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The Rise of DTC: How Your Consumer Goods Company Can Compete
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The Rise of DTC: How Your Consumer Goods Company Can Compete
Feb 2, 2022Aptean Staff Writer
It’s not news that consumers have made a massive switch in the way that they shop. Even older consumers stopped going to retail outlets at the height of the pandemic. Smart consumer goods companies immediately changed their focus to online sales channels, offering their products and services in a direct-to-consumer (DTC) shift.
Distributors adopted one of two strategies to survive. They changed their product lines, like swimwear manufacturer Dippin’ Daisy. This Los Angeles based company sold its products solely at retail outlets, but when the pandemic hit, CEO Elaine Train shifted to making fashionable and sturdy masks. The company sold almost 5,000 masks a week at the height of the pandemic. Train’s quick thinking and agility allowed her company to remain profitable in the face of crisis.
Other distributors shifted their strategy from their retail stores to online or to omnichannel. This included fulfilling DTC orders from their retailer partners, like Amazon, or selling their products through fully eCommerce retailers, like Wayfair. Some turned to subscription business models, where they offered customers their products via a mail-order monthly service.
DTC 101: What You Need To Know
If DTC wasn’t on your radar, here are some stats that might inspire you. According to e-Marketer, in the U.S. alone, DTC eCommerce sales should explode from $76.6 billion in 2019 to $175 billion by 2023. That’s an impressive 128% increase. In addition, sales of digitally native DTC ecommerce should increase to $44.7 billion, up from $19 billion last year. Another statistic to consider: DTC sales could be a potential goldmine, with a $6.6 trillion opportunity.
The pandemic simply accelerated buying trends that were already in motion and some distributors weren’t ready to meet the instantaneous shift in consumer demand. You don’t want your distribution company to become another casualty of the pandemic. Instead, you shift your strategy and focus on the new way that consumers shop.
Ready to make the change to a DTC model, but you’re not quite sure how to begin? In our handy guide below, we’ll discuss exactly what DTC is, explore successful companies, and give you four strategies to help you adjust your distribution strategy.
What Is DTC, Anyway?
The term direct-to-consumer is fairly self-explanatory. It refers to selling a product directly to the end user. For distributors, this means that you don’t have to go through your retail partners to sell your products; instead, you sell your products to consumers through online or omnichannel outlets. For example, let’s say you sell sporting goods. Instead of going to your retailers with the products, you sell your items to the consumers that want it.
Alternately, many distributors will work directly with their retailer partners to fulfill their DTC orders. That means that the product is featured on the retailer’s website, but the distributor picks, packs and ships each order directly to the end consumer. Instead of sending the retailer a pallet of 100 products, you ship out 100 individual items.
Many distributors have adopted a hybrid model, in which they sell one or two of their best-selling products through DTC channels and others through their retailers. Some distributors may choose to cut out the middleman and shift their entire operation to DTC. Whatever strategy you chose, make sure you are armed with the right tools.
We’ll discuss what those tools are later—first, let’s examine companies that have successfully adopted a DTC model.
Let’s face it, Amazon set the stage—and the standards—for DTC. The average consumer has high expectations for their online purchases, and retailers that don’t meet or exceed these standards will fall behind. Jeremy Goldman of eMarketer states that consumers expect quick delivery times, as well as low- to no-cost deliveries. Consumers want to be able to try out the product, or at least get an accurate picture of what the product looks like in real life. Convenient return policies are a huge factor in a consumer’s decision on whether to buy from an online retailer. Consumers also expect their personal information and their credit data to be secure.
That’s a tall order, but it’s very achievable.
Look at Nestle. The company already offered its luxury coffee makers and pods, Nespresso, through both online and retail channels. It also had Tails.com, a European-based custom dog food subscription service. But in a brilliant post-pandemic move, the company shifted to DTC meal kit boxes through Freshly. Freshly.com offers customized, ready-cooked meal plans. Consumers can simply heat and eat. The company’s current sales are at about $85 million per year—a big feat for a six-year-old enterprise. The big selling point? Convenience.
