Snapshot : We cover D2C benefits and what you business could gain by looking at D2C as a channel. These include connections – the valuable marketing opportunity to build deeper relationships with your consumers. They also include commercialisation and how a D2C Profit and Loss (P&L) differs from selling to a traditional retailer in terms of your sales and cost mix. And finally we talk about control and the opportunity to own the entire end-to-end channel with less reliance on intermediaries.
Before we get on to D2C benefits, have a think about this question. If you asked most Managing Directors or Chief Executives what the most valuable piece of equipment in the company was, what would the answer be? In a manufacturing business, they’d probably point to something complicated in the factory. Some part of the production process needed to get products out the door. In a service business, most likely some sort of server that only the IT team really understand. Something that holds the customer data that the business uses to understand it’s customers and market their services.
While these are valid answers, we think there’s an even more valuable piece of equipment that most business leaders wouldn’t even think about. And that’s a phone. Not just any phone. it’s the phone of the sales account manager who manages the relationship with your biggest trade customers. Because often it’s the relationship with the trade customer that is the vital link in business success.
You can spend a huge amount of time putting together business plans and delivering marketing activity. But if you can’t make your product available to buy, then you get no sales. And it has long been the case that it is retailers who control whether a product is available.
So a lot of your business’s chances to succeed come down to the relationship with the retailer buyer. Do they see it as an opportunity for their business to grow? Do they actually like what you are offering them? Does the supplier have a track record in delivering that helps the retail buyer feel that new product or campaign will help deliver on the retailers objectives?
In some cases, the relationship with the retailer can be strong. Let us share a story. We’ll keep the names anonymous. A very competent account manager we worked with was at a company conference a few years back. A few beers into the evening event, he sent a ‘miss you love you’ type message to his wife. We don’t remember the actual words, not that important. At least he thought it was to his wife. It was to the most frequently contacted person on his phone after all. Which he soon found out was the retail buyer at our biggest customer when he got this text back. ‘Um, appreciate it mate. But I think you sent this to the wrong person ;-)’. There was a bit of piss-taking afterwards, obviously. But because the relations was already good, it did not harm the relationship. In fact, it probably helped.
But we worked with another business who had been arguing with a major retailer on prices and margins for over a year. The relationship was not good. Top to top meetings. Delays in launching new products. Nasty emails. It got to the point where the retailer would send a list of demands every Friday afternoon. Always a Friday afternoon with a requirement to respond by Monday. Just so they could screw up the weekend. We know of another buyer who used to get so angry with suppliers in meetings, she would get right up in the face of the account managers shouting the odds. And those account managers got used to taking tissues to the meeting because they’d be wiping the buyer’s saliva off their face after the meeting. Unpleasant.
You might well ask what all this has to do with D2C benefits as we’ve titled this post? Well, when you have a D2C channel, your dependence on that relationship with the retailer buyer is reduced. This lottery of whether your relationship with the buyer is going to work does not go away but it’s risk factor is reduced. Your reliance on the account manager’s phone is reduced. It’s less important whether the buyer is in a good or bad mood the day you go in. There’s not many businesses where D2C will completely replace traditional retail channels. But we do see many benefits to business having a D2C channel as one of their sales routes to market to give you an alternative to depending on the retailer exclusively.
There are three key strategic benefits that we’ve seen that should make you consider using D2C as a channel for your business.
If you are a marketing led business that is already engaging with consumers online through websites and social media, D2C offers a strong connection opportunity for you. You are essentially extending the consumer journey further down the funnel. Awareness and consideration are great, but what if you are able to directly manage trial and repeat?
When a a consumer is buying direct from you, they are showing a high level of engagement and trust with your brand. What could demonstrate a consumer’s trust in you more than handing over their credit card details and trusting that your product will arrive safely on their doorstep a few days later? For marketers, D2C is the ultimate relationship builder. Where you move from ‘unknown’ user data in your Google Analytics to details of your actual customers. Their names. Where they live. Permission for you to contact them. And details of their purchase history from you. It amazes us that so many marketers we meet aren’t more excited about this amazing marketing opportunity.
We’ve just updated our article on D2C marketing and website if you want more detail on why this is a great opportunity for marketers.
Then, there is the commercial opportunity. D2C changes the way businesses think about their sales, costs and P&L mix. No more trade margin when you are the retailer selling direct. Except of course, very few businesses could rely on D2C sales alone. So there still will be trade margin discussions (national account managers can breather a bit easier), but if 5-10% of your sales can come through a channel you own, you get a lot of commercial benefits from that. Less dependency on the retailers. The full consumer price coming in to your bank account.
Though as we cover in our article on D2C Sales and cost planning, there’s also a lot of additional costs that you need to factor in to the mix before jumping on the D2C bandwagon. Credit card surcharges, warehouse costs, packaging costs, delivery charges, refunds and returns just to pick out a few examples.
But ultimately where we see the biggest opportunity with D2C is the element of control it can bring to your business. In the good old days, this might have come through vertical integration. But of all D2C benefits, if you directly manage all the touchpoint from the first point of contact with the consumer to the product landing on their doorstep, you can act much more quickly in fixing problems and exploiting opportunities. You have much deeper knowledge of the interactions between the consumer and your product. And you aren’t beholden to retailers for data about your customers or details about how your products are performing.
This doesn’t mean we would recommend D2C for all businesses. There are no guarantees and many have tried and failed to make a success of it. But we wouldn’t be so dismissive of it as some marketing pundits have been. If you have the business smarts to work it through, it can be an amazing business advantage to have that direct connection with your target audience.
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