Direct to Consumer (D2C) has always been an interesting growth opportunity for CPG brands. Leaders see the upside clear as day in terms of increased revenue, larger margins, owning the consumer engagement. CPGs don’t always realize how tough it is to make D2C a success – it’s incredibly tough!
There has been a fluctuating trend of CPG’s moving in and out of the D2C space over the last 10-15 years. At the start, many large CPGs went full speed ahead with huge investments to build the teams and infrastructure to drive it. This came with a significant investment and expectations – most of which weren’t met.
Fast forward to the present day – D2C adoption in CPG is on the rise because of covid-19. The pandemic severely impacted revenue through 3rd party retail. Most CPGs pivoted into D2C to overcome revenue short falls. Data from Gartner’s 2021 digital commerce survey below illustrates this point.
D2C takes time to scale
Scaling D2C takes time, it is a longer-term play to deliver business value across revenue, profitability, and consumer insights – it’s a value add not volume model. It takes a growth mindset, commitment, and patience to incubate and grow – which is a challenge given the current external challenges organizations are facing.
CPG leaders need to recognize they have a tough D2C path ahead because 3rd party retail sales will bounce back as consumer purchase behaviors will shift again. More than likely, those that setup D2C as a reaction to covid treated D2C as another channel with the same product portfolio. This means there is no clear point of difference or reason for a consumer to buy from you versus a retail partner.
The cost of marketing will more than likely continue to rise. Internally you will face pressure to deliver short term results and value or risk investment being diverted into other channels.
In the face of all this, the question is how can you drive D2C can drive short term value to prove its strategic importance long term?
Here’s three ways you can think about the role and vision to drive value and scale D2C….
1. Use D2C as test and learn tactic
If you are exploring the D2C opportunity, consider a D2C test and learn execution through the following options:
- Social commerce – Use native functionality to drive brand / product discovery and sale.
- Simple website – Use a simple software as a service Digital commerce platform to setup.
Keep it simple. Focus on the minimal viable product, focus hero product(s) and limited editions product bundles to test consumer demand. This will also allow you to learn what it takes to sell direct, plus investment and risk – it gives you a quick exit plan if things don’t work out. If it does work, you can look to scale up!
D2C Platforms like Shopify are now increasing their capabilities to enable social commerce buying experiences which can help to enable both of the above options.
2. Demonstrate the impact D2C can have on broader business
The power of D2C is your ability to engage new and existing customers to test and execute innovation or influence other business strategies. Use your D2C platform to:
- Crowd source and test ideas with your D2C Consumers – They are you biggest fans, if they like your ideas there is a greater chance they will buy when launched. This will help with internal confidence of commercial success for new products plus de-risk investment in development.
- Reach new consumers through new go to market models – Use D2C as the exploration tool to find new customers such as live shopping to deliver an integrated brand and shopping experience.
- Help inform 3rd party digital commerce execution – We have seen clients leverage their data to influence 3rd party retailer marketing execution tactics and grow those channels such as digital shelf optimization, paid search, promotional tactics etc.
3. Define a differentiated long term vision for D2C
This requires a shift in mindset within the in the organization, looking at success with a with a different perspective. These 3 killer questions and answers will guide you to set your brands longer-term D2C vision:
Question: What is the strategic objective of D2C, what does success look like and what do we need to do to scale it up?
Answer: Unfortunately, there is no “one size fits all answer”. D2C has a role to play for CPG brands, you need to set out what that vision is – is it purely for commercial growth, is it a platform to test and learn, or a consumer engagement platform? Whatever it is – clearly define and agree that vision with stakeholders and then develop targets and roadmap to that vision.
Question: What is the differentiated consumer / brand proposition for D2C?
Answer: One thing you do need to ensure is that it has a point of difference across at least one of the one of the 4 Ps of marketing (Product, Place, Price, Promotion). Promotion is the simplest area to start on, this could be executed through partnerships loyalty / reward programs with complementary and non-competing brands. Differentiated product portfolio is a longer-term focus, it will require a greater effort and investment. Think about how product, promotion and price combined with promotion such recurring promotional bundle subscriptions to meet an unmet consumer need.
Question: How can we position D2C to deliver additional value beyond just revenue and profits?
Answer: The additional value is in the customer insight. Put a commercial value on the data you hold. Creatively think how you can better leverage it across the organization as an insight’s platform, such as new product development, marketing campaign, broader commercial execution. Make sure that D2C is recognized as the source with the commercial outcomes being attributed back to the channel.