Understanding D2C: What’s fuelling the move?
By Elliott Jacobs, EMEA Commerce Consulting Director at LiveArea
The direct-to-consumer (D2C) market has skyrocketed, experiencing double-digit growth to the point where it is projected to grow 19.2% this year. While D2C will have been on brands’ radars for some time, the majority have lacked the systems and processes needed to support such a move. The closure of physical retail, however, has proved a catalyst for many to make the move as they aim to reinvent themselves for the new landscape.
While the April 12th roadmap puts a return to the high street back on the horizon, we’re unlikely to ever return to pre-pandemic footfall. Together, shrinking margins, the emergence of digital disruptors and the unstoppable rise of eCommerce mean D2C is no longer a nice-to-have for many brands, but a means of competitive differentiation in the age of at-home retail.
Changing behaviours under Covid
When we think of ‘D2C,’ it’s usually the likes of Dollar Shave Club, Brewdog and Bloom & Wild that come to mind, and two key similarities run through them all. Firstly, they tend to be niche and offer a fine-tuned proposition concentrating on one category – think subscription razors, craft beers or letterbox flowers. Secondly, they are obsessively focussed on digital, whether it’s through social media engagement and user-generated content or innovative eCommerce experiences, these brands lead the way in data-driven business decisions.
The most agile, efficient and resilient businesses over the past year have been the ones which place digital commerce, data and analytics at the heart of their operations. Businesses can no longer rely solely on bricks-and-mortar, with many household stalwarts reliant on physical real estate having shut their doors for good. Spurred on by lockdown restrictions and panic-buying, many consumers are now sold on the convenience of buying directly from brands – a trend which is unlikely to change even with the reopening of physical stores.
These behavioural changes have sprung larger brands into action, who are now launching their own D2C operations to improve profitability and take over the relationship with customers. Here, Nike has reaped the rewards of an earlier decisionto pull back from Amazon and use its website and shopping apps to build close connections with customers no longer shopping in-store. Elsewhere, PepsiCo and Heinz launched D2C offerings catering to common lockdown purchases to address supermarket shortages as a result of the panic-buying seen in the early days of the pandemic.
Acting on data intelligence
The reason behind many of these brands adopting D2C lies in the data. Typically, CPG brands reliant on supermarkets, marketplaces and retailers to sell their products are at the mercy of these partners in feeding back the data. Retailers who take a D2C approach, however, own the entire customer journey and are well-placed to develop a 360 understanding of their customers.
The wealth of data available is substantial, providing brands with valuable insights and one singular source of truth which cannot be underestimated. Brands can then go on to optimise products, processes and communications and increase relevance to consumers in a way that isn’t possible when selling via third parties. Not only this, but control of the data also facilitates new ways of exploiting it – whether it’s running more targeted marketing campaigns or identifying shifting consumer behaviour patterns. The lesson here is that data is the future, and retailers will want to own as much of it as they can.
The switch won’t happen overnight
A D2C sales channel should factor in every stage of the customer journey and there are myriad factors to take into account. For a start, they should consider the most effective means of competing with marketplaces, retailers and other brands for web traffic, whether it’s through social, search or PPC. From there, engaging content, immersive experiences and a seamless user experience will help brands build genuine connections with consumers and retain their custom.
Beyond this, a well-oiled D2C operation requires significant upfront investments in real estate, technology and staff. For example, any business aiming to achieve scalable online sales needs a platform that provides all the modern tooling needed to run an online business. It’s through these tools that brands gain the information required to treat customers as individuals. From a fulfilment perspective, D2C brands are in the business of sending regular packages to consumers rather than shipping bulk containers, meaning considerable changes to operating models will be necessary.
PepsiCo, Heinz and Nike have all proven the value of D2C in times of hardship. If other brands are to embark on similarly successful projects, they will need to ensure data, technology and processes can integrate and inform one-another across the entire customer journey. Those which do it right will set themselves up with a new source of income on top of the traditional wholesale channels when they return. But a cookie-cutter approach is no longer enough, and CPG brands considering the leap will have to decide whether such a commitment is right for them.