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What’s feeding the growth of D2C?

Retail
(Image credit: Image Credit: WNDJ / Pixabay)

The digital awakening seen over the past year, combined with the pandemic’s impact on bricks-and-mortar retail, is leading brands to reinvent themselves for the new landscape. Today’s consumers are less concerned with staying loyal to a particular brand, and instead put convenience, experience and price at the top of their list of priorities. This has made competition fiercer than ever as brands scramble to cut through the noise.

The direct-to-consumer (D2C) landscape has become a key battleground through which brands are striving to retain consumer relevance. D2C is nothing new, but the majority of brands have been unable to make the move as a result of the systems and processes required. But as the focus on eCommerce gives an appearance of abundance online, the D2C landscape is soaring, with growth for this year projected to hit 19.2 percent. Learning from the digitally native likes of Graze and Bloom & Wild, brands traditionally reliant on wholesale retail are shifting their mindsets so as not to lose their market share.

While the reopening of the high street may give brands a new lease of life, we’re unlikely to see footfall return to pre-pandemic levels. Increasingly tight margins, the focus on online shopping and the impact of digital disruptors have made D2C a key means of differentiating themselves in the age of at-home retail.

Putting digital at the heart of operations 

When we think of ‘D2C,’ it’s usually the likes of Dollar Shave Club and Brewdog that come to mind, and two key similarities run through them all. Firstly, they tend to be niche and offer a fine-tuned proposition concentrating on one category – think subscription razors, craft beers or letterbox flowers. Secondly, they are obsessively focused on digital, whether it’s through social media engagement and user-generated content or innovative eCommerce experiences, these brands lead the way in data-driven business decisions.

The most agile, efficient and resilient businesses over the past year have been the ones which place digital commerce, data and analytics at the heart of their operations. Businesses can no longer rely solely on bricks-and-mortar, with many household stalwarts reliant on physical real estate having shut their doors for good. Spurred on by lockdown restrictions and panic-buying, many consumers are now sold on the convenience of buying directly from brands – a trend which is unlikely to change even with the reopening of physical stores.

Large CPG brands have known they would eventually need to adopt a D2C model for years, but a lack of digital agility and the investments involved have held them back. The behavioral changes of the pandemic have sprung these brands into action, who are now launching their own D2C operations to improve profitability and take ownership of the relationship with customers. Here, Nike has reaped the rewards of an earlier decision to pull back from Amazon and use its website and shopping apps to build close connections with customers no longer shopping in-store. Elsewhere, PepsiCo and Heinz launched D2C offerings catering to common lockdown purchases to address supermarket shortages as a result of the panic-buying seen in the early days of the pandemic.

Taking control of data 

The reason behind many of these brands adopting D2C lies in the data. Typically, CPG brands reliant on supermarkets, marketplaces and retailers to sell their products are at the mercy of these partners in feeding back the data. Retailers who take a D2C approach, however, own the entire customer journey and are well-placed to collect insights to develop a 360 understanding of their customers.

Understanding the consumer and acting on that understanding enables brands to unlock  all manner of new possibilities. The wealth of data available here is substantial, providing brands with valuable insights and one singular source of truth which cannot be underestimated. They can then go on to optimize products, processes and communications and increase relevance to consumers in a way that isn’t possible when selling via third parties. Not only this, but control of the data also facilitates new ways of exploiting it – whether it’s running more targeted marketing campaigns, gaining valuable feedback on new products and services, or identifying shifting consumer behavior patterns. The lesson here is that data is the future, and retailers will want to own as much of it as they can

Making the move will take time 

The switch to a D2C model won’t happen overnight. There are countless considerations brands should take into account, factoring in each stage of the customer journey. For example, engaging content, immersive experiences and a frictionless user experience are all key to telling a brand’s story and retaining customers. Elsewhere, brands should think about the most effective methods of competing with retailers and marketplaces, as well as other brands, for web traffic.

A seamless D2C operation involves substantial investments in every area of the business, such as people, technology and real estate. For instance, any brand looking to make their way in the world of eCommerce will need to invest in a platform equipped with the tools to run an online business – only by doing so will they have the insights and capabilities needed to treat customers on an individual level. From a fulfilment perspective, D2C brands are accustomed to sending regular packages to individual customers rather than in bulk, making significant changes to operating models a necessity. 

Switching to D2C is a big commitment, and one that requires access to high quality data, along with the technologies and processes needed to make sense of it. Nike, Heinz, and PepsiCo represent success stories of big brands making the move, and all three have shown what’s possible from a successful transition. By taking the leap, they have been able to drive considerable growth in what have been challenging times. But the switch is not for the faint hearted and every brand will face challenges unique to them. Getting it right, however, will open doors to new sources of income in addition to revenue from traditional channels – brands will therefore have to judge whether now is the right time for them.

Elliott Jacobs, Director, Digital Marketing EMEA, LiveArea

Elliott Jacobs is EMEA Commerce Consulting Director at LiveArea.