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How traditional manufacturers succeed in D2D: A
strategic framework for assortment and pricing to
solve channel conflicts
Suggested Citation: Götsch, Constantin; Rupprecht, Simon; Kuntner, Tobias; Anderl, Eva
(2023) : How traditional manufacturers succeed in D2D: A strategic framework for assortment
and pricing to solve channel conflicts, Marketing Review St.Gallen, ISSN 1865-7516, Thexis
Verlag, St.Gallen, Vol. 40, Iss. 1, pp. 70-77
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Marketingzeitschrift für Theorie & Praxis 1 / 2023
Marketing Review
St.Gallen
Assessing Marketing
Performance
Schwerpunkt
Digitales Marketing:
Integrierte Erfolgsmessung –
Wie der strategische Einsatz
von Digital-Analytics-
Instrumenten gelingt
Management im Cockpit –
Dashboards für den
Marketingerfolg
How Traditional
Manufacturers
Succeed in D2C
A Strategic Framework for Assortment
and Pricing to Solve Channel Conflicts
Management Summary
Easing Channel
Conflicts with Offer
This article shows how traditional manufacturers, with a history of selling via
B2B channels, can define their D2C assortment and pricing strategy to avoid Differentiation
channel conflicts and succeed in D2C. Offer differentiation, the strategy of
taking a homogenous marketing mix and making it appear different in the The core option for solving these conflicts
mind of the buyer, is key to reducing the risk of channel conflicts. Using the is to differentiate the offer between direct
framework presented in this article, manufacturers can align their assortment and indirect channels (Vinhas & Ander-
and pricing strategy with their level of D2C power, i.e., brand value, product son, 2005). Offer differentiation is „the
substitutability and prior D2C experience. strategy of taking a homogenous market-
ing mix and making it appear different
[…] in the mind of the buyer” (Hawes &
Glisan, 2015). What can manufacturers
do to achieve such differentiation?
The focus of this tension is on the assort- (Tripp, 2019). Offering their products for a
ment and pricing strategy. If manufac- lower price would create an unbeneficial One possibility is to limit the sales of
turers are engaged in indirect and direct channel conflict. Manufacturers could a product to only one channel to avoid
sales, they need to decide which products also offer a new, exclusive D2C assortment competition with retailers. Manufactur-
to offer at which prices to which channels instead. This reduces the risk of conflict. ers can also assign D2C products a new
(Jelassi & Martínez-López, 2020; Pasirayi However, the development of an exclusive stock keeping unit (SKU) to avoid com-
& Fennell, 2021). If a brand provides the D2C portfolio is costly, creates consumer parability (Roeloffs Valk, 2020) or posi-
same product in both channels, retailers confusion and adds complexity in internal tion a retail product under a new D2C
and the manufacturer are competing over processes (Bertini & Wathieu, 2011; van brand (Witek-Hajduk & Napiórkowski,
the same offer. This is exacerbated when der Veen, 2015). 2017).
a specific product is offered for a lower
price in manufacturers’ direct channels A further option is to develop completely
because retailers may perceive this as an new products that are exclusively offered
attack against their market position (Webb Main Propositions in D2C channels. By making those prod-
& Didow, 1997). Therefore, a strategy to ucts exclusively available via D2C, man-
balance assortment and pricing decisions 1 The higher the level of channel ufacturers can avoid price competition
between both channels is required. integration, the higher is the (Lessard, 2021). Manufacturers that offer
risk of channel conflicts. exclusive D2C products can price their
products based on value or the prices of
Managing Assortment 2 Offer differentiation is the key horizontal competitors (Bashkin et al.,
to easing the risk of channel 2017). Yet, creating exclusive offers can
and Pricing Between conflicts. be costly and time-consuming (Bertini
Competing Channels & Wathieu, 2011; van der Veen, 2015).
