The Principle of Verticalization in Online Marketing: When the Manufacturer Meets the Customer

Table of Contents

Verticalization of Manufacturers – Why? Commerce is booming, consumer demand and purchasing enthusiasm are constantly growing, and access to products is greater than ever before. One might think that manufacturers are certainly making the highest profits and revenues and experiencing prosperous times.

However, some companies have sadly experienced in recent years that conventional management styles and classic job division can quickly push you out of the market. It is extremely important not only to appear as a pure manufacturer but also to get to know your customers personally.

We will explain why this is the case and what causes have led to it. But don't worry, we also have solutions ready for you.

What is Verticalization Exactly?

Verticalization per se describes the integration of upstream and downstream stages of the value chain. This means that the previously clearly separated roles and responsibilities of manufacturers and retailers are increasingly overlapping and boundaries are becoming more fluid.

The pure division between the manufacturer and the handing over of products to distributors is no longer timely, with digitization being just one of many causes. Not only is the external presence of a manufacturer becoming increasingly important, but customer loyalty should also be strengthened through open structures. In (online) marketing, this is called vertical marketing.

In verticalization, manufacturers become so-called verticalizing manufacturers – meaning the products are not only manufactured by one company, but it is also responsible for additionally sparking the interest of potential customers, building and strengthening customer bonds.

Moreover, an advisory function is added before and after purchase, up to possible direct sales – the manufacturer thus assumes a significant part in the value chain, depending on how the power dynamics between the players are distributed.

This verticalization of processes can run in both directions, not only from the manufacturer towards distribution but also from retailers towards manufacturers. Companies should engage with the topic of verticalization from this situation.

The Role of the Customer Life Journey and the Manufacturer

Why the integration of processes in the value chain into one's company is sustainably worthwhile has something to do with the Customer Life Journey. This describes how a potential customer becomes aware of the brand, develops interest in a product as well as a willingness to buy, and subsequently informs themself about a product. This process is followed by the purchase and the customer is looked after afterwards, so they ideally appear again as a loyal customer.

If a company covers as many steps as possible in this journey, the Customer Life Value increases: the probability of a customer returning due to the built-up customer loyalty and a repeat purchase rises.

[caption id="attachment_24507" align="aligncenter" width="906"]

Fig. 1: Customer Life Journey and Customer Life Value in the AIDA Model.[/caption]

But even at the initial purchase, the preliminary step of customer loyalty is extremely relevant: The better a company's branding strategy is in advance and brand building takes place, the more likely it is that the potential customer will become a buyer and decide against a rival product.

Who doesn't know it: You're looking for a specific product and might already be in the store. A last grab for the mobile phone to reassure and gather additional information. A good branding strategy and optimized online presence can now be crucial for the customer’s purchase. Whoever has already invested well as a manufacturer can secure the sale for themselves. It doesn't necessarily have to be direct sales as a channel, the same principle applies to sales through distributors.

Branding Strategy – Why and How

But how can a manufacturer advance brand building? The right branding strategy is crucial. Verticalizing manufacturers offer product services on their own pages that enable close and easy customer contact, provide high-quality informational material, as well as product presentations with high-quality photos and videos, zoom functions, and attractive product descriptions.

All these services offer the potential customer a positive brand and shopping experience, even before the purchase. The emotional connection and the building of trust between manufacturer and customer significantly contribute to identification and brand building.

Fig. 2.: Guitar manufacturer Fender (FMIC) shows information and imagery with a zoom function on the website and offers information options on delivery times.

A second important point and benefit that arises from good branding and the resulting customer contact is the direct customer feedback that can be generated. Manufacturers finally have the opportunity to get to know their customers personally, better understand their needs and use this valuable information not only for product improvements but also for additional services. This can sustainably improve the complete buying experience and strengthen the bond between manufacturer and customer. This process is further supported by targeted marketing.

The effect of approaching the customer is also evident in product development: Manufacturers can respond directly to customer wishes through close customer contact. Specific and personalized products are often the result of this, which in turn leads to an even better reputation for your company.

Fig. 3.: Example of product personalization for customers of the pacifier brand “NUK”. By individual design, customer loyalty is strengthened and customer proximity is established.

