Once seen as unimportant or unattainable, opening or developing D2C channels has become an absolute priority for many consumer businesses.
Don’t let them derail your D2C strategy.
Here are the five biggest D2C myths.
It’s time to shatter them one by one.
Myth 1 – We’re a B2B company with excellent retail partners, so we don’t need a D2C business
You may have done a great job securing the widest possible retail coverage for your products.
And your excellent relationships with retailers enable you to maximise your sales in this channel.
However, the channel itself is shrinking as traditional retailers go to the wall.
The latest PWC data compiled by LDC reveals that in 2021 in the UK alone, on average 47 chain stores closed every single day.
Moreover, a sharp drop in store openings exacerbated the impact of these store closures.
Ultimately, this led to a net loss of 10,059 outlets, the biggest fall since 2014.
Even if the sector you are operating in is holding up well, you still need to consider creating your own direct-to-consumer channel.
Because the retailer continues to own the relationship with your consumer.
And this is dangerous ground in a world where online retailers are moving away from manufacturer brands to their own brands.
At the same time, consumers are increasingly looking beyond retailers to buy their preferred brands. Including of course buying directly from the manufacturer.
And when they do, the insights they provide enable you to differentiate your offering and elevate the consumer experience as highlighted in this fascinating Raconteur article on the rise of direct-to-consumer retail.
In summary, even the most successful B2B companies need a D2C channel to boost overall sales in the future.
Myth 2: DTC may have worked during the pandemic, but things are getting back to normal now
Whilst it is true that the pandemic is receding – at least for now, the “old normal” will never return.
Consumer mindsets and behaviours have changed forever.
Therefore, the need for a DTC strategy has become more, not less, urgent.
Because it aligns with the way many consumers increasingly want to interact with brands.
In December 2020 Barclays Bank published the findings of surveys that it commissioned among manufacturers, logistics organisations, and consumers.
Its report reveals that, for a growing number of UK households, buying goods direct from the producer is now “an established habit”.
According to Barclays Bank UK manufacturers can expect to see D2C sales growing from £96 billion pa in 2020 to £120 billion pa by the end of 2023.
Other European countries are also recording similar growth trends.
Whilst in the US the forecast for direct-to-consumer e-commerce (D2C) sales is $151.20 billion in 2022
Incredibly, this is twice the level seen in 2019, the last year before the Covid-19 pandemic struck.
In summary, the dramatic rise in D2C sales is not a passing fad but an irreversible revolution in retail.
Myth 3: D2C is for digitally native, online-only companies not for established consumer brands like ours
Of course, it did used to be the case that D2C was associated mainly with smart start-ups that created challenger brands to carve out a significant share of niche markets.
Without retailer relationships or the financial strength to incur large upfront expenses, these challenger brands successfully used digital marketing to drive sales and third-party logistics to fulfill orders.
More established brands have woken up to the fact they too can adopt similar tactics in order to beat attacker brands at their own game.
As supply chains have tightened and the cost of digital acquisition has grown, major consumer brands are increasingly using their scale advantages to outcompete their rivals.
But to win in digital-first channels you do need to develop the right D2C strategy to acquire and retain consumers as BCG noted in their recent article on direct-to-consumer strategy and business benefits.
In summary, digitally native challenger brands may have set the pace in D2C but it’s the biggest brands that stand to benefit most from direct-to-consumer sales.
The only question is: why are so many of them so late to the party?
Myth 4: We’re concerned that DTC initiatives will create channel conflict with retailers and cannibalise our B2B business
Not necessarily so.
One reason for the late entry of larger manufacturers into the DTC marketplace is a natural fear of upsetting the retailers that they depend on for the majority of their sales.
Another is the concern that selling D2C will increase costs and complexity and potentially put internal teams in conflict with one another.
These are legitimate concerns, of course.
However, they generally prove to be unfounded.
There are two reasons for this:
- Firstly, you should be designing your D2C channel in such a way that it does not compete directly with your existing B2B routes to market.
- Secondly, your DTC products and services should offer consumers a differentiated experience or additional benefits compared to retailers.