3 D2C power, comprising brand Therefore, manufacturers can apply other
The level of competition between chan- value, product substitutability types of differentiation strategies that
nels depends on the level of channel inte- and prior D2C experience, is change the offer characteristics and make
gration, i.e., the level of similarity between the main factor shaping D2C comparisons between retailers and D2C
them (Jelassi & Martínez-López, 2020). The strategies for manufacturers. more difficult. One approach is to add
higher the level of channel integration, the services such as extended warranty pe-
4 The greater the D2C
greater the extent of a channel conflict, riods or product maintenance (Baxter et
power, the more extensive
as manufacturers and retailers compete al., 2021). The service level in general can
and aggressive the D2C
over the same offer (Vinhas & Anderson, also be differentiated, e.g., via delivery
assortment, pricing and
2005). To avoid such conflicts, manufac- differentiation strategy can be. and return policies or free samples (Arora
turers could simply offer a fully integrated et al., 2020). Customization is another way
portfolio with identical products for a 5 The greater the D2C power of of creating exclusive products (Winkler,
higher price. This strategy most probably a manufacturer, the higher the 2019), and personalization is a way of add-
leaves a manufacturer with fewer sales as likelihood of D2C success. ing extra value compared to retail offers
their offer is not attractive for consumers (Heinemann et al., 2019; Detscher, 2021).
Second, the authors conducted a mul- Lego 21.9% Medium Hybrid High FMCG
tiple case study analysis that followed KitchenAid 15.1% High Hybrid Medium SMCG
the three-step procedure of Yin (2009).
Twelve traditional manufacturers with Source: Authors’ illustration.
either a high brand value, like Apple, or
and differentiation mainly depends on indicate that the higher the D2C power strategies, the results are incorporated
three factors: (1) brand value, (2) product of a manufacturer, the more advanced into a D2C Maturity Model (figure 1).
substitutability and (3) prior D2C experi- can be the pricing and differentiation
ence. These three factors will summarily strategies. To visualize the impact of The level of maturity is defined by the
be referred to as D2C power. The results D2C power and align it with actionable D2C power. Manufacturers with low D2C
power are called Newbies. The ultimate
goal of Newbies is to familiarize them-
selves with the new channel and gather
first experiences. They enter D2C with a
The Case of KitchenAid fully integrated assortment and offer their
undifferentiated product for the recom-
KitchenAid, a manufacturer of household appliances such as blenders or mended retail price (RRP). An example of
cooking machines and other kitchen gadgets, is a good example of how D2C this type is the sporting goods manufac-
Professionals (and Experts) can use differentiation to justify higher prices and turer Wilson, which offers their products
avoid channel conflicts. As a household appliance manufacturer, KitchenAid for the RRP without any differentiation.
finds itself on rank three of the most valued brands (Prophet Consultancy, 2021).
They offer innovative products in a premium price segment (KitchenAid, 2022).
Next, Beginners are manufacturers that
KitchenAid charges a comparably high markup of approx.
show an increased D2C power. Their
15% plus an additional charge for personalized goods.
strategy is to try out some first differenti-
They use a wide range of differentiation strategies
ation measures such as added services and
including bundling (allowing them to partly undercut
retailer prices for selected products), personalization (by slowly settle down in the direct sales chan-
engraving), free extras such as gratis bowls or extensions nel. They learn from their D2C activities
and a 90-days money-back-guarantee. Additionally, by receiving feedback on them. The Swiss
KitchenAid also provides exclusive and limited products knife manufacturer Victorinox differenti-
that are offered only via their D2C channel. ates its D2C channel by offering personali-
zation as well as special edition colors. Due
Goal Familiarize Try & Nest Strive & Earn Succeed & Exploit
Probable Certain
Channel Not existent due Possible
- differentiation is a must - D2C management
Conflict to RRP pricing - differentiation needed - strong brand required with a top brand needed
to a higher product substitutability as well The higher the D2C D2C-exclusive products to avoid channel
as limited brand value, Victorinox remains conflicts (Prophet Consultancy, 2021).
conservative in their pricing by offering
power of a manu-
their products for the RRP. facturer, the more The maturity of a traditional manufac-
turer correlates with D2C success. D2C
Brands with medium to high D2C power
advanced can be the success is shown on the y-axis of the
are referred to as Professionals. With a pricing and differen- D2C Maturity Model. It correlates with
better market position, they strive for the level of value a manufacturer is gen-
success and can earn higher margins
tiation strategies. erating in direct sales. It is assumed that
in D2C by moving away from the RRP. turnover or profit may be suitable met-
With increasing experience, they diverge They know how to handle channel con- rics. However, the model does not give
from a fully integrated assortment into a flicts between direct and indirect chan- any specific definition of D2C success as
hybrid assortment model with some first nels and fully concentrate on exploiting cases may differ.
