Taking Control of Distribution

By Elliot Weiss

The modern economy of e-commerce provides small businesses and product developers with a host of distribution options to reach their customers. E-commerce behemoth, Amazon, derives a substantial portion of its sales from third-party sellers who sell and distribute their products via its platform. Such use provides a necessity of ease and preservation of capital for small businesses by not having to build a proprietary distribution platform (such as a back-end payments system or logistics for delivery). This form of distribution has been shunned and ignored by tech companies following the era of Steve Jobs, an industry pioneer who demonstrated obsessive dedication to consumer product branding and Apple’s proprietary distribution methods. Specifically, Jobs required that Apple own and control everything it made from the design of its products to its distribution system, including both its e-commerce and brick-and-mortar stores. “The tech company’s business model has been based increasingly on selling through its own stores and online.” ^1 

In a recent article from the Financial Times, dated May 31, 2018, titled “Swiss Sales Rebound Masks Online Challenges”, watchmakers acknowledge a weakness in their business model stemming from their “heavy reliance on a distribution model of selling via third-party retailers and brick-and-mortar stores.” As set forth in the article, “some 90 percent of Swiss watch sales by value are still made via third-party retailers.” This figure is “much higher than in other luxury sectors such as jewelry and leather goods where the equivalent figures are roughly 30 percent and 40 percent.”^2 

I find the timing of this article is noteworthy for the following reasons.

This Financial Times article follows a prolonged period of weakness over the past three years for the traditional watch industry, having been plagued by weak sales figures, de-stocking of inventory and/or discounted products. The foregoing issues have directly impacted the biggest companies in the global watch industry by upending the economics for many of these traditional watch businesses. For example, Fossil, Inc., realized a substantial reduction in operating income for the fiscal year 2017. The Company generated $325,000,000 of operating income in fiscal 2015 as compared to $31,000,000 for fiscal 2017. One may wonder why it has taken so long for these traditional businesses to expand distribution or pivot the business model when customer habits change or new behaviors are adopted?

Further, I find the comparison to technology companies interesting as well. The reduction of global sales for the traditional watch industry has occurred at the same time that digital or smart watches have emerged (such as the Apple Watch). Of course, much of the story surrounding the death of the traditional timepiece business appears to be related to the proliferation of smartwatches. 

However, the article appears to lay the foundation for an industry-wide adoption of distribution models focused on e-commerce, on the basis that (i) brick-and-mortar foot traffic continues to decline, and (ii) technology companies are demonstrating brand awareness by maintaining a laser focus on developing and owning their distribution systems. In the specific case of the traditional watch business, one may question whether adoption is based upon copying a clear product competitor because their business model is superior or whether it is because they are your competitor. If the underlying basis is competitor status triggering an analogy to the line from the Godfather “keep your friends close but your enemies closer”, one could question not only the quality of the business earning power but potentially the business judgment of management.

The article goes on to provide several criticisms of the adoption of e-commerce as the primary distribution model for the traditional watch business. The first argues that “the traditional view among watchmakers has been that their products are too expensive, and purchases too emotional, to be transacted online.”^3 

The counter-argument provides that “taking control of distribution, especially e-commerce, would allow watchmakers to capture retailers’ high markups, reduce supply chain inefficiencies and allow watchmakers to get to know their end customers better.”^4

Additional arguments provide that “it is wrong to assume all customers would want to buy online.”^5 Some people feel that seeing an array of branded products in brick-and-mortar shops, with the ability to touch and feel the products, is a hallmark of the luxury goods industry. However, such a position may continue to ignore the developments in social networking, such as through the Facebook subsidiary Instagram. In an article from the Financial Times, dated March 31, 2018, titled “Instagram brings visibility- and clients- to bespoke jewelers.”, the author states that “social media has changed the game for fine jewelry brands.”^6  Specifically, “clients are so well versed in a brand’s aesthetic that they are not only willing to spend thousands of dollars on a 15-carat diamond without trying it on but are confident enough in the brand and the jeweler.”^7  This statement seems to undercut the traditional argument that luxury goods need brick-and-mortar for distribution at expensive price points. Further, the foregoing statement speaks to the central concept behind a quality brand identity, that is built on the perceptions of the customer who feels they can taste, touch and feel the goods without requiring a physical interaction with the goods.

This leads us to believe that image and social interaction heavy brand channels such as those on Instagram can operate as extensions of brick and mortar stores, by emulating shop windows, or display cases, presenting their brand and their products within the context of the brand aesthetic presented via a post on Instagram, capturing new and old customers and funneling them through to (ideally) their own e-commerce stores, finally converting an interest into a sale with the use of creative brand.


