Growing Interest in Direct-to-Consumer Sales, Part 2

Stephen DeAngelis

September 2, 2021

Due to the pandemic, e-commerce growth accelerated and manufacturers’ interest in direct-to-consumer (DTC) consumer sales also increased. In the first installment of this article, I discussed some of the considerations manufacturers and retailers should take into account as they develop their DTC strategies — not the least of which is the tension such strategies create between manufacturers and retailers. In the concluding part of the article, I want to look at some of the recommendations subject matter experts offer for companies looking to implement or strengthen DTC sales. As I reported in Part 1 of this article, Jon Reily (@jonreily), an experience and commerce executive at Merkle, wisely suggests the first step when developing a DTC strategy is to determine why your company wants to get into the DTC arena in the first place. He states, “Start with the ‘why’ versus the ‘how’ or the ‘what.’ Too often … brands leap into a d-to-c journey with no real plan or goal other than to ‘get more data’ and to do what they feel their competitors are doing. As with most engagements, if you don’t have a map and don’t know what your desired end result is (destination), you’ll end up with a never-ending series of programs that never really come to fruition and instead only exist to keep themselves going (you’ll wander the desert for 40 years).”[1]

 

Suggestions for Strengthening DTC Strategies

 

Direct-to-consumer strategies add a third party (the consumer) to relationships traditionally restricted to brands and retailers. Like most ménage à trois relationships, keeping all parties happy can be tricky. As you bring a consumer into the relationship, Reily admonishes, “Make sure that [the relationship is] genuine, and is something consumers actually want, versus something the brand wants them to do. The cold hard truth for many brands is that consumers are not going to purchase their products via the internet without a compelling value proposition.” What constitutes a “value proposition” can be broadly defined. Reily explains, “Realize that a d-to-c strategy is not necessarily exchanging goods for money. Rather, it’s an exchange of value between both parties, and that may come without a specific payment in currency. It might be sharing information about a product to educate and inform a sale at a later date. It might be steering that sale in a direction where it’s most beneficial for one or both of the parties. It might be as simple as brand awareness. Remember that d-to-c does not stand for sales to consumer. It means direct, one-to-one conversations with consumers about products.”

 

Once you know why you want to implement a DTC strategy and ascertain that consumers are willing to join with your brand in a new relationship, then you can concern yourself with the “how’s” and the “what’s” of implementing the strategy. In the Digital Age, the most important asset a company has is data and the most important capability it requires is a way to analyze that data. Analysts from Ironbridge Software explain, “It’s essential to understand what trends are shaping the category for your brands and products — and this is almost impossible without business intelligence.”[2] They add, “Understanding how, when, and where consumers are buying is critical in a market driven by demand fluctuations. Brands that can gain visibility into how product attributes, pricing, and promotions perform can understand how to adjust their strategy to maximize marketing activity and grow their online sales.”

 

Business writer Lisa Terry says that understanding the business landscape (i.e., analyzing all available data) is the “critical homework” brands need to do before beginning their DTC journey. She explains, “Paradoxically, the most important step for consumer goods companies seeking to launch a new direct-to-consumer site is to resist the urge to set up a direct-to-consumer site — at least until they get some critical homework out of the way. While many traditional CG companies are feeling tremendous me-too pressure to field a DTC offering, success comes to those that approach it with a well-conceived strategy that serves the consumer and business alike.”[3] To help companies with their homework, Terry assembled a few bits of wisdom from some experts. She notes, “Consumer goods companies that are just getting started can see DTC success by leveraging best practices gleaned from those that have already forged ahead. … CG companies developing DTC businesses now have the opportunity to rocket past those that are foundering by developing and executing on a DTC plan that offers real value for consumers as well as the brand.” Terry specifically discusses four steps to help brands on their DTC journey. They are:

 