Nike is another good example. In 2019, Nike began focusing more on a DTC hybrid model. And during the pandemic, when gyms closed all over the country, Nike capitalized on the home exercise boom and its DTC efforts grew further. The company now boasts more than 1/3 of its sales from DTC channels, and the numbers are still growing. Nike made the customer experience its focus and set the standard for experiential brand marketing. By offering consumers a mix of sport, style and self-care in its marketing, Nike has loyal brand ambassadors and substantial market influence.
One of the biggest consumer goods DTC success stories? Sonos. When the pandemic first hit in March of 2020, Sonos, a high-end wireless speaker and home sound company, lost over 90% of its sales. Retail partners were cancelling orders with Sonos to focus on “essential” products. Instead of giving up, the company revamped its website with an emphasis on DTC. They focused on value-added services, like curated radio content and free Disney+ subscription with purchase. With this simple transition, they expanded their DTC sales by a whopping 67% in less than one year and sidestepped disaster.
Making the Shift: DTC Strategies That Work
Okay, you’ve decided to look at DTC for your distribution company. There are many benefits to taking that route, the main one being that all the profits go directly to you.
Now what? How can you get started? What do you need? Fear not—below we have four actionable strategies, as well as the tools to help you succeed. Let’s dive in.
Strategy #1: Survey the Current Landscape
The first step in any successful strategy is having a plan in place. If you want to go whole-hog on DTC, make sure you don’t alienate your retail partners right out of the gate. For most distributors, a hybrid model is the most palatable approach, and it means that you can still enjoy—and perhaps enhance—your retail relationships.
The keystone of this strategy is to evaluate existing partnerships and decide which ones will provide value in your future. To do this, you need to know exactly how profitable each of these retail partnerships are. Is there room to improve pricing? Can you afford to let any of these partners go? In order to understand how profitable your partnerships are, you need the right tools, like Aptean’s Distribution ERP with a built-in Profitability Scorecard. This powerful tool will give you the data you need to answer these questions.
This solution allows you to perform an in-depth analysis of the profitability of every partner you have, including retailers, suppliers and logistics companies. Once you have determined your costs, you can choose which of these partners will be the best fit for your new DTC strategies. You’ll need to decide whether you just want online sales, or whether you want to open your own retail outlet. Also, if you choose a hybrid DTC model, many consumer goods companies choose to still fulfill the orders coming in from retailer online storefronts. A branded website is often a strategic option to grow sales, and you can seamlessly integrate it with your existing ERP.
A great example of a hybrid DTC is CoverGirl Cosmetics. The legacy brand decided to maintain its traditional retail partnerships but also focus on maximizing its online DTC channels. The company used the data from online sales channels to gain valuable insights about what customers wanted. and tweak the product lines that their retail partners offered as a result. CoverGirl also opened a store on Times Square which allowed guests to virtually “try on” the products before they bought them.
CoverGirl’s strategy is an intelligent commingling of online, traditional and experiential retail. Whatever method you choose, you want to give consumers multiple opportunities to engage with your brand.
Strategy #2: Create a Frictionless Buying (And Returns) Process
Here’s the truth: unless you have a product that is so unique or luxurious that customers are willing to wait for it, you’re going to have to make the buying process easy and user-friendly. Any time a customer interacts with your business, it should be as seamless as possible. Customer data shows that people are willing to pay more if the buying experience is fast and efficient. What does this mean for you? You need to invest in the technology to make the customer experience a great one.
Here’s how. First, identify any customer touchpoints. Talk with your sales and marketing departments and see where all these touchpoints exist. Since touchpoints are simply anywhere a customer can contact your business, the list should be lengthy. Then think about ways that you can improve the customer experience both on your own ecommerce channels as well as through your retailer partner channels. Your end goal is obviously to get customers to buy your product, but you need to get them interested first.
Let’s say you do a beta test of the website, and you find out that customers report a good experience buying through your website, but report a poor experience using your chatbot. That is a great opportunity to improve and retain future customers that use that channel. Speaking of websites, it needs to be easy for customers to navigate and find the products that they want.
