If there’s one thing I think we can all agree on, it’s that online retailers and product manufacturers want to sell more stuff. So it stands to reason that retailers and manufacturers would do all they can to put video on their sites, right? If only that was the case!
We all believe video increases sales conversion rates. Yet adoption lags. In a September post, Justin suggested the lag is due to a lack of leadership. While that may be the case, I think there are number of factors in play. The one that has been on my mind is the question of “who pays?”
eMarketer and Internet Retailer report that video is a top priority for retailers, yet some (many?) feel the manufacturers should pay all the costs. Why is that? Why would retailers want manufacturers to pay for video that will enable them to improve sales conversion rates and sell more stuff?
Having spent the early part of my career in sales and marketing with Procter & Gamble and General Mills, I believe the reason has to do with the long time practice of brick & mortar retailers charging manufacturers slotting fees for new products and merchandising fees for end aisle displays. This practice makes sense in the physical world because the supply of shelf space and end caps is limited while manufacturers’ demand for this space is unlimited. Any economist will tell you that this scenario creates tremendous power for the retailers. They use it – why wouldn’t they?
However, in the world of ecommerce, shelf space and to a lesser extent merchandising space are virtually unlimited. Retailers don’t have to limit the number of products they carry due to “shelf space constraints.” And they don’t have to ration merchandising opportunities (such as product videos) the way they ration end aisle display space. This means that supply pretty much equals demand. Yet, some retailers wait to put video on their sites in the hopes that the manufacturers will step up and pay.
In order to rapidly advance the adoption of ecommerce video, I believe both parties need to contribute because both stand to gain. Manufacturers should pay to create video and make it available for syndication because they directly benefit from the product exposure. Retailers should pay the costs associated with hosting and streaming because they directly benefit from the increased conversion. If retailers and manufacturers meet in the middle, then both will sell more stuff and make more money.
What do you think?
October 21st, 2009 at 8:38 pm
Interesting but what is the hesitation from manufacturers?
I can see why retailers might hesitate to allocate budget creating video for a product that might be discontinued in a short time (for example).
By developing product videos, manufacturers have the ability to control brand perception as well as quality and distribution. This would enhance sales and conversion through endless distribution channels.
I’m curious to know the real reasons preventing manufacturers from jumping on the opportunity to leverage online video against competitors?
I guess (at the end of the day) they feel it’s up to their retailers to market and sell their products?
October 26th, 2009 at 11:58 pm
Hi Craig - great post and welcome to the blog!!
For all who may not know, Craig is CEO of a company called Invodo. He is much too humble to self-promote here, but I’ll toot his horn a little before my comment. Invodo (http://www.invodo.com) connects manufacturers and consumers with the largest product video library in the world. They have produced/aggregated over 20,000 product videos, work with 2,000 manufacturers and 1,000 retailers. If that is not impressive, I don’t know what is!! (btw, I am not being paid to say this, but think a good Invodo promo is due here since Invodo has stepped up to the plate to help out w/blogging).
Okay, so onto my comment…
I believe there are advantages and disadvantages of having manufacturers pay to produce product video content. For years, mass merchants and manufacturers have both understood that video, when implemented effectively, positively impacts conversion results. The problem for retailers has not been the lack of belief in manufacturer video, but rather the ability to efficiently scale video across products - and across manufacturers. A retailer covering 1% of its products with manufacturer video is probably not generating the maximum amount of video commerce revenue it could, even if resources are applied only to the top performing products from a profitability perspective - a best practice I regularly harp on.
W/regard to who should pay??? Video is an ROI decision - just like any other investment an e-commerce site would make. Many retailers lean more toward the revenue side of ROI while others lean more toward the cost side. Today, cost is the driving factor in video deployment, but this is changing already as more and more retailers embrace producing video content on their own and realize the benefits of persuasive e-commerce video.
For a very long time, retailers ignored self-producing video content. The opportunity just wasn’t there. Not only was self-producing video costly, but consumers weren’t demanding video content. Today, video content is everywhere. Nearly everyone has the capability of viewing video online. Plus, new technologies and a growing trend toward relying on less expensive production methods have convinced more retailers to give video a try.
On the revenue side, the challenge for retailers is how to squeeze every last cent of revenue out of every dollar spent on production (btw, this applies whether or not the content is free). Here, manufacturer content wins hands-down. Manufacturers have offered video content for free to retailers for years. There’s an old saying, “nothing sells better than “F-R-E-E - nothing.”
But despite its touted benefits and ability to be re-purposed, the undeniable fact is that manufacturer video is designed to highlight the attributes of the manufacturer’s product, not the retailer’s unique selling proposition. And, in case you haven’t noticed, competition for product sales on the Internet is fierce. Retail margins are shrinking, not growing. That is why retailers are increasingly seeking to promote their unique selling propositions within product video content. For example:
- Does the retailer offer special shipping programs?
- Are extended warranties or service plans available?
- Can high-value upsell or cross-sell items be purchased?
- Are the best products being recommended, regardless of who made them?
- Is a simple checkout process offered?
- Does the retailer offer alternative payment programs?
- Is checkout security guaranteed?
- Are sales or service staff especially knowledgeable?
- Is in-store pickup available?
- Are special shipment tracking options available?
Re: hosting and streaming costs? They’re cheap. Hosting video is a commodity. Any person that spends 10 minutes researching video hosting solutions will find YouTube. Plus, there’s Limelight, EdgeCast, Akamai, Cloudfront, CDNetworks, and low-budget picks like SimpleCDN. It’s true that Akamai will generally offer higher reliability and faster delivery, but for the vast majority of online retailers, hosting is just another “necessity expense.” Whoever pays for the hosting is ultimately inconsequential. What really matters is how much revenue is returned on the investment. Video commerce is an ROI calculation.
Happy Selling!
Justin