Competitive forces, ever-changing consumer expectations and an overall shift in industry inertia has more and more consumer packaged goods and brand manufacturers looking toward direct-to-consumer (D2C) channels. The benefits of such a transition are clear, with an additional growth channel with higher margins being perhaps the most obvious. But in today’s landscape, experience is king, and by creating direct relationships with their customers, CPGs are able to assert full control over the brand experience they deliver. Likewise, being one step closer to their customer enables them to collect better consumer data, a critical asset in the industry’s rapidly growing digital future.
Following the lead of their retail partners, CPG is now well into what Boston Consulting Group calls “1-5-10” territory. That is, what represented only 1% digital penetration for CPGs a couple short years ago has rapidly expanded to 5%, and is very soon likely to reach 10%, all while driving a significant portion of the industry’s overall growth. Much of that digital growth is sure to come from direct-to-consumer channels, as companies seek out competitive toeholds against smaller, more nimble competitors and scramble to meet the expectations of brand loyalists who increasingly expect the ability to buy direct. For evidence, we need only look at Unilver’s 2016 acquisition of Dollar Shave Club.
But going D2C is not without its challenges. Most manufacturers can’t simply transform themselves into an ecommerce powerhouse overnight, and striking a balance in order to avoid channel conflict is key. In this post we’ve assembled five important considerations for any brand, CPG and food manufacturer tackling a direct-to-consumer initiative.
1. Achieving Enterprise Buy-In
Unfortunately, D2C isn’t as simple as putting up a new website and calling it a day. But you knew that. It takes massive organizational alignment and perhaps even a tectonic shift in company priorities in order to do direct ecommerce well. There will be internal friction, perhaps even resistance, before you get there. It’s going to require new investments, new people, new skillsets and possibly even some re-organization. So it’s vital for executives to be bought in across the company, no matter what part of the business they own.
The point is, this is not something that should be done half-heartedly. There are myriad examples of retailers from the past decade and a half that never quite figured out ecommerce. Either they were too late to the party, didn’t prioritize ecommerce, weren’t organized properly, or—well, there are lots of reasons. But luckily for you there are plenty of good examples to follow, models to emulate and existing ideas to innovate from. How you go about this will be unique to your company’s existing culture, but it’s critical that everyone be on the same page from day one.
2. Driving Technical & Operational Alignment
Consider this the tactical side of the coin to #1’s strategic. If factor #1 is ensuring the whole company understands what you’re going to do (and why), #2 is everyone fully understanding how you plan to do it. Years ago I attended a webinar hosted by one of the big independent consulting firms. Its title was simply, “Ecommerce is Hard.” Though a cheeky title, the sentiment wasn’t played as a joke. But things are a bit easier now. Ecommerce solutions are mature and there are no shortage of providers willing to help you get up and running in a reasonable timeframe. But there are lots of front-end and back-end IT decisions to be made here. Which webstore? What about order management? Do we need a PIM? Payment processing. Inventory management, warehousing and shipping. How will we handle the demand for increased customer service?
It’s also important to consider where ecommerce will sit within your organizational structure. Who “owns” ecommerce? You’ll need to think through operational logistics. Whereas previously you may have only offered your product by the pallet, your customers will likely want to buy a more manageable quantity. How you will make that happen is one of many key considerations.
3. Navigating Channel Conflict
Your retailers are important and you want to keep them happy. But this is a common barrier to going direct. The answer to how you will handle this very much depends on the individual relationships you have with your retail partners, but one way or another it should be handled proactively.
One common solution is to get creative. What could you offer as a result of now being vertically integrated that retail partners simply couldn’t? Perhaps it’s the opportunity for personalization. After all, I can’t go to Foot Locker and buy a pair of customized Nike running shoes with my name on them—I can only do that on Nike.com. I also can’t order 500,000 possible combinations of custom Bear Naked granola on Amazon like I can directly via their branded website. Other options to help avoid conflict include ability to offer unique pricing, loyalty rewards, subscription services, different size and packaging options, or retail-specific product variations.
You won’t find Honey-Bourbon-Kale-Cabernet Granola at your local grocer
4. Shifting Marketing Mindset
D2C demands that you think a bit differently about marketing. You’ll be able to leverage the data you now have access to in new and creative ways to establish a conversation with your customers and prospective customers.
Personalization will play a large role here, as well. In fact, nearly one-third of marketers said that their top priority for future marketing efforts was the ability to personalize messaging and offers for their customers.
5. Nailing Data Management
Did you know that nearly three-quarters (74%) of consumers get frustrated when website content isn’t tailored specifically to them? Consumers want to establish a relationship with the brands they love, but they also want to know that the feeling is mutual. In the D2C world, not only will you need rock-solid imagery, digital media content and descriptions about your products, but you’ll also need to combine all of it with data about who your customers are and how they are interacting with your brands.
But executing this requires some very deliberate decisions about how you’ll manage data about your products and customers. Many manufacturers are beginning to handle this dilemma through a multidomain approach to data management. No longer do product information and customer data need to live in separate, hermetically sealed siloes.