Strategy & Organisation July 03, 2020
How to launch D2C without impacting your current sales channels
Digital has shaken up the manufacturing industry and is re-shaping existing business models. No doubt a direct to consumer (D2C) route to market has been discussed in board rooms across the sector, and some have dipped their toe in. But it can be a tricky act to balance.
While D2C strategies can provide a range of opportunities, they do go in-hand with risks. Historically, there was a clear distinction between B2B and B2C; manufacturers would sell their products in bulk to stores, distributors and resellers who would, in turn, sell on to consumers at a mark-up. Nowadays, digital technology means that manufacturers can be less reliant on their distributor network, as the potential to sell directly to end customers is a real possibility.
Obviously, cutting out the middleman results in a higher margin and a direct relationship with the end customer, and all the data that comes with it; it’s hard to develop brand loyalty and brand affinity if you’re so distanced from your end customers. The opportunities are there, but there are key considerations to be taken into account, ranging from logistics through to customer experience. And how do manufacturers ensure they can still maintain a positive relationship with their existing sales channels?
For manufacturers selling in bulk to stores, D2C can create a new sales channel to small and medium size businesses, increasing your market penetration. Creating an e-commerce platform enables your business to showcase the breadth of available products to all potential buyers, just as a catalogue would in a face-to-face meeting. It also puts your business in control of customer experience, enabling personalised purchasing journeys for each client. Ultimately, this provides your business with much wider customer data collection, data that your company is in control of.
D2C is so promising as it offers a new way of operating, designed for the digital age. Rather than following legacy models, businesses can build up an entirely autonomous sales channel, making full use of digital solutions. This includes every step of order fulfillment, but also new payment options available to businesses, such as subscriptions.
However, for already established businesses considering a shift to the D2C model, there are two major roadblocks. One, it is an untested operation. Can your business handle the logistical difficulties? Without some form of a D2C system already tested, it’s impossible to know.
The second challenge is maintaining a good relationship with current distributors. No business wants to fracture their currently healthy setup by taking a chunk of the business away from a current partner to apply an untested D2C setup.
This is why businesses should adopt a crawl, walk, run approach.
The approach aims to establish a proof of concept for D2C, without harming current operations or distributor relations. First, businesses learn to crawl with one D2C project. As we start to walk, the business can incorporate more areas of their operations, followed by more and more as we get up to running speed. This way, your can establish a framework that enables speed and flexibility.
How does this look in practice?
Mindful not to step on distributors’ toes in establishing a D2C proof of concept, start by picking a market with very little to no distributor penetration. This could be a previously tough to reach market, a new audience segmentation found through a piece of audience data insight, or through the creation of an innovative new product offering.
It is also well worth considering spinning up a new brand – something to distance your core brand and products that your distributors and resellers rely on from your D2C offering.
A quick route-to-market is selling through Amazon, leaning on its huge market penetration and reliable logistics network. It’s a low-risk effort.
As a smaller test case, this is the time to get to grips with all the difficult new processes:
- Logistical challenges around stock management and order fulfilment.
- Creating a returns system that keeps customers happy.
- Creating an online sales portal and managing new customer data
If your company already uses Salesforce as a CRM, for example, it can be relatively easy and cost effective to help solve some of the data challenges. Adding on the Marketing Cloud module could support with effective campaign management across your digital channels such as digital display, social, Google Ads and email.
Pricing is another operational complication to work through in the crawl stage. D2C gives businesses a much greater share of the gross margin, enabling more wiggle room on price. This is how a brand like Harry’s can undercut other razor brands on price and still remain profitable. At the same time, without a 360 business shift towards the D2C model that enables an all encompassing pricing structure change, no business should introduce a D2C pricing structure that undercuts the business’s other already established channels.
In the early stages of D2C implementation, it’s important to see this new channel as a support for the current operation, rather than a competitor. This is about establishing a new channel, maximising the effectiveness of the business efforts to reach consumers and meet any new needs that have developed in the digital era.
In the B2B space, a good example of creating a D2C platform can be found in O2’s Star Trader platform. Based on audience insight that around 2000 people were ordering and activating 5-20 sim cards every week, O2 created the Star Trader site to ease the process of purchasing and reward the most successful traders. The Star Trader site quickly became O2’s most profitable acquisition channel.
As the crawl, walk, run approach begins with a single, smaller project, the time to market is much faster than reconfiguring your business’s entire e-commerce strategy. In periods of disruption, quickly being able to test new models offers businesses an opportunity to compete with the fast movers in their industry.
The outcome of the crawl stage is a disciplined, agile D2C operation, the basis of which can be flexed to other aspects of the business, enabling sales growth as we move into an increasingly digital and consumer-centric retail ecosystem.
This is an excerpt from Dept’s free whitepaper: Crawl, Walk, Run: How B2B Manufacturers can quickly launch D2C.