James Richardson at Software AG asks what it will take for new direct-to-consumer businesses to succeed
The Covid-19 pandemic kept many of us apart. Lockdown emptied the high streets, first of shoppers and then of shops, with almost 50 stores closing each day in 2021.
However, it enabled some brands to get closer to their customers than ever before. A new emphasis on digital experiences meant thousands of manufacturers turned to direct-to-consumer (DTC) models, cutting out the retailers who previously served as middle-men.
The benefits of implementing a DTC model are clear. Businesses enjoy higher margins, access to customer data, and more opportunities to innovate and expand. They can then pass these improvements on to their customers with superior end-to-end brand experiences.
It’s no wonder that Barclays research shows the UK manufacturing sector is set to gain £24bn of DTC revenue by 2023, with 57% of consumers choosing to buy direct.
But a DTC model brings challenges, too. After all, it forces manufacturers to manage both supply chain logistics and customer-facing interactions. If they are to reap the rewards of DTC, they need to establish watertight new processes that ensure their customers have positive experiences.
Setting up a new supply chain
The difference between fulfilling orders for large wholesalers and individuals is enormous. One involves delivering orders to perhaps a hundred set retailers, while the other requires a complex supply chain capable of serving thousands of consumers.
This is further complicated by the success of e-commerce giants like Amazon—now, customers expect next-day, or even same-day, deliveries from retailers. Add in product returns, the UK rate of which surged by 24% in 2021, and new DTC brands face an uphill struggle to deliver on customer expectations.
When pivoting to a DTC model, the best approach for distribution depends on the business. Large international manufacturers, or high-end brands that require specific storage services such as temperature-controlled vehicles, often invest in their own fulfilment process to gain greater control over the success and margins of their deliveries.
Meanwhile, SMEs may be better suited to signing up to an existing logistics service that can store, pack, and deliver their products for a cut of each sale. That way, businesses can save resources and focus on their customer experience, which is crucial for a DTC model.
Delivering outstanding customer experiences
For newly-minted DTC brands, a great customer experience (CX) can be the difference between success and failure, with research showing almost two-thirds of consumers will walk away from a brand after just one bad experience.
To impress, DTC businesses must leverage their distinct new advantage: through a closer relationship with their customer, they can tailor journeys to them and drive sales.
This process begins with improving the way the company handles data. Every customer click, search, basket, comment and like generates valuable information about their interests, wants, and needs. It’s crucial, then, that a business uses a customer data platform (CDP) to capture and analyse this data quickly and accurately. This data can then drive automation.
Automation transforms personalisation, enhances workflows, and boosts operational reliability, all while allowing resources to be diverted elsewhere. But although it often promises minimal human input, these processes in fact require significant behind-the-scenes know-how to secure long-term success.
Leveraging the right skills
McKinsey research identifies one of the three core factors that stall a DTC model as ‘misalignment in talent’.Businesses without specific digital skills struggle to adapt to rising customer expectations, and must invest wisely if they want to break into e-commerce.
This means employing full-time programmers to develop, maintain and optimise the solutions required to deliver seamless shopper experiences. Though costly, in-house tech talent can bring savings in other areas—for instance, developers can build AI chatbots to handle night-time support requests and save companies employing advisers 24/7.
Alternatively, DTC businesses can invest in an off-the-shelf automation programme or use low or no-code solutions that are more intuitive for existing employees.
Again, the best approach will depend on the scale of the business, and the importance placed on control and margins versus lower overall costs. Each strategy has its pros and cons—but in the current climate, they’re likely to pay off for manufacturers.
The stakes are high
Despite the challenges associated with a DTC model, it presents undeniable benefits. Deeper insights and more control over the customer experience make it far easier for manufacturers to earn repeat purchasers, and to grow their audience—86% of loyal customers say they’d recommend a product to family and friends.
In turn, getting to know customers better helps DTC businesses to sell them the products they’re interested in more effectively.
Smaller, more agile DTC brands have some advantages over established retailers—their ability to respond nimbly to market changes will be a key benefit as the industry develops in response to new challenges and demand.
Of course, large retailers will try to fight back against interlopers. They enjoy a head-start through existing customer relationships, supply chains and infrastructure, and will look to establish blended experience journeys using broader data insights to bring people in.
The battle between DTC and legacy retailers is only just beginning.
James Richardson is a Retail Specialist at Software AG UK
Main image courtesy of iStockPhoto.com