In this way, you avoid competing with your retail partners and extend the total addressable marketplace for your products and services.
There are a number of different strategies to avoid channel conflict
• Selling what your retailer partners don’t offer
For example, premium products, range extensions, new lines, clearance products or bundles
• Adding services around products
For example, installation, connection, or fitting.
• Integrating subscription services
For example, product support packages, consumables, remote diagnostics, or software upgrades.
As EY rightly points out in their recent article D2C is as much a mindset as a channel.
In summary, you can build a D2C channel and grow your total sales without compromising your core B2B business.
Myth 5 – D2C is an easy add-on that we’ll start when we’re ready
Surprisingly, it’s still common for organisations to underestimate the challenge of setting up a D2C channel.
There’s sometimes a misconception that all you need to do is build an e-commerce website, or set up your Amazon storefront, announce your presence and start selling.
Alternatively, some leaders mistakenly believe that your existing B2B teams will be able to fully support the consumer’s different needs at the key moments in their buying journey.
This dangerous myth implies that you can set up quickly and scale with your existing resources.
The reality is of course different.
Whilst most companies start small and learn as they go, they do so from the basis of recognising that direct to consumer is fundamentally different from business to business.
Brands that build a successful D2C channel resource it correctly from launch to ensure that it offers product availability, service excellence, transparent pricing, simple payment options, fast deliveries, and free returns.
Moreover, they know that there’s is no room for error because consumers are accustomed to slick retail operations and the convenience of Amazon.
Offering anything less risks reputational damage and potential harm to your brands.
So, what do you need in order to build a strong D2C business?
Here are some pre-requisites:
- A dedicated D2C infrastructure organising marketing, sales, logistics, and customer service operations around the needs of the consumer
- A modern CRM system to provide a personalised consumer experience
- D2C business modelling and KPIs such as: customer acquisition cost, conversion rate, average order value, product margin, returns rate, churn rate, monthly recurring revenue, and consumer lifetime value
- Consumer experience metrics such as net promoter score and customer effort score
In summary, building a D2C channel requires fundamentally different skillsets and mindsets compared with those honed over time for your traditional retail business.
Organisations that underestimate the challenges of D2C or adopt a simplistic approach are doomed to fail.
Five steps to take now to set up for D2C success
Hopefully, this article shatters some of the common myths surrounding D2C.
The good news is that it’s not too late to get started with D2C or to significantly ramp up your capabilities.
To succeed take these five steps:
1. Set out your strategy
Be clear on your ambition and approach to D2C.
Define your differentiated consumer value proposition and how it will supplement or complement your offerings in existing channels
Finally, set out how you will allocate resources, measure success, and integrate D2C within your business structures.
2. Design your operating model
There are many different ways of marketing, selling, and delivering products and services direct to consumers.
So, it pays to decide at the outset which elements of the value chain you’ll perform in-house and which you’ll outsource.
3. Select your D2C products and services
This demands a clear understanding of:
• The strength of the consumer value proposition (i.e. how attractive consumers find your offering)
• The economic attractiveness of your product (i.e. its sales volume and unit profitability)
4. Put in the place the correct systems, processes, and tools
D2C requires a different set of tools than B2B.
- Marketing automation to ensure you make personalised offers at scale.
- Data analytics to track consumer spending on a recurring revenue basis and analyse profitability net of acquisition costs and costs to serve.
- Consumer experience measurement
5. Recruit D2C experts and upskill existing employees
Bring in a small team of experts to drive the setup and scaling of your D2C channel.
Make sure you recruit professionals with a background in retail, online and digital and give them the brief to create product differentiation and demonstrate the value of the channel.
Then, upskill existing employees who are allocated to the D2C channel.
Ultimately, it’s vital that they get comfortable with the new ways of working and embrace the shift in mindset required for direct-to-consumer marketing, sales, and service activities.
Thank you for reading this article.
If you found it interesting, why not share it with a friend or colleague?
If you’d like to discuss any of the issues raised or are seeking support with your D2C strategy, please feel free to get in contact.
Finally, don’t forget to download your free guide to direct-to-consumer sales.