D2C-exclusive products. For example, direct sales channels. Their hybrid as-
KitchenAid’s D2C experience and brand sortment is differentiated, with exclusive Each of the four phases incorporates
value allows them to price independently and customizable products. Experts price specific pricing, assortment and differ-
from the RRP. On average, KitchenAid their products increasingly value-based entiation strategies. To align these with
charges an extra 15% on retail prices. and with comparably low D2C markups manufacturers’ D2C strategies, a clear
Their differentiated assortment with (or even none). For example, Dyson’s and dedicated guide is needed. Such a
exclusive products, customization and innovative products, powerful brand guide is given by the D2C Strategy Board
personalization clearly differentiates D2C and experience in D2C allows them an depicted in figure 2.
from retail (Prophet Consultancy, 2021). aggressive pricing strategy. In some cases,
Dyson even undercuts the price of retail- The Strategy Board provides strategic de-
Manufacturers of innovative products ers. Their extreme D2C power is comple- tails for the four maturity phases with re-
with a top brand value and extensive D2C mented by differentiation strategies such gard to pricing, assortment, differentiation
experience are designated as Experts. as services with free extras or seasonal as well as revenue and channel conflicts.
• N ewbies with low D2C power are ad- differentiated channel offerings, The Differentiation Board shows man-
vised to integrate their whole portfolio professionals move away from RRP ufacturers three ways of entering D2C
in D2C on the basis of the conservative pricing. They add a low D2C markup with their portfolio:
RRP to reduce complexity and the compared to retail, justified by added
risk of conflicts. Due to the passive value. • T
he basic offer type is undifferenti-
approach, revenue is expected to be • Experts show D2C excellence by utiliz- ated and existent before going D2C.
low and channel conflicts should not ing complex differentiation strategies, This strategy is available in all phases
be existent. a differentiated hybrid assortment of maturity. Depending on the D2C
• Beginners differentiate their fully in- with exclusive products and direct power and aggressiveness of a manu-
tegrated assortment, e.g., with added price competition where suitable. They facturer, pricing can range from RRP
services. Due to the reduced compa- exploit the direct channel with increas- to low markups in D2C. Products are
rability, they can slightly undercut the ing revenues. As price competition offered with the same characteristics
RRP. As the offer is gaining in attrac- might trigger channel conflicts, Ex- in both channels.
tiveness, revenue in D2C is expected to perts must employ an excellent chan- • T he second type is represented by
rank at low to medium levels. Differ- nel management, paying attention to those products that keep their core
entiation strategies need to be applied their retailer relationship and utilizing characteristics, but are enhanced
to avoid channel conflicts. diverse differentiation strategies. through differentiation, such as ser-
• Professionals use their increasing D2C vices. The more mature a manufac-
power to earn higher revenues. By As part of the D2C Maturity Model, the turer is, the more price competitive
starting to implement some D2C-ex- Differentiation Board in figure 3 goes their differentiated existing offers can
clusive products and using advanced into detail on when to apply which dif- be. Through simple differentiation,
differentiation strategies, they manage ferentiation strategy. It further elaborates these strategies are a start to avoid
to bypass channel conflicts without on the specific pricing method to be used channel conflicts over offers that are
risking their D2C success. With their when differentiating an offer. price competitive.
Subscription
Value-based
Membership
Ext. Content
≈ RRP + value markup
2 3 4 Service
Free extras Individual ++ markup
Product Samples
Undifferentiated, Hybrid Individual + markup
existing offers Ext. Warranty
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unisg.link.MRSG-Goetsch-et-al Operational Research, 300(3), 1050–1066.
Online-Anhang
Literature review
Expert interviews
Selection of 12 cases
Analysis of 12 cases