In the warehouse, you need to stock the items your consumers want, but you also need to make it easy on your staff. DTC often means smaller orders in greater volume. Think about product kitting and bundling and put them together in a subscription. That means your staff is picking and packing set items and shipping them out on set dates. Whatever you choose to do to get products out the door, you will need to evolve your warehouse process to be as efficient as possible. A distribution ERP with built-in WMS drives efficiency with automated processes, like customized packing slips, shipping labels and real-time inventory updates, and keeps both your staff and your new customers happy.
And if your customers need to return an item, make sure that process is simple, also. Have a clear-cut return policy and make the process easy on the customer by providing shipping labels. If an item is damaged and isn’t returnable, you can still keep the customer happy by offering store credits or exchanges. Think about it this way—you know what you expect when you shop online, so offer your potential customers the same great options. Aptean has a nimble, scalable online storefront solution that will help you create an outstanding shopping experience.
Strategy #3: Offer a Unique Value-Added Proposition
Trying to sell any product is stressful, and there’s a ton of competition out there. You need to ensure that your product stands apart from the rest. Here’s a prime example. Think about Casper, the mattress disruptor. The mattress industry has been firmly entrenched in brick-and-mortar stores, with the idea that people want to try out mattresses before they buy them.
Casper turned the industry on its head by not only giving customers the chance to buy a mattress online and have it delivered, but also giving them a no questions-asked 100-night return policy. The company also has a generous referral program. Its price points are reasonable, but that isn’t the selling point—customers want to feel like they are a part of something, and Casper’s brilliant content marketing strategy achieved that.
When you go to build your online platform for your product, offer customers something that they cannot get with your competitors. Think back to our example of sports equipment. Let’s say you want to start selling your weight sets online. You know that you have a great quality product, but new customers don’t know that.
Perhaps you could offer them a free subscription to an online workout program or free virtual sessions with a personal trainer once they purchase. Maybe you could throw in a free weight bench with the purchase of a full set. Whatever you choose to do, your customers need to feel like they are getting more for their money.
Using analytics tools like Aptean’s exclusive Profitability Scorecard within our distribution ERP or Aptean’s Business Intelligence solution, you can make an accurate analysis of your pricing strategy and easily determine whether your value-added proposition will be profitable. After that, the sky’s the limit.
Strategy #4: Centralize Data in a Single Platform
The shift to DTC has made the distribution vertical even more competitive. Add in supply chain issues, and your industry has become even tougher to navigate. So how can you make the transition to DTC and not only survive, but thrive? By implementing the right technology.
If you want to create a DTC storefront, there’s no need to dramatically transform your entire operation. You simply need the right data. You need a user-friendly online payment processing tool and a method of transforming your stock products into an online storefront. Aptean Pay and Aptean eCommerce tools, coupled with our industry-specific distribution ERP, will drive online revenues and improve payment processes, all without the errors and inefficiencies that can result from disparate platforms or manual processes.
There’s a lot that goes into DTC. You need to pick and pack the order, print labels, and then ship the orders in a timely manner. With manual processes, it would take hours, perhaps days, to complete. With Aptean’s Distribution ERP, Pay and eCommerce tools, everything is processed instantly as it comes in. No more bottlenecks. No more manual processes. Our distribution ERP and eCommerce platforms communicate vital information bi-directionally 24/7, which means that your orders go out correctly and your financials are updated instantly.
Aptean eCommerce automatically captures all purchase information and updates the inventory within the ERP system. And for that extra peace of mind, our solutions are scalable as your business grows and your needs change.
Many consumer goods companies are shifting away from traditional fulfillment models, but there are many challenges that emerge in doing so. If you are thinking about making the switch, technology will be your best partner. Look into how industry-specific technology, like an industry-specific ERP with integrated eCommerce tools, can help you make the shift toward DTC.
Are you ready to make the switch to DTC? Need some help getting there? Talk to one of our industry experts and find out how, now.
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