With an estimated 17000 retail locations expected to close in 2020 and retail sales growth slowing, legacy manufacturers and consumer goods companies are accelerating their direct-to-consumer (DTC) efforts. While eCommerce represents less than 5% of overall CPG (Consumer packaged goods) sales, the DTC movement accounts for 40% of the sales growth in the sector.
According to IAB’s The Rise of the 21st Century Brand Economy, the future of retail growth comes from relationships. Casper, Dollar Shave Club, and Glossier have all become significant players in their respective industries. Harrys, Allbirds, and Gymshark have moved towards profitability or been acquired.
Acquisitions by leading brands such as Unilever (Dollar Shave Club) and Procter & Gamble (women’s personal care brand This is L) continue to show the growing significance of direct-to-consumer brands in consumer goods – with a key reason for acquiring these companies being to learn about the kind of scaling techniques that are employed by digital native vertical brands (DNVBs)
In this blog, we examine the benefits of going direct-to-consumer.
Direct access to customer data
With the ‘Amazon effect’ taking hold, with its next-day or even same-day delivery, consumer goods (CG) companies are racing to meet rapidly changing consumer expectations by investing in going direct-to-consumer (D2C). D2C channels offer unprecedented access to ownable consumer data so CG companies can get acquainted with consumers, understand habits and behaviors to adapt the journey better and build lasting relationships. Access to data across every touchpoint means you can identify consumers as soon as they visit your site — and continuously engage them, so they keep coming back.
The opportunities – and thus, the benefits – will vary depending on the type and maturity of each brand. An established brand with no direct-to-consumer channels has more legacy data and silos to unpack, but it is critical to achieving success in today’s consumer-led world.
Customer expectations are rising. We expect every interaction with a brand, from product through packaging to delivery.
When a brand sells something through a distributor, it has no control over how the product is sold while direct-to-consumer brands have full control of their brand image. You’re not relying on anyone else to present your products. You own the relationship with your users and can nurture it over time. You can deliver the interactive relationship at scale that drives brand loyalty and increase sales.
Many D2C brands have harnessed the long-tail, brand purpose, and taken advantage of their knowledge of selling online and old-school marketing techniques. DTC startups can be quick – using highly targeted Facebook and Instagram ads coupled with SEO to compound traffic. Digitally native brands are marketing-first, leveraging shareable graphics, trends such as ‘unboxing videos’ and knowing how to generate referrals and convert to sales.
Social media tools have transformed the way that customers and brands interact with one another. Low-cost analytics tools and easy access to educational resources are allowing companies to understand customers better than ever before.
For brands, these digital tools provide a free or low-cost way to connect and engage with the people who buy and use their products. For some established brands, this can be the first time they’ve been able to connect directly with their customers at all.
Done effectively, social media-driven engagement efforts can help build brand loyalty and drive direct-to-consumer sales. The social influence of individuals can now be measured and valued by their number of friends or followers and how likely those receiving the message are to convert to customers.
As a result, brands can more readily identify high-value individuals and monetise their social equity through analytics. Brands can also use social media channels to deliver unique products and offers to followers – and in return, gather vital customer data that can be used to target better going forward.
Flexibility to test new products
Brands can provide a full assortment line of products while not being restricted to what retailers deem as ‘hot-selling’ items.
For these brands, going directly to consumers through digital channels allows them to move into new markets. Brands can tap into the‘long tail’ of their product offering and gain a greater share of their customers’ category spend. Product selection can be extended through a digital ‘endless aisle’ that can move customers to higher-margin online channels that complement stores.
A direct-to-consumer approach also provides established brands with more flexibility in launching and marketing products. Brands can leverage data through digital tools to better understand the expected performance of a product before it is launched without incurring listing fees or having to de-list existing products. Post-launch, brands can introduce more targeted and personalised marketing strategies for their traditional and direct-to-consumer channels, such as context-based promotions.
Control over margins and profits
Owning everything, from logistics to supply chain, means you cut out intermediaries eating into your profits.
Without having to partner with retailers, brands can keep basically all of their gross margin on sales, leading to higher profits even while keeping the costs low to their increasingly loyal customers. This not only benefits the brand, being able to use operational efficiency to drive profit through the value chain, but the consumer trusts the brand more for the perception of reduced markup.
There’s a lot of high-quality products out there. The key is showing the customer why they should choose yours. If there’s one major takeaway for going DTC, it’s that it is all about creating transparent, direct, and memorable interactions with potential and current customers. Use digital channels and content available to you to fuel deep relationships and trust with your customers. Use your first-hand data to glean actionable insights that help you predict your shopper’s intentions and give them the shopping experience they’re looking for, and they’ll reward you with their loyalty.
To speak to us about going direct-to-consumer, get in touch.