1 Ralph Atkins (2018) Swiss Sales Rebound Masks Online Challenges, The Financial Times, May 31, 2018

2 Ralph Atkins (2018) Swiss Sales Rebound Masks Online Challenges, The Financial Times, May 31, 2018

3 Ralph Atkins (2018) Swiss Sales Rebound Masks Online Challenges, The Financial Times, May 31, 2018

4 Ralph Atkins (2018) Swiss Sales Rebound Masks Online Challenges, The Financial Times, May 31, 2018

5 Grace Cook (2018) Instagram brings visibility- and clients- to bespoke jewelers. The Financial Times, May 31, 2018

6 Grace Cook (2018) Instagram brings visibility- and clients- to bespoke jewelers. The Financial Times, May 31, 2018

7 Grace Cook (2018) Instagram brings visibility- and clients- to bespoke jewelers. The Financial Times, May 31, 2018

Everyday Insights 003/18

What motivates people, and how knowing this can help you make crucial brand decisions.

By Aditi Mukherjee

Turns out money can only motivate a person so much. In his book, Drive: The Surprising Truth About What Motivates Us first published in 2009, career analyst Daniel Pink shares his teachings from two studies conducted by economists at The University of Chicago, MIT and Carnegie Mellon University on what motivates humans and how to incentivize them. 

Pink shares that the study showed him “The best use of money as a motivator is to pay people enough to take the issue of money off the table: Pay people enough so that they’re not thinking about money and they’re thinking about the work.”^1 Once the issue of money is off the table, three separate motivating factors emerge that science shows result in higher satisfaction and better performance: autonomy, mastery, and purpose.  

Pink defines them as - Autonomy, or the desire to be self-directed; Mastery, or the impulsion to keep improving at something that’s important to us; and Purpose, the sense that what we do produces something transcendent or serves something meaningful beyond ourselves.^2

He goes on to say that although having management and providing monetary incentives to people is a great a way to keep them compliant if we wanted them to be engaged, however, it is much more effective to provide them with the space they need to direct themselves. He also notes that the studies point to how people derive a great sense of satisfaction from being good at something, and are therefore intrinsically motivated to get better, thus often seeking more and more challenging opportunities that allow them to practice their craft. In such conditions, the underlying motivating factor reveals itself to be the idea of serving a greater purpose or the sense of dedicating ones’ skill to creating value for that which is greater than oneself. 

This learning can be a great centering tool when defining company missions and creating engagement journeys for satisfied employees and customers alike. By keeping factors such as ‘spaces to practice autonomy’, ‘opportunities to practice and master skill sets’, and ‘an overarching and aspirational purpose’ consistent throughout their brand operations, companies can ensure that they remain good and create value at an emotional level for people across the board. 

To learn more about what Mr. Pink says in his book, view this fantastic animation film by RSA

as well as this TED talk where Mr. Pink presents his findings on Motivation, or what drives human beings. 


1 Pink, D. H. (2009). Drive: The surprising truth about what motivates us. New York: Riverhead Books.
2 Pink, D. H. (2009). Drive: The surprising truth about what motivates us. New York: Riverhead Books.

Corporate Responsibility and Competitive Brand Positioning for Shareholder Value

By Elliot Weiss

Sustainable development initiatives for your corporate brand have direct implications on your firm’s competitive brand positioning. Sustainability brands are known for their products and services, branded to signify a special added value in terms of environmental and social benefits to the customer and their context thus enabling a strong significance of values. During the first quarter of 2018, a wave of public reports and new articles have identified large corporate initiatives focused on achieving “sustainable” environmental brand development and/or social “impact” initiatives.  

On March 22, 2018, in an article entitled AB InBev Taps into Demand for Sustainability, the Financial Times reported that “Anheuser-Busch InBev, the world’s biggest brewer, has set out a series of sustainability goals that will see all of its beer sold in returnable or recycled packaging and all of its electricity coming from renewable sources by 2025.”^1 “The initiative marks the latest attempt by a global brand owner to stay ahead of consumers’ demands for big businesses to make a positive contribution to society, at a time when brands such as Budweiser have lost market share to smaller rivals branding themselves as natural or artisanal alternatives to bland consumer staples.”^2 When asked for a direct quote, AB InBev took the opportunity to address the critics by stating “sustainability is not necessarily something we have to do, that will have a cost that doesn’t help the business. Sustainability is our business. If there’s no water, there’s no beer; it’s that simple.”^3 “Our consumers and our people also want to know where we stand on those issues.”^4 

We believe that the foregoing statements from AB InBev seek to undercut any claims that insinuate that financial resources utilized to address and benefit environmental/ social sustainability initiatives are not accretive to the financial operating results, will result in corporate waste, or constitute a dereliction of duty owed to corporate shareholders. Instead, it appears that AB InBev not only sees environmental sustainability as a way to connect with consumers but also as a corporate capital expenditure or operating expenses that are fundamental to the operating business. We believe that this continuing trend of corporate responsibility is here to stay and that corporate operators should take notice. After all, historically AB InBev has been known for its aggressive management style in costs cutting and expense management. Having been formed from a series of bold acquisitions driven by the Brazilian founding partners of 3G Capital, the private equity group, and famed value investors, AB InBev is a continuing example of how corporate responsibility has a direct correlation to financial performance.

