What is D2C?
Direct to consumer marketing (D2C) is a tactic in which a company advertises and sells a product or service directly to consumers, evading the middlemen in order to reduce costs for the consumers and gain a better ROI for the company itself.
Why is D2C important?
It’s all about evolution and survival of the fittest.
eCommerce marketplaces are the first wave of digital commerce. They took a while to get there but now they offer almost every product under the sun as well as good coverage of the latest and greatest engagement technologies:
- Supporting different devices
- Voice assistance (in some)
- Consumer reviews
Retailers (brick and mortar) have followed suit, with most just offering the same merchandise online as they used to offer in the store, but still with the latest eCommerce technologies to align with the marketplaces. Some retailers (Walmart as an example) have expanded beyond their own merchandise to become a marketplace where others can join and sell products, too.
Recently we released a study on how consumers’ tastes and needs shift during Covid-19 crises and how consumer sentiment changes across Amazon, Walmart, Target & Bestbuy.
For pre-internet era businesses as well as less known brands eCommerce marketplaces are great. They handle everything for you – reach, logistics, billing, etc. This way they can experiment with building a brand without the risk and expenses needed to build your own brand online.
But what happens next? What if you did become a known brand, selling through retailers or eCommerce marketplaces, only now you are well known and have much more resources? Should you stay on the path or take the D2C route???
This is the billion $ question! And here are the 3 reasons why brands can’t resist D2C:
Own the shelf space
As kids we used to hear that “sharing is caring” but on marketplaces sharing means you need to share the space of the virtual shelf with others. Sometimes you don’t get shelf space at all! This leads to lots of frustration as you don’t control your own destiny. Its common knowledge that shelf space and position are critical keys to retail sales success.
If you want to control your sales, what you sell, and how you sell it, you need to control all the relevant parameters around it, such as:
- Virtual shelf space: position, search results, what other products show next to yours
- Format of product description: layout, graphics, customer reviews
- Personalization: consider buyer history and preferences when presenting your offerings to the buyer
- Behaviors: Respond to customer behavior such as cart/page abandonment, delays in proceeding to checkout
- Loyalty programs
- Analytics: Control the details you mine about your customer browsing, purchasing, bundling decisions
To highlight the importance of owning your sales further, in a very recent WSJ article even Amazon was said to leverage customers’ purchases from 3rd party sellers to build its own private brand products. Another giant recently highlighted in kicking off their D2C efforts is Heinz .
Optimize costs and prices
When you control what you sell and what other products are next to it you can control exactly the products, combos and discounts you provide. When you have such control it means you can sell more profitable items, combo deals, clear old stock and basically have complete freedom over commercial considerations.
Going D2C a brand can actually offer prices that are less than retail prices but actually gain much better margins as there is no retailer involved. For example, let’s look at a brand selling CPG made offshore at $1 a unit. The wholesaler’s total cost is $1.4. The retailer’s cost is already $1.5 and the consumer retail price is $3. If the brand cost is $1.4 and the brand sells the product D2C for $2.8 it’s a very competitive price that is lower than the $3 consumer retail price but margins are much higher at 50% !!!
KYC (Know your customers)
This is the least obvious and the most important in my view. While the obvious focus goes to sales and margins, long term you can’t stay successful without keeping a tight handle on your audience evolution in:
- Trends (“Green is good”, “organic”, “gluten free”)
- Tastes (Wireless headphones instead of wired. Smart phone instead of flip phone)
With consumer goods being the most competitive ones in the world, competition is not an “if” question but more a “when” question – when will my competitors pick up the pace and get to where I am or even bypass me.
To be able to control your analytics and insights from your customers you need to listen and analyze as much customer opinion data as possible. D2C gives you all the controls you need to listen in, customize and tweak to your growing needs.
D2C makes so much sense for brands that are already selling well on marketplaces and via retailers. It offers great potential to grow sales, improve margins by leaps and bounds and a direct link to your customers so you can read their minds without any mediators.
It makes so much sense that the likes of Amazon, Heinz and innovators like Kasper are already leading the charge.
With so many benefits and great adoption examples D2C is not a matter of “if” but of “when”. With Covid-19 the push to full eCommerce is at full speed already. We expect it to accelerate the D2C adoption as well and to potentially spark a marketplaces/retailers war with the brands as brands start to compete with marketplaces/retailers (a topic for a whole different post).
Revuze is part of the new generation of CX/VOC Analytics vendors offering Proactive, Automated solutions that mines consumer insights at the single SKU level as well as at the entire market level.
Boaz Grinvald is a business executive and entrepreneur with over 20 years of experience in top-performing technology products. He is the CEO of Revuze.