The direct to consumer model: launching a D2C channel
As COVID forces our lives online, FMCG manufacturers and CPG brands are trying their hand at direct to consumer models. Here we consider the key considerations for testing and scaling a D2C channel.
COVID-19 has highlighted the limitations of organisations all over the world. Faced with a truly novel challenge, many businesses are struggling to learn quickly and adapt propositions to the current market.
Others are innovating rapidly, pivoting to agile problem-solving and smart digital investment as they look for new ways to engage and deliver value to consumers at a time when most retail outlets remain closed.
One outcome is that established brands like Heinz and Lindt are building out new digital strategies and accelerating direct to consumer services as many of their traditional channels are shut off or restricted.
Other brand manufacturers will likely follow suit as they attempt to retool for a digital world. But what’s needed to launch a compelling direct to consumer model? And how can you ensure your direct to consumer model succeeds in the long term?
Why launch a direct to consumer model?
D2C channels are hardly new or revolutionary, but COVID is forcing manufacturer brands to start experimenting with a direct to consumer model, or accelerate existing direct to consumer programmes.
Recent events and physical distancing rules have forced the hand of some brands, especially for discretionary categories, where, in many cases, online has become their sole sales channel.
When your traditional sales channels are shrinking (or gone altogether), selling online is the obvious route to your customers, and one that all types of retailers ignore at their peril (Primark losing £650m in one month shows what can happen if you choose to ignore digital sales channels).
In times of economic uncertainty like these, price sensitivity increases, so we can also expect consumers to start hunting for deals and promotions online. Likewise consumer brands should expect to see some level of reluctance to shop in-store, even when restrictions are lifted, as customers pay close attention to their wellbeing and that of their families. Both of these play to brands who have a clear digital presence.
Another key benefit of direct to consumer services is that they enable brands to fully own and control the customer journey and form a direct relationship with their end-customer base. Those that do so successfully can unlock increased customer loyalty and cost efficiencies, gaining access to the all-important customer insight you can obtain from owning the end-to-end experience.
Having this real-time data, across the whole customer journey, is essential for continually refining the customer experience in line with changing customer expectations to ensure ongoing customer value.
Navigating risk with your direct to consumer proposition
As I’ve blogged about before, brands that survive this period of disruption and uncertainty will be those that act, rather than bury their heads in the sand. But launching a direct to consumer business model without due diligence, for the sake of ‘doing something’, isn’t the right approach either.
As with any digital product launch, a direct to consumer experiment needs to be grounded in customer research and ongoing insight. It needs to be cost-effective, lean, and able to generate learnings quickly.
Crucial things to consider are:
- What value might a D2C channel give customers that other channels can’t provide? Simplicity? Convenience? Value? Different products?
- How might you service your customers more effectively and profitably through a direct to consumer business model?
- How might you communicate the value proposition to your customers?
- What wider complimentary services will your product need to rely on (delivery channels, customer services, marketing etc.)?
- How will you measure success?
- Which actionable insight do you need to drive your future roadmap?
Where customers have a strong brand loyalty, they may, for example, ignore the lure of cheaper sourced alternatives. However, price alone will not ensure success. Your D2C service should look to carefully balance a combination of price, product / proposition uniqueness, quality, reliability, and convenience.
Ultimately, brands should consider if they can provide the customer with a better overall experience if they shop with them directly. Right now, that may be shoppers’ only option, but give careful consideration to how you might encourage loyalty once those options change and grow.
How to test appetite for a direct to consumer model
Remote user research is a cost-effective, fast, and reliable route to gaining crucial insight when shaping your D2C offering, and perfect for the current climate of social distancing.
Once you’ve recruited your participants (see our guide to recruiting research participants), remote user research is also one of the easiest ways to gain insight.
The user research can take multiple forms, from simple surveys and question-based conversations, to remote-watching customers interact with your product or a prototype.
Regardless of approach, surveying real people in your target market allows you to gain rapid feedback on the merits and shortcomings of your product, and can be used as part of an iterative design process to transform your approach to customer experience by:
- Understanding the expectations of your customers in order to provide value
- Highlighting any friction points that need to be addressed
- Identifying opportunities to differentiate from your competitors
- Validating your ideas and initiatives before committing to them
- Aligning internal stakeholders and decision makers on priorities
Remember that fast experimentation and iteration is far more valuable than going to market with a fully-formed solution; it enables you to quickly learn whether your digital initiative is delivering against your business goals.
It’s an approach that Heinz recently used to launch an online store with a single product offering, ‘Heinz to Home’: a bundle of classic Heinz tinned food. From here, Heinz has already responded to insight gained from social media and launched a second bundle, with further ones being considered.
Using SaaS to rapidly pivot to D2C
The barriers to entry for brands wanting to launch an online service have been lowering for some time and it no longer needs huge investment.
SaaS (software-as-a-service) commerce platforms such as BigCommerce provide lean, cost-effective ecommerce solutions designed to get you to market quickly, providing everything a brand would need to trade directly with customers.
Chocolatier Lindt, for example, launched an online store in Canada recently (using SaaS platform Shopify) in just five days after being forced to close all 56 of its stores nationwide.
The company followed the route Heinz took, of creating a simple website with limited functionality, to test the market, start delivering ROI, and gain insight upon which to define future functionality enhancements. And this is where careful consideration is required.
While there are a multitude of ‘quick to deploy’ web shop solutions available, choosing the right one (and the right partner to help you implement it) will be key to the longer term success of any initiative.
The future remains uncertain, so smart consumer brands will opt for solutions that arm them with the flexibility to pivot as they experiment, learning and reacting to the needs of their customers. Any direct to consumer offering must be:
- capable of scaling with your business;
- adaptable to organisational needs;
- and complimentary of other channels (once they return to favour).
Why invest in direct to consumer now?
While a direct to consumer model might seem a no-brainer for consumer goods brands facing a reduction in sales channels, it’s worth keeping in mind that uncertainty is our new normal.
No-one knows what customers post-COVID will demand from the brands they engage with, and how they’ll want to engage with them. Perhaps they’ll be reluctant to return to physical stores. Perhaps preferences for shopping local, and directly from brands, will endure.
We don’t know. But what’s certain is that forming relationships with customers now will put brands in a position where future roadmaps and propositions can be built on evidence, not assumptions. And what better way to do this than through a lean, direct to consumer proposition?
About the author
Brett has 22 years’ experience in digital, IT, and retail, working for leading international brands. Brett has held roles such as Head of Online for a multi-million pound online business and Global Head of Business Systems for a £1bn+ international visitor attraction operator, sitting on operational boards for both.
At Inviqa, Brett helps clients resolve complex business challenges, develop their strategies, expand their digital propositions, and ensure a positive return on investment.