According to Alex Tosolini, the senior vice president of global eBusiness at Procter & Gamble (P&G), “Our job is not to change consumer behavior. Our job is to follow consumers’ behavior and be present with our brands.” It’s an effective summary of the rationale for the manufacturer’s latest supply chain move, which promises to have substantial effects on the way retail gets done.
Noting that people increasingly purchase the consumer goods that it manufactures online (e.g., diapers, detergent, paper towels), P&G is seeking to enhance its direct-to-consumer online sales. Rather than adding shampoo to a repeat purchase list on Amazon, P&G hopes to convince consumers to buy directly from it, the manufacturer.
In so doing, it could increase its own margins, because it would not need to share the revenue with the retailer. In addition, it likely could undercut any retailer on price, because it would not need to maintain retail stores. Considering the long-standing, close relationship between P&G and Walmart, such moves might make for some awkward strategy meetings in the near future.
The move also requires P&G to build some new infrastructure, including fulfillment centers located strategically throughout the country, so that it can be sure to get the products into customers’ homes as quickly as Amazon or Walmart.com promises to do. It already has started building an $89 million distribution center outside of Dayton, Ohio.
Discussion Questions:
- Why has P&G decided to sell direct to consumers?
- If you were Walmart, what would you do about it? Would your answer be any different if you owned a small regional grocery store chain?
Source: Andrew Elliot, Retail Wire, November 3, 2014