While there is no one-size-fits all solution for creating online D2C channels, mastering the following disciplines is critical, whichever model you choose.
Mindset and talent
Consumer products companies must understand that the new channel is effectively a vertical retailer in its own right. This entails significant change in mindset best embodied by agile working practices and the creation of new strategic roles within the business staffed by people with deep experience in online D2C. For example, when the shoemaker Birkenstock Digital GMhB recruited 45 people for its D2C initiative, it favored those with backgrounds in ecommerce and digital expertise over those with deep experience in the shoe industry.5 Nike’s acquisition of Zodiac predictive analytics group enabled the business to support multiple D2C teams with core technical expertise as its offerings matured.6 Training must be geared to specific retail capabilities, including promotion, loyalty programs and sales – and dealing with the integration of new partners. Creating the right teams with consumer-centric mindsets and skills will enable the business to engage and incentivize consumers by developing compelling offers and brand experiences.
Partners and ecosystems
Businesses must continue to nurture and strengthen relationships with retailers and look to build ecosystems. Being sensitive to the needs of existing retail partnerships means clearly distinguishing online and offline products and promotions. In some instances, selling direct to the consumer with a click-and-collect process at a retail partner may be more attractive and cost-effective than building a model that delivers the goods to the consumers’ homes. The US beverage retailer Drizly has adopted such an approach.
Since online D2C platforms generate more insight into consumer behavior, it is often possible to build an ecosystem of services around a core offering. For example, a beverages company could add snacks, experiences and delivery by teaming up with businesses in related sectors.
Data and consumers
Online D2C channels equipped with data management platforms to reconcile offline and online data provide a window into consumer behavior on a scale and timeliness otherwise unavailable to consumer products companies. This enables rapid response and innovation based on changing trends. Businesses can adapt their offerings by increasing the effectiveness of marketing campaigns, personalizing products and customizing services within days and weeks – thereby replicating the agility of digital-only start-ups.
Enterprises launching products and brands that differentiate beyond price are more likely to succeed in the coming years: the EY Future Consumer Index shows that 67% of consumers are more likely to purchase from businesses with social purpose. Having a distinctive proposition can also prevent the business from having to enter into price wars with competitors. Additional insights gleaned from consumer data could inform overall advertising spend and even the mergers and acquisitions pipeline.
Profitability and growth
As businesses create innovative and meaningful ways of connecting with consumers, they must ensure that marketing spend does not nudge the online D2C initiative into unprofitable territory. Companies are already beginning to seek ways of avoiding the excesses of the broken pay-to-play D2C model: spending too much to acquire traffic and hoping for the best has shown to be a faulty strategy in the current crisis. Businesses that win create and engage a consumer community with relevant and savvy marketing and develop sound CRM disciplines to increase purchasing frequency and loyalty.
Our analysis of leading online D2C brands shows that the paid traffic acquisition budget will continue to take up between 20% and 30% of online D2C sales revenue if true growth and scalability is to be achieved – a percentage that could well rise in the future. Equally, some companies with strong brands have achieved 45% of their revenue for the channel from direct traffic and organic search, illustrating that an innovative approach traffic acquisition pays dividends.