Increasing Customer Happiness Through the Manufacturer’s Input
How to create a more meaningful and profitable partnership with manufacturers
What comes to mind when you think about the relationship with your manufacturers? Chances are you have the same picture in your head as so many other brands. You see a series of events that starts with opening a purchase order, and goes down the line of tasks including paying for your items, getting them shipped and then starting the process all over again. It’s a transactional relationship that has seen very little disruption through the years.
But the times are changing, and a company called Italic is leading the charge when it comes to developing a new framework around partnering with manufacturers. Italic is a membership-based brand that gives customers access to products produced by the same manufacturers of the top brands in the world.
Jeremy Cai is the CEO of Italic, and he likes to say that Italic is a marketplace-inspired supply chain and he wants to explains exactly what that means. Cai describes new and different kinds of partnerships with manufacturers that, for the first time, makes them true partners in business. Plus, he explains why that partnership is leading to a better end product and happier customers. He also dives into new ways you can leverage manufacturers that many aren’t aware of, and details the metrics and strategies that subscription companies need to be focused on to rise above the competition.
“The incentive for manufacturers is to earn a higher than the normal profit margin on Italic sales because they’re taking on the inventory risk,” Cai says. “We’re able to pay them substantially more than they would ordinarily make. So I think they’re very in tune with our orders — sometimes even more than we are in terms of performance.”
As Cai explains, there is much more interest on the manufacturing side because they are now taking a bigger risk to produce products.
“They actually are taking on inventory risk and we’re taking on the marketing risk of this inventory in which their incentive is to take inventory risk for a higher yield or higher rate of return on the inventory that they’re producing and owning,” he says. “Then our risk, of course, is making sure that we can sell that to our members at a price point that is still radically lower than the competition, but at a place where they’d be happy with the profits.”
At the end of the day, regardless of who is taking the risk, the ultimate goal is to get the product to sell to the customer. In the case of Italic, that means that both the brand and the manufacturers have to have a pulse on what the members want. Each party needs to know what is selling well and why.
And they also need to be willing to make changes and push their offerings farther in order to make different products available. That’s not usually a consideration for the manufacturer, but since manufacturers are on the line, Cai says they are often the ones suggesting new products.
“If a product is performing way too well, they might actually ask for us to develop a premium version or a version that uses a high-quality or more expensive material — not necessarily higher quality, just a different material,” Cai says. “For example, we started with cotton sheets. [Then] It was sateen. Now we offer percale and we’re looking into linen. Then we also offer eucalyptus lyocell sheet sets as well. Those were examples of where we saw their consumer demand really expand what our manufacturers want to develop and as a result their price points were able to change quite a bit depending on the product.”
If that product gets added to the line, and if customers love it, then both Italic and its manufacturers come out of the transaction with wins. Specifically, for Italic, customer happiness is the key driver in its overall success.
With any membership-based business, Cai explains that traditional metrics often need to be thrown out, or at least valued less than things like customer satisfaction.
“It’s a pretty sophisticated model that we’ve had to build in order to actually price these products at a price where we’re not losing money on each sale but also not making money,” he says. “It’s on the engagement side all the things that historically eComm companies would track — your conversion rate, your LTV, your frequency of purchase, your contribution margins. These are all things that have now become performance indicators on a membership basis of how we track how a certain cohort is doing overtime, but now what matters on the company side is actually, Are we adding new annual subscribers happily? Are they staying? What’s our opt-out rate?”
When those questions are answered, they point Cai and his team in the right direction. And they offer insights into areas of expansion so that Italic can continue to grow.
For more information on Italic, listen to Cai’s full interview on Up Next in Commerce.