More and more brands are trying their hand at selling direct-to-consumer (D2C). The opportunities are great, but so are the risks as high-profile brands like Diageo have shown. So what’s at stake for brands and manufacturers looking to bypass the retail ‘middleman’ and what should they consider?
Why brands are attracted to the D2C model
A diverse range of businesses are proving that where a brand can provide a compelling reason to shop from them directly, the consumers will come.
In the case of Dollar Shave Club, the draw was value and convenience, while Caspar in the US has differentiated itself through simplicity (it sells just one product) and convenience (its mattress is compressed and shipped in a box).
Nike, on the other hand, offers exclusive member benefits, personalisation, and unique brand experiences to ‘serve athletes in every phase of their life, from the gym onto the court, and into the street’ – a strategy that’s clearly paying off with D2C driving 70% of the company’s growth.
Owning the customer experience
In addition to higher margins, selling D2C allows those brands that can successfully create a relationship with their end-customer base to benefit from cost efficiencies and owning all the data insight gained from sales.
Selling directly to the consumer within an organisation’s own brand environment gives optimum control over the customer experience and allows the business to collect real-time data, not just on what’s driving engagement and revenue, but across the whole customer journey. Using the knowledge gained, D2C sellers are able to refine experiences in-line with customer expectations and in turn drive retention and growth.
In this way, D2C, brands are able to use tactics they wouldn’t otherwise be able to employ, such as promotional codes and abandoned-basket emails. It’s a strategy that’s ripe with opportunities for building customer retention and loyalty.
Key considerations for your D2C strategy
Online has lowered entry barriers to launching a D2C business, but launching a D2C proposition is not without significant risk. Over 50% of internet purchase starts with a search on Amazon, for example, and so it’s crucial to consider your marketplace and have clearly-defined business objectives and an airtight strategy for how your D2C channel will serve and be measured against those goals.
Here’s what you’ll need to consider:
Why are you doing this?
- What’s the value to you in a D2C model?
- What benefit will your domain give customers that other channels can’t? Simplicity? Convenience? Value? Different product?
- How can you service your customers more effectively and profitably through D2C?
- How will you communicate that value proposition to the customer?
These are crucial questions when trying to crack the D2C opportunity. Fail to consider these, and you could land yourself in hot water, as was the case with alcohol behemoth Diageo (Gordon’s gin). As Charles Ireland, Diageo‘s general manager for Great Britain, Ireland and France, has highlighted, people are generally time poor and will not seek out products on dedicated websites unless they have a very strong incentive.
Typically the incentive needs to be stronger the less of an affinity a customer has with a brand. Where customers have a strong brand loyalty, they may, for example, ignore the lure of cheaper sourced alternatives. However, price alone will not ensure success.
D2Cs should look to carefully balance their customer proposition based on a combination of price, product/proposition uniqueness, and convenience. Ultimately, brands should consider if they can provide the customer with a better overall experience if they shop with them directly.
If you can’t differentiate via a D2C offering, consider where your customers are already spending their time online. What strategic channels could you explore to reach your target audience and sell in a way that’s more convenient to them?
Nike, for example, which plans to grow its direct-to-consumer sales to $16bn in 2020, also sells via Amazon and Instagram. Yes, this means a loss of ownership when it comes to customer insight, but Nike clearly thinks the traffic and reach these channels provide is worth investing in.
Meanwhile ‘grocery ecosystem’ INS (piloting in 2018) has signed-up brands including Mars and Unilever in its bid to drive down prices for consumers, and costs for manufacturers. The aim is to create a peer-to-peer marketplace that allows brands to engage directly with their customer base and build a relationship that’s typically not possible through traditional marketplaces.
What approach will you take?
Fast experimentation and iteration is far more valuable than going to market with a fully-formed solution; it enables you to quickly learn whether your digital initiative is delivering against your business goals.
Before you invest in developing a D2C product, consider how experimentation can validate customer appetite for it. This ensures your decision-making is informed by evidence from the outset, rather than assumptions.
For example, could you add a simple button to your site that allows you to track consumer interest in being able to buy directly from your site, even if that ecommerce functionality isn’t available yet?
Healthy snack company Graze.com used customer feedback to establish that there was an appetite for an alternative to their subscription model. As a result, Graze wanted to try out a D2C model that would give users the freedom and choice to purchase a wider range of individual products online without the need for a subscription.
With the help of Inviqa and Elastera, Graze launched an online shop which quickly proved the viability of a direct online order business model. A barebones ‘MVP’ version of which was developed and launched alongside its main website, allowing Graze to test, learn, and iterate without betting the business.
Contrary to any fears that an online retail shop would cannibalise Graze’s existing subscription proposition, data shows that it appeals to a new demographic and that it’s driving incremental revenue.
D2C is not a silver bullet
D2C is not a silver bullet for brands looking to get closer to their customers; D2C strategies often fail. What’s more, by engaging directly with customers, you risk causing damage to the relationships you have with your existing retail outlets, so going it alone needs to be carefully considered before cutting ties with retailers whose business model is purely based on selling a product to customers.
For businesses considering a D2C strategy, it’s key to confirm demand in target markets and act quickly to establish themselves, but only if they’re able to bring a proposition to the customer that’s more attractive than what’s already available through traditional retailers.
Expectation set by ecommerce giants like Amazon [IRDX RAMZ] and ASOS can be hard for less retail-experienced businesses to meet. Owning the end-to-end experience has many pitfalls for the retail novice, but for those who make a success of stepping into the D2C arena, the rewards are vast.
As brands chase the holy grail of customer data, we can expect to see more experiments in this area. Ultimately though, the success of those experiments will come down to whether those brands are able to identify and solve a clear consumer problem.