Distribution of Professional Skin Care products was once dominated by medical care providers, followed by spas & salons. However, as mainstream marketers such as Olay, Lancôme, Neutrogena, Clinique, and Estée Lauder have entered the market, competition has increased and distribution expanded to traditional venues such as department stores, beauty supply stores and drugstores. In fact, this segment of the industry is now the second largest, with growth exceeding sixteen percent in 2004.

The advent of the internet and online sales presents another challenge to the industry. As product category choices and availability increase, manufacturers must match demand with supply or suffer losses in potential growth. At the same time, in order to preserve the distribution channel, perceived value/price point, and brand cachet, Professional Skin Care brands cannot be distributed through the same venues available to mainstream marketers (e.g. drugstores, mass merchandisers and low-end department stores). As a result, manufacturers must pursue greater traction in the segments appropriate to the brand where mainstream marketers are now also competing.

Product diversion acts as a direct threat to brand value. While it may not be possible to eliminate all diverters, it is possible to disempower them by eliminating the primary reason for their existence. By meeting demand of a growing base of online shoppers, and by policing supply flow, manufacturers are able to curtail diversion. Global Diversion is increasingly becoming a threat to the value of brands in overseas markets. Products are exported outside of the US and sold online around the globe at US prices that are often 20-30% lower than foreign prices. Of equal importance are the price-cutting practices that are occurring at US websites. Although the price spread is not as dramatic in the US as it is in foreign markets, small diverters will cut prices to secure sales. Large diverters are willing to discount, effectively creating “loss leaders’, that attract customers to the myriad of other products they offer. Some merchandisers will even offer product that they, themselves, must purchase at retail, for the sake of boosting their apparent legitimacy to the marketplace.

Customer Defections attack profitability. Lack of inventory at a retail store often causes defection to another product, and for die-hard internet shoppers who know exactly what they want, lack of online commerce also causes defection. Shoppers at websites such as strawberrynet.com are offered many competing brands and ancillary products competing for a finite number of consumer dollars. A Harvard University study shows that by retaining just five percent of your customers, profits rise by no less than twenty-five percent.

The Challenge
For Professional Skin Care & Beauty Manufacturers, maintaining brand value is critical to the success of their business. Competition among manufacturers for the loyalty of their channel partners is fierce and depends upon the manufacturer’s full support of its partners. Diversion, and the brand devaluation it causes, disincentivizes channel partners. The challenge is developing a strategy and system that will combat diversion, reduce channel partner defection, and maintain brand value while the manufacturer sells across multiple channels.

The Solution
Combating Diversion requires several proactive and interactive measures to be taken concurrently.

Benefits of an Effective Channel Management Solution
Not all solution providers are alike. When looking at solution providers such as those below, the best of breed will deliver: