If ever there was a right time to enter the direct-to-consumer (D2C) arena, now is that time.
Even before the lockdown forced shops to close, online sales were already growing rapidly. At the same time, bricks and mortar retailers were struggling to adapt.
This is because consumer preferences for the way they choose to interact with manufacturers and retailers have shifted remarkably quickly.
Now, it’s no longer solely younger consumers who are happy to buy directly from manufacturers. Other demographics have got a taste for it too.
Therefore, direct to consumer business is not a passing trend that manufacturers can sit out and wait to pass.
“Direct to consumer (D2C) is a permanent structural change in the retail environment driven by consumer demand and enabled by digital platforms”
What’s more, D2C puts the end consumer right at the centre of your manufacturing business.
Clearly, there will be no turning back this tide of change even after the pandemic has come to an end.
So, if you are a manufacturer with recognised brands and the ability to sell to and service consumers directly, now is the right time to act.
The case for direct to consumer business
Having a direct relationship with the consumers that ultimately use your products must be an essential part of your business development strategy.
Direct to consumer is no longer the preserve of young upstart brands or pure-play eCommerce sites. It’s equally essential for many of the world’s top consumer goods manufacturers.
Take Nike for example.
According to its latest quarterly results announced on 30 November, 2020 direct to consumer sales were a staggering $4.3 billion. That’s 32 percent up overall, with double-digit growth across all geographies.
Or take Apple.
It continues to open stores across the world. Indeed, according to The Wall Street Journal, Apple Stores are now one of the most valuable “anchor” shops a retail shopping mall can have.
In December 2020 Barclays Bank published the findings of surveys that it commissioned among manufacturers, logistics organisations, and consumers. These surveys quantify the current and future potential value of D2C sales to the UK economy.
The report reveals that, for a growing number of UK households, buying goods direct from the producer is now “an established habit”.
Moreover, more than half of UK households now receive products direct from manufacturers.
This is a pattern accelerated by the pandemic but set to continue after restrictions ease.
Specifically, Barclays research and modelling shows:
- 57% of consumers now order at least some items direct from the manufacturer
- Direct to consumer (D2C) revenue for logistics providers is set to grow to 50% of total income by 2023.
- Manufacturers can expect to see D2C sales growing from £96 billion to £120 billion over the next three years
Incidentally, the picture is similar in the US as Diffusion’s 2020 Direct to Consumer Purchase Intent Index makes clear.
Direct to consumer is not new but you can still innovate
Back in the UK data from Statistica underlines just how much online and mobile eCommerce shopping have been booming for some time.
In addition, new selling platforms continue to come onstream to provide further D2C channels. Examples include Facebook Shops (which integrates directly with ‘Shopify‘) and live streaming eCommerce.
As the Harvard Business Review point out in their recent article on reinventing the direct to consumer business model
“There’s still a lingering idea that DTC is innovative. That simply isn’t the case anymore…It’s about how you do it, now that’s innovative.”HBR, March 2020
Although no longer new, direct to consumer continues however to offer new ways to sell to end-users.
Clearly, increasing direct to consumer sales must be an important pivot in your business development plan.
Whilst it’s still not too late to join the D2C club, some manufacturers may still take a little convincing.
Why some manufacturers are not selling directly to consumers
Manufacturers with a successful B2B sales model may question the value of D2C.
After all, you’ve built channel relationships and prized retailer listings that have enabled your business to scale by reaching a large and ready-made audience.
However, this audience is shrinking as traditional retailers go to the wall and online retailers move away to own brands.
Crucially, the relationship with the consumer continues to be owned by the retailer. And this is dangerous ground in a world of increasing choice where brand values matter more to the consumer and the manufacturer.
So, it’s time to bite the bullet, accept some channel conflict from retailers and integrate D2C into your current business model.
Undoubtedly, there will be additional short to medium term costs as the business invests in the necessary DTC infrastructure and skillsets.
However, the longer-term benefits are very significant indeed.
The benefits of direct to consumer for manufacturers
The benefits of D2C include:
1. Higher profit margin
By eliminating wholesalers and/or retailers, manufacturers can increase profit margins even allowing for increased sales, distribution, and service costs implicit in the DTC business model.
2. A better understanding of the consumer
By having direct-to-consumer interactions at pre-sales, sales and after-sales stages manufacturers collect first-party data which leads to a better understanding of your end customer’s needs.
3. Improved consumer experience
By analysing and using consumer data manufacturers can set about improving the customer experience as a means to increase repeat purchases and build brand loyalty.
4. Opportunities to up and cross sell
By interacting directly with consumers manufacturers obtain valuable feedback which helps you improve your product offerings. This information also allows you to up and cross-sell matching accessories and complementary services.
5. Opportunities to sell a wider product range
By opening a direct to consumer channel manufacturers are able to sell products for which retailers have selected alternative brands. Or where trade partners judge there is too much risk. For example, product innovations or range extensions. Additionally, manufacturers can use D2C to sell off surplus or discontinued product lines and retailer returns.
6. Experimenting with new ways of doing business
By having direct relationships with consumers, manufacturers can be leaner and more agile with your business development. For example, by testing MVPs in the D2C area. Or piloting new ways of supplying products such as through subscription models.
7. Product availability for critical customers
By creating a dedicated DTC channel with its own ring-fenced stock, manufacturers can ensure you have products available for your most loyal or most in need consumers.
8. Building brand relationships with consumers
By going direct to consumer manufacturers gain control not just over product availability and market positioning but also over how your brand values are communicated and demonstrated. D2C, therefore, allows you to control your brand story to build better relationships with your end customers.
This last business benefit for manufactures dovetails exactly with a growing desire on the part of consumers to have a direct relationship with the brands that they love.
Why consumers want to buy directly from manufacturers
The closure of physical stores has forced consumers online and opened up a greater range of buying options. One of which is to buy directly from manufacturers.
For many it’s an attractive option because DTC offers consumers the following benefits:
1. The manufacturer’s website is a more trusted source of pre-sales information
As far back as 2013, an emarketer survey revealed that 78% of shoppers trust manufacturers when researching products. More recent research from Astound Commerce showed that more than half of consumers choose to visit brand websites (rather than retailer websites) because you as the manufacturer offer more comprehensive information on your products.
2. Manufacturers display the full range of products and services they sell
By turning to the manufacturer directly, consumers gain access to complete product ranges, not just the selected product lines that retailers choose to carry. Additionally, the manufacturer’s specifications are always up to date and accurate as they are pulled directly from your company’s systems.
3. Buying directly eliminates the risk of buying counterfeit or non-original goods
This is a particular issue with designer goods. However, it also applies to spares and accessories for consumer electronics where buying directly from the manufacturer guarantees compatibility and performance.
4. Manufacturers offer additional services not available through retailers
Manufacturers offer services such as product support packages. Or an uninterrupted supply of essential consumables as well as regular software updates through subscription services. These offerings not only allow manufacturers to make more money they also give consumers a way of buying into a closer, ongoing relationship with their favourite brands.
5. Manufacturers are invested in the brands they sell
This manifests itself in ways that consumers respond positively to. For example:
- Brand messaging around ethical business practices, sustainable sourcing, and social responsibility
- A commitment to high service standards including helping consumers to get the most out of their products and taking responsibility for product faults or safety issues
- Offers and promotions only available to consumers who purchase directly
So, it’s clear.
Consumers want to buy directly from manufacturers. And they are responding very positively to the brands that are actively engaging.
In summary – now is the right time for direct to consumer
To paraphrase an old Chinese proverb:
“The best time for a manufacturer to go direct to consumer was ten years ago. The second-best time is now.”
As a manufacturer, you may have missed out on the first boom in direct to consumer. However, there are now so many more reasons to get onboard with D2C.
Yes, it may be challenging to change your standard model to incorporate DTC after spending so many years focusing purely on B2B.
However, the sooner you can make the move, the better it will be for both your business and the consumers that use your products and services.
For more information on how to develop a direct to consumer channel for your manufacturing business please contact us for a free and confidential consultation.