is greatly diminished, so much so that today’s college grads might not recognize erstwhile household brands like Magnavox, Palmolive or Ajax-no, not the web development technology but the foaming cleanser that “floats the dirt right down the drain.” They aren’t the magnet for the brightest college grads. Nor do they command the mass media they once did because the trinity has fragmented into hundreds of cable networks. With diminished brand power the manufacturers no longer control the shelf space in retail stores. Indeed, they often find themselves at the mercy of much more powerful retail chains which can make much more money selling cheap goods sourced from China. Slap any name on them; they’ll sell if they are priced low enough. It’s the big box stores that now control the branded manufacturers, determine how much space they get on store shelves and force them to shave margins razor thin.
In fact, the consumer branded manufacturers were so intimidated by the power of the major retail chains that they initially were quite reluctant to sell directly to consumers via the web. Their fear was summed up in two words they dreaded: Channel Conflict. Simply put, that meant that branded manufactures didn’t want to anger the chains that sold their products in stores.
That fear kept many of them from starting their e-commerce operations for years and a few are still under its spell. But that wall is coming down brick by brick as more manufacturers realize that the web is a near perfect platform from which they can recapture the lost power of their brands. Search engine marketing allows them to efficiently reach a mass market again and an e-commerce site is one of the best ways to reclaim the fatter margins their brands once enjoyed. Furthermore, the intimacy of the web connection with the consumer can be used by these manufacturers to rekindle consumer loyalty to their branded products. In short, the web puts them back in control of their brand destiny.
As this month’s cover story reports, many manufacturers have come to the conclusion that their fear of channel conflict can no longer restrain them from selling directly online. In overcoming that fear, they are fast becoming a major new force in expanding the direct-to-consumer e-commerce market.