Over the past year, consumer behaviour has shifted drastically. Thanks to convenience and ease of use, we’re all spending a lot more time shopping for goods online.
This shift in consumer behaviour has forced many businesses to rework their models, signalling the rise in a “direct to consumer” approach.
As you can see from the above data, it’s clear that we’ve all gone online shopping mad. The ecommerce industry has seen ten years worth of growth in just three months!
Logistics businesses, in particular, saw a huge increase in volumes since the pandemic spread the globe. Over 80 million parcels were delivered direct to consumers from manufacturers in the past twelve months alone.
But it’s not just consumers rushing online. Many manufacturers are now going straight to the consumer with their own products, using their own website (or social channels). It’s this trend that has seen some huge numbers being thrown around when it comes to the exploding Direct-to-Consumer (D2C) model.
What is a direct to consumer (D2C) business?
Ultimately, a D2C business sells their products directly to consumers. This eliminates the need for third-party retailers, wholesalers or a “middle person”.
There are different ways in which businesses have been adopting the D2C model, from a hybrid version (adding a D2C arm to their existing B2C offering) or moving from manufacturer to pure D2C. There’s a common thread between them, though: explosive growth…
Example #1: Function Of Beauty
https://www.functionofbeauty.com/
Explosive growth from March 2020 onwards has seen this unique business of an engineer, Navy vet and a chemist collaborating to bring customisable hair, skin and body formulations direct to your door. And they’ve done well from going straight to consumer, seeing a 1,267% increase Quarter over Quarter! (Mar-Aug 2020 YoY comparison).
Example #2: Heinz
With industries almost wiped out with lockdown restrictions, there were thousands of businesses needing to change up how they acquired sales – it wasn’t just smaller businesses suffering from the restrictions.
Supermarkets dropped considerable footfall (although home delivery went mad), whilst hotels, restaurants and bars were closed. Sales for big brands usually stocked in these venues dropped drastically, which saw Global giant Heinz create personalisation and subscription models.
Welcome Heinz to Home. Bundle up your favourite Heinz products, personalise the labels (love this idea!), and set up a subscription so you never run out of your favourites.
And we’ve seen loads of restaurants or food producers go direct to consumers with DIY kits for making stuff at home; usually supported with a subscription model to try and drive that all important repeat custom.
Example #3: Patty & Bun
My absolute favourite is a little bias… my go-to burger joint: Patty & Bun
https://shop.pattyandbun.co.uk/
Although a little late to the party, Patty & Bun saw a huge soar in traffic once their “DIY kits” were up and running (although that could have been me ordering kits each week!).
The online experience and service was fantastic, and I received notifications all the way through. On arrival, the kit was well packaged and came with simple instructions to re-create the Ari-Gold (or Smokey-Robinson, whatever your preference!). I didn’t need the full restaurant experience to become a happy customer, proving that even fast-food chains can benefit from D2C services.
Dilemma quickly converted to opportunity with data insights
Transforming your business to appeal to a new audience is a dilemma quickly converted to opportunity with data insights. During the first few weeks of lockdown announcements, there were business disasters all over the world – in every industry!
One such business, a car rental firm in China, had ended up with a completely non-existent customer base. The company’s revenue fell by 95% in just one month.
However, the company responded swiftly, putting in place 3 agile multi-disciplinary teams and utilising social listening tools to uncover new micro-customer segments. Utilising their research led to a new campaign, targeting big tech-firms who had been advising employees not to use public transport.
Another team was set up to call first-time customers that had cancelled orders amidst Coronavirus fears. Focusing on the solutions they provide to alleviate any customer concerns, and combining that with refreshed and targeted campaigns, the company managed to recover 90% of its business year-on-year within 7 weeks.
What opportunities come with moving to a D2C model?
I’m no expert on the D2C model, more an interested observer. With this in mind, I’ve enlisted the assistance of some wonderful connections in the agency and client space! I posed a couple of questions to them, based on this Barclays D2C quote:
Two simple questions were asked:
- What do you think the biggest opportunities are for businesses looking to make the shift to D2C?
- What do you see as some of their biggest challenges to sustaining growth?
1. Learn from the data to optimise the messaging you control
If big data is a must-have for any business, then it could be said that this is the information manufacturers have missed out on when using third party retailers or wholesalers.
“There’s a far greater opportunity to test & learn to really understand what drives commercial performance. This will enable the D2C retailer to become far more agile as they can respond in near real time to what the data is showing resonates with the customer and double down on that.”
– Chris Ellsmore, Head of Acquisition, Monica Vinader
Understanding the drivers of conversion in a much shorter feedback loop will be critical for brands to keep evolving to meet (and hopefully exceed) customer expectations.
“Our main revenue stream …. D2C, where we can build a brand, control and collect customer data and create relationships and conversations on social. D2C allows us to collect data easier and use for remarketing purposes for example.”
– Kevin Russell, Creative Director, Hanubu
Now D2C brands can receive direct feedback on what customers like (or don’t like) about their products and services, test things out, find where demand is, what peaks occur and how that coincides with seasonal/topical events.