When Partners Become Competitors

Whether and to what extent verticalization can be advanced depends greatly on the industry and the dealer network in which you distribute your products. As mentioned before, this leads to shifts in power dynamics not only between dealers but also among manufacturers and dealers.

Where sales used to occur through wholesalers, now often E-commerce shops compete not only directly with other brands on the page but across the entire network. This potential loss of revenue encourages manufacturers to start direct sales in order to withstand the enormous competitive pressure. But be cautious, acting too quickly could be fatal.

One should not forget that dealers at this point know the needs of buyers very well due to long-term customer relationships, customer contact, and sales experience – manufacturers initially find themselves in a weaker position here.

It is therefore urgently advised to openly lay out and discuss steps of verticalization with distribution partners, especially when considering your own shop, so that the dealer network is not bypassed and falls apart. Moreover, due to the different budgets of the individual dealers, a solo takeover of direct distribution by the manufacturer is usually not advisable.

The establishment of direct distribution and the positioning as a competitor with distribution partners should therefore be well planned and should only occur when there is sufficient end customer contact and brand building.

Many manufacturers, when it comes to verticalization, do not want to go into direct sales as such but instead offer specifically manufactured special product lines or brands in online shops that can be purchased exclusively.

Fig. 4: Chocolate manufacturer Lindt & Sprüngli AG offers limited editions online in its online shop and thus becomes a direct sales vendor.[/caption]

Aside from selling selected bestsellers or limited editions, another possibility is presenting products with the option of retailer search. Here the manufacturer supports the retailer in gaining customers. The result: the main focus is therefore not on the establishment of an E-commerce shop but on brand building and the establishment of a close customer relationship. This benefits not only the manufacturers but also the individual retailer.

Fig. 5: Calendar manufacturer “paperblanks” not only offers the option to purchase individual products online on its website but also a retailer search for more products.

Technology manufacturer “Fujitsu Limited” also offers the possibility of providing more detailed product information on its website and offers customer contact for this purpose. As a manufacturer, Fujitsu knows its products best; however, distribution continues externally through partners. On the website, the customer has the opportunity to receive detailed and purposeful advice.

Fig. 6: Fujitsu uses product descriptions and storytelling to bring interested customers closer to the product, showing that the company understands the customers' needs.

Through product videos, the storytelling on the product page is then further deepened. Additionally, all necessary information is compiled for the customer at a glance, such as product awards, partner search, customer service number, and technical details. During the subsequent visit to the dealer, the purchase decision will likely be influenced by a purchase intention for the Fujitsu Limited brand.

Fig. 7: Elements of the website that are customer-focused.

Meanwhile, it should not be forgotten that the power dynamics shift bilaterally between manufacturers and dealers. Verticalization here does not only originate from the manufacturer but can also be initiated by the dealer. This results in two scenarios:

1. Manufacturer as Retailer

As just introduced, manufacturers increasingly take on the functions of the retailer and possibly sell individual product lines, for example, in direct sales.

2. Retailer as Manufacturer

But retailers also leverage their accumulated knowledge about sold products and customer profiles. No one knows their customers better than the retailer: through years of customer service and trust-building in their services, retailers and their networks possess unique information. They know the preferences and behavior of customers and now increasingly use this knowledge for themselves: They build their own brands and branding strategies, and new products are created. These then compete directly with established brands.

Fig. 8: A small selection of the established private labels of drugstore retailer dm - drogerie markt GmbH & Co. KG, which the company has built up over the years.

The adapted product articles and brands cause an uproar at some established manufacturing companies because they may feel bypassed, following the motto: "We develop products, and you use your reach to launch cheaper but similar products on the market." However, this is rarely the case since private labels conduct and support their own product developments.

Ultimately, it is up to both manufacturers and retailers to develop new branding and marketing strategies, to utilize them, and to work in symbiosis rather than against each other.

How This Specifically Relates to Online Marketing

As already mentioned, users inform themselves increasingly beforehand before purchasing or directly in the store through smartphones on manufacturers' websites about products and look for reviews and recommendations. Simultaneously, especially in the omnichannel approach in marketing, store visits in online presence are becoming increasingly important to strengthen customers in their purchase decision and bind them to oneself.