On March 26, 2018, the Financial Times released an article entitled Partners Group launches $1bn Social Impact Fund to Meet Investor Demand. The focus of the article demonstrates that environmental sustainability initiatives as well as the social impact is not just isolated to the consumer goods industry but is also highly relevant within Wall Street circles, the general financial industry and within private venture capital fund formation. The key takeaway from this article is that the continuing and developing interest in corporate responsibility is not only relevant to general consumers but also financial investors, with the inference being made that if the consumers require corporate responsibility in exchange for brand loyalty, then so does Wall Street. 

As directly quoted from the article “growing demand from institutional investors for funds tackling environmental and social challenges is leading to new global products offered by leading managers and private equity groups.”^5 Individual sources to the article stated that the “Partners Group, the second largest private equity group by market capitalization, has become the latest buyout group to launch such a fund, creating a global $1bn social “impact” fund aimed at investing in line with the UNs sustainable development goals.”^6 “The launch comes as the number of funds focused on socially responsible investments has grown. Latest figures from the Global Sustainable Investment Review show that the global impact fund market totaled $23tn at the start of 2016.”^7

Our team here at Chai Gate supports and agrees that environmental sustainability and social initiatives are a necessity for a firm’s competitive brand positioning. This point is well illustrated in the words of Larry Fink, Chief Executive Officer of BlackRock, Inc., writing in a letter to large companies predominantly in the US, UK, France, and German, “to prosper over time, every company must not only deliver financial performance but also show how it makes a positive contribution to society.”^8 We agree.



      AB InBev Taps into Demand for Sustainability, Companies and Markets, Financial Times, March 22, 2018.
      2 AB InBev Taps into Demand for Sustainability, Companies and Markets, Financial Times, March 22, 2018.
      3 AB InBev Taps into Demand for Sustainability, Companies and Markets, Financial Times, March 22, 2018.
      4 AB InBev Taps into Demand for Sustainability, Companies and Markets, Financial Times, March 22, 2018.
      5 Partners Group launches $1bn Social Impact Fund to Meet Investor Demand, Companies and Markets, Financial Times, March 26, 2018.
      6 Partners Group launches $1bn Social Impact Fund to Meet Investor Demand, Companies and Markets, Financial Times, March 26, 2018.
      7 Partners Group launches $1bn Social Impact Fund to Meet Investor Demand, Companies and Markets, Financial Times, March 26, 2018.
      8 Partners Group launches $1bn Social Impact Fund to Meet Investor Demand, Companies and Markets, Financial Times, March 26, 2018.

Everyday Insights 002/18

By Aditi Mukherjee

Consumer research often leads to a nuanced learning of the business’ context. While learning about the health-conscious consumer for our work with Powerfoods.pt we found that while consumers choose products that are healthy for them, they might not buy the product a second time if they don’t like the way it tastes. One might think, that for a health-conscious person the functionality of a product would outweigh the experience, but as it turns out, it is not so. 

Making nutrition taste great is not very easy, as explained by the team at Abbott Nutrition, a market leader in their space. They state “The more nutrient-dense a product is, the more challenging it is to make it appealing in aroma and taste,” Tortorice says. “Important ingredients like HMB, which can support muscle health, don’t taste great and can create off notes that need to be covered. These are primary considerations in our development process.”^1 

To solve this problem the nutrition space makes use of additional flavors to mask the often displeasing tastes of necessary ingredients. 

Ms. Trent of Gold Coast Ingredients says “Popular flavors within the nutraceutical category include chocolate, vanilla, strawberries & cream, peanut butter, peanut butter chocolate, cookies & cream, coffee type flavors, and chocolate mint. “Trending fruit flavors range from various berries to banana, watermelon, fruit punch, green apple, lemonade profiles and tropical mixes.”^2 

We realized that while a business owner might have the best intentions for their product, if the product does a poor job of prioritizing the customer’s wants, their intentions won’t translate to repeat sales, and thus negatively affect their bottom line.


Everyday Insights - 001/18

What’s something you don’t understand why people buy?“ 

By Aditi Mukherjee

u/learningme posted this important question above, on Reddit, a popular forum online. The comment section for this question is a treasure trove of people chiming in with their answers, reasonings, and arguments for why they buy certain things that others just don’t get. Discussing everything from pet clothing to celebrity endorsed perfumes, this thread is a great look into how a business can sell almost anything if they can connect meaningfully with their people. 

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