“One of the big opportunities of D2C is the ability to try new products which might otherwise not be picked up by traditional routes to market. Having a direct relationship with the end customer means you can get a much quicker feedback loop.”
– Will Huggins, CEO, Zoocha
This type of data is gold-dust to agencies when strategising for clients. And it will be the same for manufacturers when looking to spot trends and opportunities.
One such business with an abundance of data is Care/of, an online vitamin based business that saw huge growth over lockdown. It’s a beautifully tied up online experience, whereby the first thing they ask any customer to do is fill out a survey. This then delivers tailored health recommendations all backed up with educational content.
What a smart way to collect data, as Care/of have seen over 5 million people taking their online vitamin quiz since 2016.
It’s this wealth of data that has been gathered over the years that saw data giant Bayer acquiring a 70% share of Care/of, valuing the business at $225 million in August 2020.
With this level of data, Care/of have complete control over their messaging and incorporate a high level of personalisation. Something that’s high on the agenda for consumers when choosing to shop with particular brands, with 74% of consumers saying they feel frustrated when website content is not personalised!
2. Personalisation can help you stand out, improving conversions and retention
Making the most of your data collection is another opportunity to provide a more personalised experience for your customers. This can literally be the difference in retaining customers and even turning them into brand-loving and social sharing fans.
“Many D2C brands focus on a particular product and/or market segment which allows for personalisation that resonates with the target audience and allows penetration into markets that have traditionally been occupied by large multinational retailers.”
– Tom Shurville, MD, Distinctly
Think Spotify personalised playlists based on your past listening habits or HelloFresh who use online browsing behaviour to influence their content and follow-up emails.
Many of the larger platforms such as Shopify or Woocommerce have extensions or plugins allowing you to encourage reordering, which when paired with the your data can allow you to drastically improve your Calls To Action, chatbots, email strategy and more, all aligned to customer trends.
This control over the messaging offers the ability to improve your personalisation, which brings many benefits when brands take the leap to become a D2C player:
“…one of the biggest opportunities …. is interacting with and capturing your own audience. Having complete control over the buying experience, allowing brands to transfer more of your brand message and values throughout, improving retention and loyalty from a customer base.”
– Jack Minot, Search & Insight Director, Honcho Search
“The ability to communicate and own the entire messaging journey to customers – I think it’s much easier to get across your value proposition when you own all customer touch points from marketing to website to the post purchase experience.”
– Chris Ellsmore, Head of Acquisition, Monica Vinader
3. Embrace the change and fail fast in order to scale growth
Many businesses making the most of this surge to online shopping are those that are nimble enough to pivot/transform or brave enough to take the leap. Of course, there’s lots to consider with marketing, logistics etc, but there always will be with any business.
“During the current crisis, businesses have worked faster and better than they dreamed possible just a few months ago. Maintaining that sense of possibility will be an enduring source of competitive advantage.”
Efficiency is certainly key when it comes to trying out a new marketing channel, product offering or promotional strategy, but it seems to be the companies that pull their socks up and crack on that have seen the most benefit with the changing consumer behaviour online.
“Understanding that change is really now the normal at the centre of this – while the pandemic may be in retreat, there is a high chance of further mutations and outbreaks. The winners will have learned to adapt and flex with lockdowns and opening up, ensuring they can sustain those relationships and the growth that comes with it, whatever the weather.”
– Dom Graveson, Director of Strategy, Netcel
But it’s not just small manufacturers going it alone to delve into the world of D2C. There’s plenty of businesses combining assets and materials or utilising each other’s networks, with partnerships forming to help each other out, as businesses form new ventures together. If manufacturers are honest about their weaknesses but act fast, they could create a partnership with the perfect solution that leads to rapid growth for both outfits.
One such cool initiative or “partnership” created during the first lockdown was between a brewery and Kellogg’s. The Seven Bro7hers brewery (which is located on the same industrial estate as the Kellogg’s factory) now uses discarded Cornflakes as a raw ingredient in their brewing process.
There’s so much creativity within manufacturing – with the right infrastructure in place, there are so many opportunities for growth.
What are the challenges that come with a D2C model?
There are many new-to-market brands popping up with a D2C model, however those that are brand new businesses do not have the tricky tightrope to walk when managing existing retailer relationships.
1. Risk B2B relationships and welcome new competitors
If you’ve previously relied on other outlets to drive sales, then embarking on the Direct to Consumer route could lead to some difficult conversations as you become more like competitors versus the (often long standing) supplier relationship previously held.
“Managing the impact on B2B relationships … you’re effectively becoming competitors. Ensuring a strategy to keep all partners happy while being able to achieve your own commercial goals is the real challenge.”
– Jack Minot, Honcho Search
Whilst certainly a challenge, it’s not the impossible task. Managing client relations is an art in itself, so ultimately down to the overall management of the business.
“Pinkster Gin. A great product, sold directly through its website, sold to other drink companies, distributed to pubs and clubs and also sold in many farm shops. All at the same price, everyone on an even playing field which makes all customers feel like they have got a good deal regardless of where they buy the product from. The one take away though, the brand.