A good concept and a good strategy in online marketing that considers all these factors help companies with comprehensive information and options, such as good services and a confident appearance, to directly approach customers and convince them. Introducing online shops or a B2C website helps to secure one's place amidst the competition in the long term.

By maintaining customer relationships on your own website, customers can be examined with web analytics that provides valuable insights for product development and potentials.

When deciding on online advertising, such as Google Ads, there are several points to consider. How are the keyword prices developing for certain generic products? Can I keep up here with my budget? Smaller companies are advised to start with specific products like top sellers and fall back on long-tail keywords to best invest the available budget and secure good positions.

Online marketing consciously intervenes in users' Customer Life Journey. This must be thoughtfully considered, implemented, and developed in the long term to secure customer loyalty. A good marketing strategy for verticalization moves the company forward, while a poor strategy can have the opposite effect.

An important factor in verticalization is not least the expansion of reach. The customer base can be expanded through perfectly coordinated branding strategies in online marketing. Due to the increasing digitization of the market, online marketing in particular is becoming an important component, because: Online trade is growing by about 10% annually. Use this development for yourself!

Branding Strategy or Performance Focus: How Can I Participate in the Process?

Depending on the starting situation, different strategies arise. Are you still at the beginning of your online presence and want to increase your reach? Or do you already own an online shop?

1. Pure Product Manufacturers

For product manufacturers who do not yet have their own online presence, building a user-friendly website is recommended. Together with the right branding strategy in online marketing, your brand can be further built, and reach expanded. In the course of this, online direct sales can be set up.

2. Manufacturers with Direct Sales Seeking Market Expansion

Manufacturers with their own direct sales are also looking for new markets. How can you reach more customers with your direct sales and gain new customers? How can you bring your offer to further potential customers and advance your company? Through dealer networks, but also by targeted use of the right marketing strategy and advertising options, you succeed in exploiting new target audiences.

3. Manufacturers with Customer Contact and Sales: Process Optimization and Expansion of Online Trade

If your company is already known to customers not only as a brand and manufacturer but also in direct sales and retail, the right marketing strategies help optimize processes and continue to expand online trade. Many factors must be considered, and with the use of the latest techniques and advertising possibilities, new ways continuously arise to strengthen one's position and offer users an exceptional experience. New strategies not only help with revenue increase but also reveal new potentials.

Different Industries, Different Customs

In the verticalization of markets, a lot depends on the industry in which you find yourself. While some industries are already more established in the online business, other industries are gradually catching up step by step. While fashion and electronics brands with nearly 50% market share in online trade are already firmly established in the online business, the healthcare industry, with a share

of 6.2%, is only slowly catching up. With every market entry, legal foundations and hurdles must, of course, be examined, which must first be overcome in some industries. However, the potential is present in all industries and the market is not saturated.

Fig. 9: Apple Inc. offers special educational discounts on the website and uses this as a USP for its own online shop.[/caption]

Especially in high-revenue industries, the direct sales of large companies are usually tolerated by retailers. A good example is the tech corporation and giant Apple Inc., which can position itself particularly well in its own shop with special discounts, such as educational discounts.

While some retailers might remove (individual) products from distribution in the case of verticalization of lesser-known brands due to poor communication between manufacturer and retailer, the direct sales by prominent companies are tolerated. Therefore, a good bond and open communication between manufacturer and dealer are extremely important.

Fig. 10: The technology manufacturer Apple Inc. offers products directly for purchase on its website. Apple directly engages with the customer and understands their needs: Through an especially user-friendly and short funnel, the purchase is facilitated.

There are many opportunities to reposition and expand your business through verticalization. New strategies, current techniques, and online marketing offers help enormously to achieve these goals. Use verticalization for yourself!

Internetwarriors GmbH – Your Partner with Expertise and Industry-Specific Solutions

Internetwarriors GmbH specializes in individual Customer Solutions for online trading. No matter whether you are currently in brand building, exploring new markets, or want to boost your sales with online marketing - we offer a solution tailored personally for you. Our years of industry experience help us find the right strategy for you and your digital business model.

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