The direct-to-consumer (D2C) revolution is now well underway. But far from replacing the traditional role of retailers, opening a direct path to the consumer is instead providing manufacturers with a supplementary revenue stream to help them channel their brand and drive growth. In this article, we’ll look at the broad definition of D2C, how it fits alongside other channels, and the new opportunities it opens for manufacturers...if they are ready.
What is D2C and why is it increasing in popularity?
For manufacturers and CPG (consumer packaged goods) companies, D2C has always been a potential avenue for growth. However, it’s one that requires a confident grasp of technology and data in order to be effective, leading some businesses to continue leaning heavily on the retail sector as means of getting their products into the hands of customers.
Now that this technology is becoming more democratized and accessible - in no small part due to the rising popularity of composable commerce - D2C is emerging as a key area of focus for manufacturers and CPG leaders.
Not long ago, D2C was a term used simply to refer to brands that were digitally native, embracing e-commerce instead of utilizing high street stores. Today, D2C has evolved into a sales channel in its own right, allowing manufacturers to pitch and sell their products directly to consumers without the involvement of third-party retailers. Companies such as Nike have made this a priority in recent years, with digital and D2C expected to account for more than half of its revenue by 2025.
Pandemic restrictions such as the closing of retail stores have no doubt been a key factor, but even as restrictions lifted and physical stores reopened, Nike saw 37% year-on-year growth across its D2C digital channels. These include a proprietary app that allows users to buy and customize goods, as well as a 300 million-strong membership program that offers exclusive discounts for choosing to shop direct with the brand. It appears that Nike is leading the way for savvy manufacturers that want to invest in their digital infrastructure to move into the competitive space of direct consumer sales.
What are the benefits of D2C?
Embracing D2C gives manufacturers and CPG leaders the opportunity to connect with consumers in ways that might otherwise be impossible. Where previously retailers held all of the customer sales data - an extremely valuable asset in any pricing and marketing strategies - D2C channels mean that manufacturers can enjoy this benefit too.
By being able to get much closer to customer preferences and habits through their shopping data, manufacturers will theoretically be able to curate much more personalized, targeted experiences for each customer. While it’s a value-add for shoppers that like a brand enough to shop with a manufacturer directly, it will also help to inform future product design and development, giving the manufacturer a real edge in the market.
Adopting the D2C channel also means that products are no longer selected or promoted only according to the retailer’s strategy. When you own the shop, you’re then in charge of setting your own priorities, deciding which products to showcase, and without the pressure of shopfront competition from other brands, either online or in-store.
When relying on sales through a retailer’s channels, on the other hand, the retailer has its own set of priorities. To put it bluntly, they don’t really care about your brand over any other. There is no certainty that your product will be available indefinitely through that retailer, and it’s even less likely that it will receive special treatment in the way it is - or isn’t - promoted. Owning a complementary D2C channel, then, can be an important enabler for managing and improving brand awareness in ways that a retailer will never offer manufacturers.
Key considerations in setting up D2C
Of course, to take full advantage of a D2C channel, businesses need to start thinking not just as a manufacturer, but also as a sales and marketing experts and, most importantly, as a technology-led company, and this is no small task. Technology skills such as web and UX development will be crucial when developing a customer-facing online presence, ensuring customers and prospects always get the best possible experience.
Design and marketing skills will also play a key role in shaping channel-specific messaging and engaging would-be customers in a way that encourages them to make a purchase, sign up for a mailing list, or whatever the customer call-to-action may be. Once a manufacturer gets into this game, there is no turning back if the new channel is to be a success, so this approach will require a new way of thinking, but if get it right and the rewards will be more than worth it.
It starts with the right technology
Having the right technology in place - not just to make an online sales transaction but to manage a complete end-to-end experience for the customer - is one of the key advantages that retailers currently have over manufacturers. In large part, retailers have been forced to accelerate their digital strategies over the pandemic and the outcome is very slick and effective digital commerce experiences for their customers.
The good news for all sales channels, however, is that this technology has also been increasingly democratized thanks to advancements in composable enterprise software. The fourth generation of digital commerce is cloud-native and API-first, which makes it easier than ever to create and take ownership over new online sales channels, whether B2B, B2C, or D2C.
Does this mean D2C could replace the role of traditional retailers?
Far from replacing traditional retail, D2C instead offers a supplementary channel and the opportunity for new revenue streams. Most significantly, manufacturers are not looking to replicate the complex fulfillment and logistics networks that retailers have already established and perform so well - it simply wouldn’t be worth it - so there will always be a relationship needed between the two parties to leverage the reach of these networks.
Retailers will continue to offer manufacturers a fast and effective way to take their product to market and reach a wider audience than they could hope to match unless, of course, they have the foundations of elite brands like Nike. Furthermore, third-party retailers are extremely well versed in balancing margins.
This is the real secret to their success and manufacturers would be ill-advised to try and take retailers on at their own game in respect of aggressive pricing strategies. Instead, they should focus on the customer experience and opportunities to manage and promote their goods according to their own values.
Unsurprisingly, Nike’s investment in enterprise-grade digital commerce has been well thought out, creating a platform that can correctly manage customer relationships, carve out effective marketing strategies, and use customer data to its fullest potential. Engagement extends beyond the traditional website, using apps, portals, account areas, and personalization options in order to make the additional time that customers choose to spend with the brand directly worthwhile.
Are other brands set up for this yet? Perhaps not, but now is the time to seriously consider digital infrastructure and strategies if manufacturers want to be a part of this exciting development for the future of commerce.
To find out how Emporix’s composable digital commerce platform can help your brand harness D2C using best-in-class technology in a cost-effective, scalable way, get in touch today.