The e-tailer’s secret weapon

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The e-tailer’s secret weapon

“General retailers use their expertise in a few core categories to attract customers, but over the Web they must offer more. Enter the on-line category manager.”

The McKinsey Quarterly, 2002 Number 2

Policy relevance:

The on-line market is still fairly small, but expanding at double-digit rates. Moreover, customers are increasingly demanding an on-line presence from retailers. Considering these quick changes in the market, policy makers need to take these developments into account when taking decisions.

Main conclusions:

  • General retailers tend to be masters at managing only three to five core categories;
  • Online category managers are wholesalers that develop specific expertise in managing stocks of a given type of product for the stores they serve;
  • Working together for general retailers and category managers then suits both partners, off line, but even more so online;
  • Category managers are most useful when a category is relatively complex and customers demand deep selection from an array of many competing brands;
  • By teaming up with an online category manager, the retailer can look forward to increasing its revenue, with no corresponding increase in stock or fulfillment costs;
  • Because the web environment is so demanding, retailers should also consider using the services of online category managers even for product lines that they do handle themselves in their stores;
  • Pitfalls, however, are that the retailer must be sure to protect its interests by choosing the appropriate manager and products to be managed and there is the risk of the retailer losing clients to the manager;
  • The economic challenges of setting up e-tailing ventures are formidable, but aspiring online category managers can look forward to a more positive future than e-tailers;
  • Three differences between e-tailers and category managers:
    • most category managers are engaged in moving succesful existing businesses online and can draw on years of experience;
    • many category managers already pay commissions to general retailers, so going online doesn’t change the managers’ revenue structure in any fundamental way;
    • unlike the typical e-tailer, the online category manager doesn’t have to do the hard work of attrcting clients.
  • The role of online category manager, could not only played by offline category managers, but also by distributors, ordinary wholesalers, or perhaps even former e-tailers;
  • Another possibility is the use of partnerships between retailers and online category managers to create a platform for shared revenues.

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