It’s a slight understatement to say that retailers are struggling.
There were 21 retail bankruptcies in 2017 alone — dubbed the “retail apocalypse” — and there doesn’t seem to be a turnaround in sight. Buyers today have simply changed the way they purchase products, with more and more of the B2C market moving online (or to Amazon) each year.
However, it isn’t all bad news for the CPG brands who rely on retail partners. A number of companies are successfully adapting to the reality that retailers may not be the best way to reach buyers anymore. Many B2C brands are making the leap and shifting away from retail and toward direct-to-consumer (DTC).
As a business model, DTC has a number of benefits for brands, including giving marketers more control to build a better and more direct relationship with buyers. You don’t even have to look very far to find companies who have successfully made the move to DTC.
But should your GPG brand start selling direct-to-consumer? It all depends on your business model and whether you’re up for the challenge. DTC offers a huge opportunity for the brands that do it well, and your brand could be the next success story.
What does it mean to shift to direct-to-consumer?
Direct-to-consumer means exactly what it sounds like: using ecommerce platforms or stores to sell products directly to buyers. However, there are many different ways to achieve this. DTC could mean anything from having your own warehouses and managing the entire supply chain from end to end, or working with another distributor to achieve the same results. Obviously, the level of involvement and the cost varies greatly depending on how your brand chooses to execute DTC.
For most CPG brands, DTC is also not a complete replacement of the traditional retail model, but rather complements your existing strategy. Some brands will find that their business becomes 20% DTC and remains 80% retail, while others find DTC so successful they shift the majority of the business over. You have to choose your own strategy, and test out what works best for your customers.
Which brands have already adopted DTC?
There’s a reason many brands are shifting to DTC: it works. If you doubt it at all, just look at Nike. The massively popular brand was struggling just a few years ago and shifted to selling direct-to-consumer. The company opted to sell both through its own brick-and-mortar stores and also to sell more products online through Nike.com. This is obviously a massive and successful brand already, but Nike has staved off some of the worst impacts of the retail apocalypse thanks to this strategy.
According to Market Realist: “Nike has been using the DTC channel to make brand statements, as well as push sales of premium products. Its control over the channel gives the company greater leeway over pricing, inventory, and merchandising decisions. More importantly, for Nike, DTC channel sales are margin accretive and will help the company achieve its target of a 0.3–0.5 percentage point expansion in its gross margin each year through fiscal 2020. ”
Scotts Miracle-Gro is another company that has taken a direct-to-consumer approach with its lawn care products. While the company continues to sell through large retailers, it also sells directly to customers through distribution centers. To do that, it has a network of distribution centers and manufacturing facilities that evenly cover the areas it serves. This enables it to offer same day delivery direct to both stores, and directly to its customers. According to Supply Chain World magazine, the company also is developing direct-to-consumer channels in several European markets.
What are the advantages of selling direct-to-consumer?
With those brands as examples, you may be tempted to look into DTC, but maybe you’re not quite convinced yet. Here are the top reasons you should consider selling to potential customers directly.
1. More control over how your product is sold
When you sell through retail stores, you’re putting the customer experience in their hands. You’re entrusting them to present your product in the best possible way at the best price, ensuring that the customer has an overall pleasant experience from the time they enter the store to the time they leave. When you sell your product through your own ecommerce store, you take back that control. You get to decide on the price, discount strategies, shipping, packaging, customer communications, and more to ensure your customers have a great shopping experience. You also get a larger share of the profit.
2. Diversify your business
We’ve talked many times before about the importance of omnichannel. By selling direct-to-consumer, you’re adding another channel through which you can sell your product. You’re reducing the reliance you have on any particular source of business, especially one that isn’t directly under your control like a retail store. Think of it a bit like reducing your reliance on Google and its ever-changing search algorithms (which you have no control over) to attract customers to your website. Instead, you want to build up your email subscriptions to get traffic that way instead. With DTC, you’re also reducing your reliance on the success or failure of specific retailers, which is not always something you have control over.
3. Connect more with buyers
When consumers buy from your brand directly, you can connect with them directly and stand out more as a brand. For example, you now have their email address, online shopping behavior, and more customer data, so you can talk to them directly via marketing messages through email, social media, and more. Instead of hoping they come back to a retailer to buy again, you can use direct-to-consumer marketing to convert them into loyal customers. By having your brand pop up every week in their inbox with valuable offers or through targeted ads on Instagram, buyers are far more likely to make another purchase from your brand. This is a stark contrast to having your product in a large store, where it may be placed alongside other similar products where buyers may simply go for the cheapest option.
4. Provide more personalized service
The more a customer buys from your CPG brand directly, the more you will get to know about their habits, likes and dislikes, and be able to personalize your marketing communications. Maybe a segment of your customers always buys new boots in September because it starts to get cold where they live. You can send that group a discount for boots around that time, reminding them of your brand and the great selection of products you offer. With this data, you are able to recognize loyal customers and reward them for shopping with you, while also making the shopping experience easier by remembering their preferences. By doing this, you can increase the lifetime value of customers, and convert one-off purchases into loyal customers.
Of course, if you’re going to make the move to direct-to-consumer, you have to put in the necessary work to accomplish it. You need an ecommerce platform, a B2C CRM, a handle on your supply chain, and much more. But clearly, DTC is worth the effort. If you can provide a seamless experience for your buyers directly online, why would they ever turn to a retailer again? Drive real revenue, customer loyalty, and more with the right strategy for direct-to-consumer ecommerce.