– Paul Lochhead, MD, Drinkstuff
2. Adapting to new processes, marketing skills and mindset
With varying levels of businesses adopting the D2C model, there will of course be a wide spectrum of resources available when it comes to being able to enjoy the opportunities.
The amount of data you can gather directly on your customer base is great, but what are you going to do with it?
“Developing the marketing skills and processes can be hard for businesses that have traditionally been B2B focused and is essentially for D2C growth.”
– Will Huggins, CEO, Zoocha
Understanding what the data is telling you and being able to form that into strategic decisions is the goal, but longer term growth will come from identifying trends quickly. Namely being able to zone in on your profitable tasks, whether that’s marketing channels to delivery and shipping options. For instance, you might find that the innovative last-mile delivery services from Circuit are making a substantial difference in customer satisfaction and profitability of your business.
Chris Ellsmore from Monica Vinader makes a great point when it comes to the mindset shift needed to truly succeed longer term:
“…there can initially be a limited understanding of profitable channels combined with the challenge of moving from marketing focussed on brand awareness towards performance marketing; this can lead to the cost of acquisition becoming unsustainable.”
– Chris Ellsmore, Head of Acquisition, Monica Vinader
3. Growing your team, product offering and your brand
Growth can bring its own hurdles, but is highly dependent on your existing set up and need for physically manufacturing your product. Growing a customer base and increasing orders could put strains on the factories you have within your manufacturing process, leading to delays in your backend operations. It only takes a handful of negative reviews due to later deliveries or constant out of stock products to damage the brand you’ve worked so hard to build.
“Building a team at speed is going to be a challenge. We don’t have offices as yet, but we see ourselves opening two satellite offices – one in Leeds and a creative hub in London where talent is easier to find the right people. But, finding the right people is key and probably the most critical aspect at the moment.”
– Kevin Russell, Creative Director, Hanubu
There have always been drawbacks to using retailers for product sales when operating as a manufacturer, but that nationwide coverage and instant larger customer base is a tough one to beat.
To combat that as you move on in your D2C journey, you may look to build out more product offerings, even diversifying, to chase the sales needed in order to sustain your growth targets. This however holds the threat of dampening down your brand message or taking a toll on customer service.
“As D2C brands mature, the need to maintain growth can lead to a comprise on the elements of D2C that have made them successful – namely broadening product ranges to appeal to a larger number of people or abandoning the D2C model altogether and selling through traditional retailers who have access to large numbers of consumers.”
– Tom Shurville, Distinctly
And it’s not just smaller D2C brands facing difficulties in making the model work. Bigger brands who traditionally have seen the majority of their sales through supermarkets or multi-brand fashion stores may find it difficult to entice customers away from their preferred method of shopping.
“It can also be challenging to encourage users to bypass the traditional retailers as there’s somewhat of a reset needed to develop compelling offers and a brand experience which encourages the user to go direct.”
– Chris Ellsmore, Monica Vinader
Summarising the opportunities and challenges of moving to D2C
The model can be fantastic for quick growth, from small manufacturer to large scale Direct to Consumer brands, but there are a number of things to consider along the way. The opinions and contributions of my fantastic colleagues and friends above should give a great overview of some of the opportunities and challenges to becoming a D2C business.
| Opportunities | Challenges |
|
|
|
|
|
|
|
|
Bonus question! What are your favourite D2C brands and what have they done well?
Roberts Radio, one of our own clients. Have been very progressive in the way they’ve approached ecommerce and looking to build out their own global ecommerce proposition. Also, being able to connect with their own customers through engaging and innovative campaigns, while managing their existing relationships with well-known retailers.
Jack Minot, Honcho Search
Tiny Rebel, a craft brewer from Wales, is a great brand that has successfully built a D2C channel. They have a great product, fun personality and engaging social media presence.
Will Huggins, Zoocha
I think Bloom & Wild have excelled through a genuine customer first approach. It really comes across strongly that satisfying the customer is their number 1 goal, if they haven’t satisfied a customer it feels as though service recovery becomes the absolute number 1 goal. They’ve also really led through their ‘thoughtful marketing’ campaign by allowing users to opt out of marketing campaigns which they may find hard to hear about.
Chris Ellsmore, Monica Vinader
Dollar Shave Club will always have a place in my heart due to their humorous launch video – it shows how D2C brands can operate without the constraints of big corporations and really push boundaries! At home we are huge fans of AllPlants and sleep on Loaf mattresses – the latter now have 8 UK stores which shows how the model can flex overtime.
Tom Shurville, Distinctly
Some brands we’ve admired from both a marketing and product perspective are Mous – iPhone cases, Simple proposition, lots of buying options. and Chilly Bottles who have a similar model. They’ve recognised a need for reusable stylish water bottles.
Kevin Russell, Creative Director
It’s been an interesting introduction to the world of D2C which I’m looking at exploring further.
Thanks to all of my wonderful contributors to the post with their insights and words of wisdom and of course, feel free to comment on any opportunities and challenges you see for D2C brands.
