The Changing Landscape of Direct-to-Consumer Sales

The introduction of e-commerce inevitably meant consumers would use the digital path to purchase more regularly. In fact, every year the percentage of purchases made online increases. Manufacturers aren’t blind to this trend and some of them have developed direct-to-consumer (DTC/D2C) strategies. DTC strategies allow manufacturers to sell products directly to customers, bypassing third-party retailers, wholesalers, or any other middlemen. Sounds like a win-win for manufacturers and consumers; however, manufacturers know physical stores still surpass online sales and DTC sales can complicate manufacturer/retail relationships. Nevertheless, DTC strategies are becoming more important in the retail arena. The staff at Vision Critical offers three reasons “the DTC model needs to be part of the revenue mix.”[1] They are:

1. Consumers are demanding a better experience. “When wholesale manufacturers sell through retail distributors, they have very little say on how the product is sold. They’re at the mercy of the distributor to ensure that the customer leaves the store (or the website) happy and satisfied. By selling directly to consumers, companies can envision how the customer journey should take place and execute the tactics required to make that vision a reality.”

2. The direct-to-consumer model gives companies an opportunity to build their brand relationship with customers. “DTC allows companies to control their brand’s story and relay their messaging directly to consumers. … Of course, building a brand through the DTC strategy also presents some complications. In particular, a robust DTC presence could endanger another important marketing channel: selling through retail partners.”

3. Direct sales allows them to collect customer data. “For many brands, the most compelling reason to sell directly to consumers is the potential to collect massive amounts of customer data. … While selling directly to consumers makes it easier to acquire customer behavior data, companies need to make sense of all that data. Unfortunately, data alone doesn’t provide a complete picture of the customer behavior. To be able to improve the end-to-end customer journey, companies need to integrate the transactional data they get from all their channels.”

DTC Risks and Rewards

Business writer Jordan DiPietro (@jdipietro7 ) reports, “There has been a dramatic sea change in how some brands are reaching their customers. Instead of using wholesalers or retailers, direct-to-consumer brands sell directly to the end customer. The resulting shift in power has been devastating for traditional retailers, and yet simultaneously, some of the most innovative and successful companies of the last decade have been born from this movement.”[2] He adds, “Gone are the days when gigantic consumer-packaged goods (CPG) companies and department stores ruled the marketplace, with their intense focus on supply-chain management and first-mover advantages. The centuries-old CPG tradition — which relied on finding efficiencies between supplier, manufacturer, wholesaler, retailer, and distributor. … The sales process is less onerous, less third-party dependent, more direct marketing focused, and more customized to the end consumer.” While the rewards of having a DTC model are fairly obvious, the DTC model is not without risks. As the Vision Critical staff noted, “A robust DTC presence could endanger another important marketing channel: selling through retail partners.”

“Think about it,” writes digital marketing expert Dennis (his legal name happens to be just Dennis). “The fact that you’re selling D2C essentially makes you a competitor to your retail partners who are selling your products. … When given the choice between purchasing your products through a retailer or directly from you, the customer will more than likely choose the latter. While you don’t want to steal business from your retail partners, you also don’t want to see your products collecting dust on your retail partners’ shelves, either. Rather than completely severing ties with your retailers, dig deeper into your partnership to figure out a profitable way to move forward. This may involve selling only specific items D2C, or delivering wholesale shipments of high-performing products to specific retailers; or, it might involve having your partner retailers take a more active role in promoting your products. Whatever the case may be, look for a way that both you and your partner companies can both win out.”[3]

According to DiPietro, “Direct-to-consumer companies commonly have several (if not all) of these eight characteristics: They are entrants to a low-barrier-to-entry industry; they are capital flexible and/or can lease and rent part of operations; they are extremely passionate about their customers; they have experience harnessing first-party data and analytics; they cut out the middlemen so they can ship directly to consumer; they understand the importance of communicating directly with consumers; they have more pricing flexibility than legacy retailers; [and] they illustrate an increased use of digital marketing (especially email and social media).” Both the staff at Vision Critical and DiPietro stress the importance of data and analytics. Cognitive technology solutions, like the?Enterra Shopper Marketing and Consumer Insights Intelligence System?, can leverage all types of consumer data to provide high-dimensional consumer, retailer, and marketing insights. Understanding consumers is critical to DTC success.

Post-pandemic DTC

Joe Bellini, Chief Operating Officer at One Network, asserts, “With retail storefronts under siege, the smart move for manufacturers is to strengthen consumer-direct channels.”[4] He explains, “Consumer-driven needs and behavioral shifts have generated a rapid and ongoing shock to most supply chains since the start of the COVID-19 disruptions. This is causing many companies to re-evaluate the architecture of their supply chains, to adapt to current conditions and mitigate future vulnerabilities. This shift has also created structural change in our supply chain networks that will change business processes as well. In many cases, these new processes will become permanent across industry sectors. ... For example, buying behaviors which may have taken a decade to evolve in normal circumstances have been forced front-and-center by virus-related restrictions.” Bellini isn’t alone in believing consumer behavior has changed permanently as a result of COVID-19 lockdowns.

George Bailey, Executive Director & Chief Research Officer of CGE’s Digital Supply Chain Institute, suggests “[Companies should] treat the Coronavirus supply chain impact not as an abnormal exception, but as an expected occurrence given a world where political disruptions, health issues, technology advances, and climate change are all happening at the same time. … The Coronavirus might be the unfortunate crisis that forces companies to accelerate the adoption of a true Digital Supply Chain.”[5] Part of that transformation may include serious consideration of DTC models. With more and more retailers filing for bankruptcy, DTC models may become a matter of survival for some manufacturers. The Vision Critical staff concludes, “As more retailers aggressively pursue this strategy, the brands that can deliver the best experience — both to their customers and to their partners — are in a position to win.”

Footnotes

[1] Staff, “Why Direct to Consumer Is Becoming an Important Retail Channel ,” Vision Critical, 6 April 2016.

[2] Jordan DiPietro, “The Power of a Direct-to-Consumer Model ,”?The Blueprint, 29 April 2020.

[3] Dennis, “Direct-to-Consumer (D2C): 21 Ways to Get Started in 2020 ,”?Core DNA, 19 May 2020.

[4] Joe Bellini, “The Consumer-Direct Strategy: Why You Need to Strengthen Your Direct-to-Consumer Channels ,”?The Network Effect, 22 May 2020.

[5] George Bailey, “Coronavirus And The Remaking Of Global Supply Chains ,”?Forbes, 6 March 2020.