During 2020, the high street faced its most challenging times. Already suffering shop closures due to pressures inflicted by a steady migration online and rising landlord costs, COVID was an unwelcome addition to the suffering plight. Resulting national and local lockdowns compounded further the pressure put on physical stores with reduced footfall numbers, and shoppers.
Shopping behavior was already changing before COVID though. Convenience and choice have brought increasing numbers of people online. The pandemic has also forced some brands and manufacturers alike to consider cutting out the middleman to focus on a direct-to-consumer (D2C) experience. The reasons for this have been numerous, whether because they are increasingly nervous about the current health of high-street retail (and the hand that feeds them); losing touch with their customers, or simply having witnessed increased sales during the pandemic on their own websites. There are those who may not have a transactional web presence at all and feel vulnerable to the changing climate, exasperated by events in 2020.
PushON will be discussing direct-to-consumer in a series of articles, starting with why we should do it; challenges faced; moving to D2C and success stories.
Direct-to-Consumer: What is it?
Direct-to-consumer (D2C) is selling products directly to the customer while cutting out the middleman, e.g. retailers. Many are doing it already, and successfully, whether household brands such as Nike, Apple, but recent purebred eCommerce businesses such as Graze, Harrys and more. Many are also considering it as an opportunity, influenced by desire or necessity (for example those traditional B2B businesses who’s trade has been decimated by the pandemic).
The retail ecosystem is swiftly changing as we know, influenced by changing shopping habits. The freedom of being able to walk in to a shop has for the time being, been largely restricted. Shoppers can’t freely browse through the aisles, looking at items in a tactile way. They’ve migrated online more so than ever which has provided both opportunity and challenge for brands and retail. For the brands and manufacturers this has brought the customer directly to them with website visits (if they have one), and if not, a missed opportunity.
All of these events as mentioned are making brands and manufacturers think more about understanding their consumers more intimately, something often overlooked when selling via stockists and distributors. Is there an opportunity for them to build a closer relationship with customers, own the experience from interest through to purchase and loyalty? Which leads to the question, how? How do they do this when they’ve traditionally sold in the main through their stockists / distributors? How do they now sell to their customers directly?
Now is the time to be asking these questions and talking to consultants like PushON who can help take those steps towards a more D2C focused strategy
The Risk to Retail
More people are shopping online because it’s convenient, quicker, and they’re spending more time browsing the internet. This is a potential threat to the retail sector, as buyers are browsing more online to find the best deal, whether that’s free delivery or a 10% discount. If consumers can save £3 on delivery by shopping on a marketplace such as Amazon or receive a 10% discount from a department store or shopping via online retailers such as ASOS, they will. While the savings don’t seem much, it holds a hefty cost to losing a customer and a direct sale, especially when considering the overall customer lifetime value.
The high street is continuing to change, with well documented store closures in the media, and major names involved. Many of them were a major source of sales for brands traditionally, and thus there has been a nervousness by brands regards their reliance on stockists and distributors. In extreme cases, following store closures, we have seen companies subsequently left with distressed stock filling warehouses which they must shift at cost. Also, often brands will not sell their entire product range in stores as they compete for shelf-space, and some are asked to offer exclusive product variants to those stores to deliver competitive edge, often at the expense of the brand to manufacture such items. Brands will of course continue to sell through retailers, but with their products competing for shelf space often with the retailer’s own products, and other brands, plus a lack of customer ownership and sales intelligence, can all stack up as reasons to at least consider a more direct to consumer focused strategy.
Selling products through marketplaces such as Amazon and eBay isn’t uncommon. For many brands, it’s the easiest and quickest way to get their products in front of the customer. Marketplaces are often seen as the golden ticket for many brands due to their unrivalled ready-made ecosystems that provide customers with an easy, one-click shopping experience.
Amazon is the marketplace giant. The list of products available is endless and with their same-day delivery service, it makes shopping more convenient. Amazon can manage the promotion of your product(s), warehousing, packing and shipping. The ideal and stress-free situation, right? To an extent, but there’s the small print. Selling on marketplaces means brands have less control over who sees their products, resulting in certain potential customers being neglected. Data gathering is essential in understanding customers, but the information provided can be restrictive. Marketplaces can also control pricing, listings and imposed trading terms, which is something to avoid if possible. The more control brands have over their products and services, the better.
The competition to sell on marketplaces is high, but imagine these retailers introducing their own branded goods based on the information they’ve gathered, pushing them to the top of the list.
All brands should ‘own their customer’, whether that’s via marketplaces, other retail stores or through direct-to-consumer. But, if you don’t own your customer on the marketplace, you’ll have less control over pricing and fulfilment, and when the ‘hand that feeds you’ decides to manufacture its own product line, what will you do?
If you’re a manufacturer or distributor, you will likely have a ready-made infrastructure in place, i.e., production, warehousing, logistics, IT etc. They have the potential to own the customer experience in theory from purchase, packaging fulfilment and customer lifetime relationship. The only major missing piece in the jigsaw to going D2C is your shop window. Often this takes the form of an eCommerce website.
Owning your Customer
Owning the customer refers to understanding your audience and their buying behaviour. What interests them? What makes them buy? Why do they remain loyal? It’s critical to any business to get this right. The more control you have, the easier it is to sell. But owning your customer isn’t just about understanding them or having control promoting your products, it’s about nurturing them.
Customer loyalty and lifetime value is key. Creating a unique shopping experience and making the customer feel loved is a key ingredient in D2C. It’s difficult to achieve the same level of personal attention when selling your products or services through other retailers or marketplaces.
Brands also need to consider what they can offer consumers that the middleman can’t.
One of the biggest advantages with D2C lies in the potential to own the customer experience – building much closer relationships with them, understand more about what they buy, their behaviour and loyalty. This is a chance to control the brand experience – values, qualities, ethos throughout each touchpoint (from the first interaction with the brand to packaging, messaging and loyatly), so the customer knows what they’re buying in to; develop a more agile product development programme through customer feedback; and run less risk from retailer over-reliance as mentioned earlier. Many have the infrastructure already in place and own the supply chain, so are arguably set up and ready to go D2C.
For the more traditional businesses, however, going D2C will likely mean a sizeable change in business strategy and skillset. The newly forged relationships with their customers will give them access to data they’ve not been exposed to before or at least had to disseminate or manage to that volume or detail. They must now become a retailer. They must have the right skill sets to operate in this new space, staff accordingly with the correct hierarchy in place to succeed, most importantly, bring with it C-suite buy-in from day one so that the right culture is nurtured.
There are many reasons why brands, including our clients, have chosen to go down the direct-to-consumer route. Primarily the conversation circulates getting much closer to, and “owning the customer”. Keep an eye out for our next article on the challenges faced when focusing on direct-to-consumer. Alternatively, contact us today for more information.