Direct-to-Consumer (D2C) is a strategy in which a company markets and sells its products or services directly to its consumers, eliminating the need for intermediaries or 3rd parties, e.g., grocery stores, dealerships, retailers, etc. The number of businesses that independently manufacture, promote, sell, and ship their own products is exploding. Additionally, the growing demand for this strategy is reinventing the business landscape vis-à-vis consumer behavior.
D2C differs from traditional B2C (Business-to-Consumer) in that B2C relies on retailers that step in between the manufacturer and the consumer. In the typical B2C model, retailers such as Walmart or Target, typically sell products from multiple manufacturers. Customers have several options to choose from while shopping, leaving manufacturers with little control over customer choice. This lack of control directly relates to the customer experience, engagement, and brand positioning, which the retailers manage.
One of the key advantages of D2C is that it allows companies to take full ownership over the entire end-to-end brand experience. Direct engagement with the consumer means that companies can collect critical data for insight and innovation. When compared to B2C; D2C offers greater merchandising & personalization opportunities as compared to the traditional manufacturer-to-retail partner model through:
- Unlimited Reach
- 1:1 Personalization & Real-time Customer Access
- Advanced Loyalty Programs
- Rapid Time to Market
- Complete Control Over Pricing and Merchandizing
- Low CAPEX and Overheard
Current D2C Trends
The current trends in D2C are driving huge wins for the CPG industry! PepsiCo launched two new D2C e-Commerce Web Properties in 2020: PantryShop.com & Snacks.com. Each site offers unique product bundles so as not to violate the contractual obligations to their vendors and to give PepsiCo competitive advantages such as:
- Unlimited Reach—Manufacturing centers are close to end-consumers, allowing Pepsi to guarantee two-day shipping.
- Merchandizing—D2C competitors typically launch with one product in a few flavors, Pepsi launched hundreds at once.
- Time to Market—Pepsi launched both new web properties in less than one month.
Like most meal kit sites, Blue Apron and Hello Fresh saw a surge in demand with first-time consumers. Five years ago, Blue Apron owned 70% of the market. While other meal kit businesses struggled, HelloFresh’s aggressive marketing tactics added 1 million new customers in Q1 2020, after COVID closed restaurants and forced consumers to dine at home. They spent millions on customer acquisition, turned customers into influencers, and successfully utilized offline channels.
Soylent, a US-based start-up that offers affordable, plant-based, sustainable meal replacement solutions, also saw success with D2C. The company offers products with stable shelf-life that are offered in different food formats such as ready-to-drink, squared bars, and powders directly to consumers.
It resonates with consumers on growing awareness and concerns over #meatconsumption in meals, #convenience #betterforplanet as plant-based requiring #lessfoodwaste due to higher shelf life. With operations in the US and the UK, Soylent offers products in stores or online as one-time or subscription models. In 2017, GV, Google’s venture capital arm invested USD $50 million in the company.
Nike has also invested heavily in its D2C initiatives over the past few years by improving its e-commerce website and the NikePlus membership program. In 2018, Nike Direct drove 29% ($10.5 billion) of total global sales. Two years after opening a store on Amazon, Nike stopped selling shoes and apparel on Amazon to focus on “…elevating consumer experiences through more direct, personal relationships” (CNBC).
The Building Blocks of D2C
Choosing the right business model that aligns with your organization is mission-critical to your D2C initiative. Carefully evaluate the pros and cons of each as you ascertain which model(s) are most relevant to your business:
|Touch Point Commerce
Three Key Pillars for a Multi-Dimensional D2C
Once the business model is established, it’s time to create an iterative roadmap for the D2C ecosystem: Technology, Operations & Analytics. In other words, you must invest in people, processes, and technology to execute your business plan and deliver the value proposition to your consumers!
Technology—The tech stack that will support your business
- E-commerce Platform & CMS Configuration, e.g. Shopify
Data Management & CRM Solution
Web Analytics Tagging & SEO Implementation, Site Health Audit
UX Flows, Site Hierarchy Content & Creatives
Payment Gateway & Plugins (address validator)
User Reviews, Product Ratings, Website Feedback
Operations—Logistics & Customer Service
Order Fulfillment, Cancellation, Refund & Return Process
Inventory Management & Warehouse Operations
Enhanced Order Fulfillment, Shipping Rates, Delivery Options
Bulk Orders (Wholesale), Distributor Network
Pricing & Tax Rates
Analytics—Engage, Measure & Take Action
Omnichannel Strategy, KPI Framework (Brand Awareness)
Multichannel Campaigns: Display, Email, SEO/SEM, Social Media
Hyper-Personalization Consumer Segmentation, Multichannel A/B Testing
Conversion Rate & Funnel Optimization, Channel Effectiveness
CLV & Churn Analysis, MMM, Multi-touch Attribution
Dynamic Dashboards & Data Visualization
Pitfalls to Avoid When Launching DTC
- How will orders be fulfilled?
- How will returns be managed?
- What KPIs will be used to measure success?
- Investing in digital assets and expertise
- Marketing dollars for launch, brand awareness campaigns & customer acquisition
Missing the Value Proposition & Unique Selling Points
- Strong message & great content across online and offline channels
- Paid and Organic Social Media Program
- Gather product ratings and reviews
Poor Website Design and UX
- Follow best practices, e.g. Conversion funnel, behavioral triggers, SEO, mobile optimization
- Don't add features/solve problems
- Incorporate feedback into side updates and refreshes
To gain expert insight on how D2C enables you to build strong relationships with consumers, how you can create a successful D2C initiative, and how to avoid common D2C pitfalls, sign-up for our panel discussion here or speak to an expert here.