As consumers in developed countries, we all buy things. Our purchases run the gamut from the everyday – replacement batteries, for example — to the heavily considered — a piece of furniture, perhaps, or a new car. Consumer purchasing is growing and shows no signs of slowing down: Retail sales, according to Kiplinger, are expected to grow 4.8% in 2018, better than 2017’s 4.2%, while e-commerce sales are expected to increase 15 percent over the year before.
And as sales increase overall, more companies are going the direct-to-consumer (D2C) route, moving away from partnerships with retailers to sell directly to the consumer. Warby Parker, Birchbox, and Dollar Shave Club are among the brands succeeding in this arena. In fact, growth in most consumer categories is shifting to brands centered on direct consumer relationships and agile supply chains flexible enough to serve consumer needs as they evolve.
This trend is top of mind for many retailers, both large and small, and it was the focus of a panel I had the pleasure of participating in recently: the Oregon Entrepreneurs Network PubTalk on Digital Transformation in the Direct-to-Consumer channels. Taking a direct-to-consumer approach affects everything from consumer engagement strategies to value chain optimization. It represents a huge opportunity – but one that may not be right for every brand. Here’s what you need to know about the trend.
D2C is all about connection (for better and worse)
The expectations of the modern consumer continue to evolve, shaped by the technological and cultural trends of the day. Consumers today are demanding a connection to the brand that is as tangible as it is emotional: Two-thirds of all U.S. consumers today expect direct connectivity to the companies from which they buy goods and services, and a full 90 percent want their experience with the brand to be personalized.
As a result, brands are being forced to target three goals in their consumer experiences: immediate, frictionless and personalized. This is the transactional "promise" consumers increasingly expect brands to deliver, and all companies are measured against these traits simply by operating in the D2C space.
A brand that moves into the D2C space has the opportunity to create an amazing end-to-end experience, from brand research and purchase to fulfillment. But for a brand currently operating as a manufacturer with retail partners, it’s a step that should not be taken lightly. Becoming a vertically-integrated retailer will present new challenges in marketing coordination, merchandise planning, inventory management, fulfillment partnerships and consumer service. While the upsides of a more personal consumer connection and improved margins hopefully win the day, the associated downside risks have a similar "immediate-effect," with consumer perception that needs to be managed accordingly. Brands moving to D2C also risk harming relationships with existing dealers, as Fender Musical Instruments found when it began selling directly to musicians on its website.
Brands are more empowered than ever
As in many other areas of business operations, digital transformations have taken e-commerce from an onerous proposition requiring multiple software partnerships and integrations to a greatly simplified undertaking. Various SAAS (software as a service) products, such as Squarespace, Shopify, and Big Cartel, offer an impressive entry point that allow even smaller brands to get in the game.
The explosion of social media has also given brands a wealth of information about what we as consumers want. The constant mining of our psyche that's occurring via Facebook, Instagram, Pinterest, etc. allows brands large and small to approach marketing as an arthroscopic surgeon rather than a large-net fisherman would. Case in point: This new media recently enabled a small dust-mask manufacturer based in Minnesota to identify me as a woodworking enthusiast based on my Instagram activity, present me with a targeted ad, and ultimately record a sale much more efficiently than if the company tried to blanket the population with traditional advertising.
A D2C connection can be the antidote to Amazon: Become more than a commodity
In the new era of consumer products and brands in general, to contend with the force of a massive player like Amazon requires that you move beyond commodity status. Amazon entered the commodity market in 2009 with its private-label brand, AmazonBasics, and by leveraging its global platform — including word-search algorithms and analysis of customer reviews — has grabbed nearly a third of the online market for batteries alone.
Another proof point lies in the market for shaving products, which for more than a century was dominated by Gillette and Schick. Today, these purveyors of utilitarian razors are being disrupted by Dollar Shave Club, which grew its brand equity in large part through quirky viral videos that spoke to its target audience – men looking for simple razors, delivered with convenience. Unilever bought the company in 2016 for $1 billion.
Many brands are still successful in 2018 without D2C sales, but change is certainly on the horizon: Industry watchers estimate that within three years, three companies — Amazon, Alibaba and eBay — will control 40 percent of global e-commerce. As retail continues to evolve, the D2C opportunity deserves increased scrutiny.
Are you equipped to ride this wave of change? The D2C transformation underway will leave complacent brands behind. While embracing a D2C strategy might seem like a choice in today's current environment, the coming retail transformation will fundamentally shift the D2C decision for most brands from "if" to "how."