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Business - Written by on Tuesday, November 10, 2009 11:53 - 2 Comments

Denis Hancock
Alice.com: can selling online (through a new intermediary) work for CPGs?

The recession has been a challenge for CPGs – particularly as price-sensitive shoppers flock towards cheaper, private label products. With many analysts believing this flight to private label goods will outlast the downturn (see: The Economist), the companies may be facing a long-term challenge – with the dreaded undertone of “commoditization” floating in the background as buyers increase market power at the expense of suppliers. However, there’s one particularly interesting option such companies have not really embraced as of yet – selling via the Internet. As also noted in The Economist, this is the exact type of “game changer” that P&Gs new boss is now looking at.

Alice.com is a relatively new start-up that might represent a step in that direction. Originally profiled in June by TechCrunch, the company is hoping to do to “home essentials” shopping what the likes of Amazon (et al) have done to books, clothing, shoes and electronics. The basic value proposition is buying through the site instead of trudging to the store. And they try to add value by “tracking” what you are running low on and sending reminders, as well as finding coupons and deals. Here’s a quote from the CEO summarizing what they’re trying to do:

“We have been extremely pleased with the reception that the Alice.com platform has received in the marketplace from both consumers and manufacturers alike. Direct to consumer sales by manufacturers is a growing trend online, and the Alice.com platform is helping the CPG industry open up a direct channel to its mainstream consumer. It’s a win-win that brings great value to the end consumer, and critical consumer relationships and insights to the manufacturer.” - Brian Wiegand, CEO.

The company has now secured a second round of financing, which they hope to use to bring companies like P&G on board. The big question I have is whether, if they succeed, this development will help consumer brands or hurt them.

The reason is simple. While such intermediaries might help the manufacturers fight back against private label goods (and the retailers behind them) in the short-term, in the long-term such sites might actually increase commoditization pressures. If customers become hooked on coupons and deals, margins could easily be challenged – and with the site offering to crawl the web and automatically apply discounts, this could turn into a real issue. They also take a page out of Progressive Insurance’s book, and provide real-time price comparisons across a variety of sites – which should also drive down prices. And if they use ranking and ratings from other customers (akin to what Amazon does), it may  be even more difficult to differentiate yourself among (say) the 86 different types of bathroom paper on offer.

But on the other side, there is the potential to capture a lot more margin here – if Alice.com’s business model works. Right now, Alice.com takes no retail margin whatsoever – which is how they can claim to be a “direct channel”. Instead, they plan to support their entire business through advertising – ads on the site, and a variety of ways to provide samples and coupons. If it works I could see how that would be a boon for retailers- but trying to support an entire logistics infrastructure (warehousing, all the e-commerce, and free shipping) based on ad revenue alone might not add up.

But if it works, it could truly be a “game changer” – representing a new type of intermediary in retail, stripping out an enormous and costly infrastructure while supporting itself through advertising and some sort of data ownership (while allowing a lot more data to flow directly to the manufacturer). This will be particularly true if we ever get to the magical place where the “refrigerator (etc.) talks to your PC” – allowing for real monitoring of when certain products get low.

So it will be an interesting one to watch – particularly from the perspective of the CPGs themselves. One wonders if one of the ways to fight back against pricing and commoditization pressures here is having one company – say P&G – provide certain customers with all their household needs, providing some form of additional value that goes beyond simply saving money.


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Secret Diamond
Nov 12, 2009 0:29

Quite frankly I find it pretty surprising that any company is not already selling goods or services online. E-Commerce has shown that it is here to stay and is a serious force to deal with. Any company that has not already positioned itself to sell online is setting itself up for possible failure, or lagging sales in the least.

Selling Services Online | Internet Marketing Strategies-Wholesale Electronics
Nov 19, 2009 6:50

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