#1. Define the Consumer Value Proposition. As Reily noted above, what constitutes a “value proposition” can be broadly defined. Terry adds, “Consumers accustomed to relying on retailers to supply a given DTC product need a reason to change that habit. During the pandemic, the leading consumer DTC drivers were to find a full range of products in stock (44% for food/beverage, 45% for non-food) and because it was the only way to get the product (24% and 23%), according to Pymnts.com data.” In addition to offering a full line of in-stock items, Terry notes some companies also offer special DTC items. She adds, “Others appeal to consumers’ interest in ensuring a never-ending supply through subscriptions or personalization.” She concludes, “[Consumer value proposition] starts with understanding target consumers and what they’re looking for from a particular segment. … These decisions are also heavily influenced by what model makes the most economic sense, and the need to mitigate channel conflict.” Cognitive solutions, like the Enterra Shopper Marketing and Consumer Insights Intelligence System™ and the Enterra Global Insights and Optimization System™, can help with both consumer and economic insights.

 

#2. Establish a Clear Business Case. Selling direct to the consumer obviously makes no sense if it’s a losing proposition. That’s why Reily insists a brand should start by asking “why” it wants to get involved in the DTC arena. Terry adds, “Successful DTC sites rarely arise simply out of competitive pressure. Those that thrive typically do so because they met the needs of both the consumer and the consumer goods company. Common goals include generating incremental sales, differentiating the brand, fostering brand loyalty, generating first-party consumer data and insights, or a combination of these.”

 

#3. Ensure a Solid Foundation. According to Terry, “One common mistake CG companies make in pursuing DTC is to treat it as just another channel — and assume they can use the same infrastructure to service it. In reality, DTC is a whole new business model, retail, and requires re-tuning everything from marketing to analytics to fulfillment for this new way of doing business.” Dusty Dean, Co-Founder, BitCadet, adds, “[Implementing a DTC strategy] in no way suggests by-passing traditional channels; it’s about creating a new channel that replaces what’s not producing results.”[4] He published the following chart to show some of the opportunities and challenges of opening a DTC channel.

 

 

Terry concludes, “An e-commerce platform is an obvious requirement, but all those new orders must be fulfilled, and CG supply chains are built around pallets and cases, not each-picks. Many CG companies partner with 3PLs or specialty distributors for this function.”

 

#4. Test, Learn and Scale. Terry writes, “That DTC function should be a team effort, working cross-functionally to learn and iterate as they go. That learning starts by identifying specific products and markets to test concepts and infrastructure, ensuring that these tests are well-coordinated across the enterprise.” Having world-class analytics to help the team make informed decisions is essential. Terry adds, “Initial DTC plans should include strategies to iterate from what pilots reveal and scale those small projects into full rollouts — and then flex as new market trends emerge.” At Enterra Solutions®, we call this a “crawl, walk, run” approach.

 

Concluding Thoughts

 

“At the end of the day,” Dean writes, “changing consumer expectations are compelling manufacturers to deliver on the entire buying experience — and that’s a good thing for both sellers and buyers.” Nevertheless, brands should enter the DTC arena with their eyes wide open and their homework done. Terry concludes, “It’s easy to think of DTC as just another way to serve consumers already familiar and loyal to a brand. But the DTC sites posting impressive growth scores view their offerings as far more than just another sales channel. … No DTC strategy will succeed unless it is rooted in a sound business case that considers both company and consumer needs.” And, I would add, no strategy will succeed unless it also considers the impact it will have on the traditional manufacturer/retail relationship as well.

 

Footnotes
[1] Arthur Zaczkiewicz, “What D-to-c Brands Need to Consider When Engaging Customers,” Yahoo Finance, 27 May 2021.
[2] Ironbridge Software, “CPG e-Commerce without Business Intelligence,” MarTech Cube, 13 May 2021.
[3] Lisa Terry, “Getting Direct-To-Consumer Right,” Consumer Goods Technology, 28 April 2021.
[4] Dusty Dean, “Selling Direct-to-Consumer Is Increasingly an Attractive Option,” IndustryWeek, 30 July 2021.