More and more consumer goods companies (CPG) are switching to the DTC (direct-to-consumer) model, avoiding retailers as middlemen.
As a result, brand manufacturers often compete with their traditional indirect sales channels, which are still important to their business.
This raises questions about what e-commerce strategies manufacturers can use to meet their customers’ needs without compromising relationships with their retail channel partners.
The E-Commerce Times spoke to several DTC experts to shed light on these issues.
CPG manufacturers are facing the pressures caused by changes in the global economy. While 60 percent of consumer products companies feel moderately prepared to take advantage of e-commerce growth opportunities, many are still wondering if they should adopt DTC to stay competitive, and how to do it.
Allan Peretz, president of retail consultancy Bold Strategies, noted that some large companies are becoming more active in the direct-to-consumer channel. For example, Pepsi launched two DTC drinks and snacks websites – PantryShop.com and Snacks.com – to meet the demand for home dining.
These published product launches have prompted other big brands like Procter & Gamble to reaffirm their focus on DTC over the past year. This trend next went back to SMBs.
“With the big companies talking about DTC, many midsize and smaller companies decided that was going to be okay. Retailers began to accept this as these big companies took the plunge.” Peretz observed.
Even before the pandemic forced the change, CPG manufacturers recognized the need to find new ways to reach consumers directly so they could better control sales, messaging and pricing. The early adopters now enjoy benefits.
Ted Pryor, executive director of Greenwich Harbor Partners, a recruiting company, said CPG companies have sped up direct sales in part because of the Covid-19 pandemic and in part because of the surge in direct sales. He stressed that consumers want to be able to go online and easily buy their favorite staples like sodas, toilet paper, cleaning products, and diapers – and CPG brands have responded.
“This trend started with the beginning of e-commerce but has grown over the past decade with the ubiquity of smartphones making e-commerce so easy. CPG brands have come on board strongly over the past five years and the Demand has accelerated during the pandemic, “explained Pryor.
Control of the narration
Phil Chang, founder of marketing consultancy RetailPhil, told the E-Commerce Times that the internet has changed the relationship between brands and retailers – and the old model – of brick and mortar being the focus of the consumer, allowing the retailer to being a gatekeeper.
“Manufacturers can now reach consumers directly, allowing them to do just about anything they want and say what they want. So they control the narrative. Now, in some cases, the retailer just becomes the point of transaction rather than the actual expert on the product “, he said.
CPG manufacturers are turning to DTC e-commerce to increase sales, increase margins, minimize reliance on retail partners, access customers in new regions, and improve customer loyalty and loyalty.
“The internet makes it possible for brands [deliver] A better personalized experience and allows consumers to access brands directly online where they can get the purest information, “added Chang.
Factors for DTC Success
A rethink is required for brands to successfully conduct DTC investments and experimentation. DTC initiatives are unlikely to be successful if an organization treats them as a side project of setting up an online store without making changes to other aspects of the business.
Varun Sharma, CEO and Co-Founder of Laumire Gourmet Fruits, stated that manufacturers should adopt a DTC e-commerce mindset and ensure that the right processes and organizational structures are in place to scale and support DTC.
“Companies that do well have a clear roadmap for what they will be like in the next few years. And that digital mindset is to slowly rebuild and build a business with a vision of 5 to 10 years is something that has a very important role to play plays, “he told the E-Commerce Times.
Failure to develop the necessary basics for DTC can be more damaging to a brand than not having an online store at all. This is because dissatisfied customers are usually quick to rush to social media to complain about bad experiences.
Sharma, whose fruit processing company is a direct-to-consumer brand, says its company takes full responsibility for the DTC model. “When we mess one thing, we mess the whole brand. Once you ruin an experience, a customer won’t come back to you,” he said.
A DTC business requires collaboration and input across multiple domains – including finance, sales, marketing, and operations – to ensure the extensive expertise and buy-in required to be successful.
Another important component is having an attorney at the helm of the DTC company, e.g. E.g. a CEO or COO with the authority and ability to align people in different departments so that they can work together effectively on projects.
Agile execution and continuous improvement are other important factors. Successful DTC players like NatureBox and Dollar Shave Club take a quick test-and-learn approach. They make huge investments in advanced analytics and use the results not only to personalize their offers, but also to predict consumer needs.
Balancing of sales channels
The obvious problem with the DTC model is the risk of damaging the relationship between brands and retailers.
Should brands direct their customers to their distributors for fulfillment instead of selling products directly to end customers? DTC e-commerce requires a balance in order for brands and their distributors to have a win-win situation.
“DTC’s growth has given retailers more power because they have more brands to choose from and work with than in the past,” said Peretz of Bold Strategies.
Today’s consumers demand personalization and convenience. To meet these consumer demands, CPG companies need to expand their long-established retail channels to reach consumers directly and learn more about their expectations, preferences and tastes.
Implementing a DTC strategy, whether by setting up a branded online store or leveraging third-party marketplaces, is key to staying competitive.
While a number of CPG companies have adopted the DTC online model to stay competitive and counter threats from interferers and competitors, many others are looking for ways to reach consumers directly through digital channels.
According to Peretz, brands should experiment with DTC as soon as possible. “If they wait to reach out to consumers directly, they have a long learning curve and it can take months or even years to get started. So the biggest risk is waiting. Experimenting.” on a small scale is very cheap, “he advised.