Direct-to-Consumer: digital, diversity and data
In more and more industry sectors, manufacturers and producers are seeing consumers as an interesting direct marketing channel. Increasing sales or margins is not the only reason for the move to D2C. Branding is an equally important driving force.
Competition in the retail sector is fierce with new entrants such as Ali Express and discounters such as Lidl and Action. Their range is broad. For example, not only Lidl, but also Aldi now no longer limit themselves to just food, but also currently sell non-food, b-brand level products such as sports items, clothing and garden furniture. But in order to compete with these cheaper providers, a brand must be fully convinced of itself and offer an excellent customer experience. Here D2C can be a solution because, by communicating directly with the consumer, the company is directly controlling the story that is being told about the product.
The fashion industry took this step a long time ago. The direct-to-consumer (D2C) business model has existed there for years. Think about brands such as Nike and Adidas that sell their own products online and have also opened flagship stores in all major world cities. D2C shows strong growth in fashion and is a serious channel for the famous bands. Nike's direct sales shot up by 22 percent in 2016 and Under Armor claims that a third of its sales came from its own sales channels. Other sectors are now following suit. In the United States, many wine merchants are cutting out the wholesalers and selling directly to consumers. And also in the DIY sector, electronics and furniture, we are seeing a clear growth of D2C. The common denominator here is that it's about products that the consumer can easily order online. But remember that there is no silver bullet. The characteristics of the success stories in D2C concern the application of the three D’s: digital, diversity and data.
Digitalization, originally for B2B producers, has accelerated the development of Direct-to-Consumer. Whereas these companies previously used their websites for branding, they are now also using them for online sales. Wholesale and retail are often already operated digitally, so the step towards the end consumer is logical.
New digital channels are being taken increasingly seriously, both for sales and for co-creation. For example, Unox allows consumers to vote on social media for their favorite summer soup which is then made available in the supermarket. IKEA regularly tests what the audience likes in its range, for example, by choosing which pillows they like most. Messaging apps are becoming more and more important for customer contact, both from the point of view of service and sales. Men’s fashion stylist Outfittery is a pure online player that is now using the customer data it has collected to make the step to social. The company has now started selling through Whatsapp, something that the designer fashion webshop Net-a-porter is also planning.
Retailers generally do not have the entire assortment of a manufacturer. The direct channel is therefore ideal for showing all product lines to the consumer and gathering information about optimizing the offer. This also helps you to respond better to the needs of the customer. For example, at Nike and Reebok it is possible to customize shoes on the website or in the store. The result is more involvement with your brand and more valuable information about the needs of the customer.
Of course, selling directly to the consumer means that you need to know what the customer wants and expects. However, manufacturers have traditionally been geared towards selling to wholesalers and retailers, which means that the available information about the item was much more product-focused. The way it was then sold to the end user had nothing to do with the manufacturer. The retailer was often the one that added the rich commercial and marketing information. But with D2C, this is something that the manufacturers will have to do themselves. In the D2C channel, data about how often the customer buys something and which product combinations are popular are very important, among other things, in order to provide a good assortment and product range. The end consumer expects richer information than the wholesaler or retailer. And if the product data is not in order, then the products will not be found in the D2C channel.
What are the obstacles?
There are some challenges associated with D2C. The online platform will need to be adjusted and you will need to investigate whether existing distribution channels can use this new segment. In addition, many manufacturers are asking whether an e-commerce department should be set up or outsourced.
Another important point is that, as said earlier, the end consumer is looking for something else and wants to know more about the product. Often there is a lot of technical and logistic information available from the manufacturer, such as quantities and the number of products per pallet. The retailer then translates this into relevant information for the consumer. But whoever wants to sell directly will have to make that translation themselves. The role of the product manager therefore changes and that of the marketer is expanded. Storytelling becomes much more important to convince the customer as to why they have to buy that particular product. And an additional benefit of good product information is that you limit the number of returns.
Is there a conflict of channels?
Wholesalers and retailers are often not happy with the development of D2C and for understandable reasons - they are afraid that it is going to be at the expense of their margins. However, the chance is great that the product is already available in a cheaper version at a discounter or being sold on a site like Ali Express. So it is also in the interests of the intermediaries in the supply chain that the brand is strongly represented in the market. However, there are enough opportunities for collaboration so that no channel conflicts need to arise. For example, Samsung has invested heavily in its brand and other parties simply help to raise it further. If Samsung launches a new device, they will give a discount on the current model via a kickback fee. That action will be communicated by Samsung but will apply to all sales channels.
Manufacturers can also use the retail channel as a distribution channel, for example as a pick-up point for packages. In turn, the retailer can use that contact moment with the customer for cross-selling. In my opinion, cannibalization does occur, but only to a limited amount; a well-executed D2C strategy contributes to the strengthening of the brand. Here the D of data is the most important. If you offer rich product data and content, have a complete picture of your customer, and can properly match your sales activities to the indirect channels, then you will benefit from the entire Direct-to-Consumer supply chain and any channel conflicts will not occur.