More Than a Side Hustle: 5 Steps for CPG Brands to Make D2C a Growth Engine
It’s no secret that the evolution of marketplaces and the COVID-19 pandemic altered consumer behavior over recent years. Now 51% of consumers start their shopping journey in the digital channel. It’s also hardly a revelation that retailers have responded by rethinking their strategies around inventory management and fulfillment options. This shift has opened the door for consumer packaged goods (CPG) companies to explore the possibility of their own direct-to-consumer (D2C) propositions.
Many brands in the space have come to the realization that they no longer have to wait for customers to come to a store to engage with their products. Instead, there is every likelihood that customers are bypassing some stores entirely, as they hit ”repeat order” through their apps. Of course, some shoppers do still want to shop in store, but others will simply browse and buy while watching television, waiting for appointments, or simply as a time-killing hobby.
As a result, brands need to find a more direct way to mimic retailers and catch people’s attention. They can do so by enacting a business-to-consumer (B2C) model that engages with customers on digital channels and embraces notions of speed, efficiency, flexibility, and brand loyalty that modern customers crave; while simultaneously opening up a new revenue stream alongside their longstanding business-to-business (B2B) networks. For example, in 2021, L’Oreal announced almost 29% of their sales were generated digitally, and their overall sales were up 16%.
It is clear that CPG brands need to explore D2C as a model, but they must do so in a way that reflects their specific consumer base, current capabilities, and potential distribution methods.
Here are five steps that CPG brands can take to make D2C a lucrative channel of business:
Step 1: Get to Know Your Consumer
This first step sounds like a given. So much effort among retailers in recent years has been targeted toward mastering personalization through data. It is therefore pivotal to kickstarting a D2C offering, too. Where do your customers like to shop? How do they like to shop? What is their typical budget? What are the familiar items that are bought together?
CPG brands are well known for their ability to gather insight around these kinds of metrics, as well as information pertaining to competitors jockeying for the same wallet share. The trick now is to apply that insight to find new ways to engage with your customers.
If you know what they’re likely to be looking for, you can create a charter to inform how your D2C team can best reach out to them.
Step 2: Growth, Differentiation, or Driver?
Once you know your customer, the next step is to determine the type of operating model you want to build to engage. Here, there are three typical routes or reasons:
Market growth in the form of consumer awareness and product testing is a good fit for brands with limited market share who are seeking improved customer engagement to trigger an uprise. Engagement, in this context, feeds into product development and future marketing, to catalyze market share improvements and improved B2B traction.
Market differentiation is a more applicable rationale for mature brands looking to expand their engagement beyond the store. It requires teams to create products that will exclusively live in this channel, such as items with limited runs that create a sense of urgency among consumers when marketed effectively. Using the D2C channel to promote offerings that differ to competitors’ is a great way to spark consumer awareness and interest.
D2C as a Market driver is the third operating model, that often evolves from the market growth rationale. Once consumer followings have been established, there is an opportunity to offer subscription models to drive up the lifetime value of each consumer, with the return proposition of continuous, personalized convenience.
Step 3: Building a Team
It’s vital to embed the right people into each of these areas to drive D2C objectives and ensure a smooth consumer journey. After all, smoothness and efficiency would be the least a consumer would expect from this chosen model.
Personnel within marketing and advertising represent a primary frontier to steer optimum engagement across websites, socials, and marketplaces. It can be a costly exercise but is worth the outlay considering these channels will be the persuader of upfront investments and ultimate purchases.
Finance roles help to manage the profitability of the brand, as well as customer payments, while dictating budget capital across consumer channels. B2C requires different methods of payments to those from retail partners as they are designed to protect individual citizens. Automation is also key if you plan to offer a subscription model for your consumers.
Supply chain roles are key to rethinking and redesigning networks, that ensure your products reach your consumers. Most CPG companies are used to moving pallets of goods for the satisfaction of retailers. That mindset now has to shift to deliver to the end consumer, where small orders need to be managed and delivered as efficiently as possible. Additionally with marketplaces, companies need to also offer drop shipping so they can get goods into the hands of all B2C consumers.
Digital and merchandising teams are then required to manage customer relationships, to create return customers, and to personalize the proposition for each individual. This is also where market differentiation activities can emanate from, as B2C-specific products are decided upon and put out into the consumer.
Step 4: Developing a Toolbox
Beyond the purpose and people to enact strategy, there are certain tools required to manage a B2C channel as well. For example, when it comes to that initial engagement phase, websites, mobile sites and even apps need to connect what’s being offered to who you’re offering it to.
Once you’ve established tools to greet those customers, there also needs to be a focus on back-end solutions that orchestrate resultant orders to get the goods into the customer’s hands. Again, these will differ to the familiar, collaborative databases shared with retail partners, as each transaction will be different; meaning different requirements to source that order, and then fulfill it. In this respect, tools that facilitate visibility are key, just as they are for retailers in the middle of the supply chain network.
Simply adding these capabilities to an existing B2B ERP solution may not be enough to handle the level of decisioning required at the consumer level. Instead, you need tools that are built to process consumer orders, manage orchestration, and inform optimum delivery from a timing and profitability perspective.
Remember, it may be new to you, but customers are already used to buying online. They won’t care that you don’t have a high street presence too – they’ll only judge you on these very familiar e-commerce credentials.
Once to you have the data on the consumers and their transaction history, you can now create a 360 view of them and leverage Customer Data Platforms (CDP) to help improve the go-forward relationship with the customer experience, including personalization of future purchases and targeted campaigns.
Step 5: Measuring Success
Of course, customers will be the first to tell you if things aren’t going well. They’ll tell you with their clicks. It’s also obvious that the more you sell, the better the chance of profitability in the B2C channels. However, at least you get a head start in terms of outgoings, given the instant removal of additional costs through moving goods along the supply chain, with all vendor and partner funds incurred.
That being said, there is a fine balance between enjoying this more direct proposition, and not harming B2B operations as a result. Optimum inventory decisions mean having enough stock to address both sides, and that can only come from advanced and connected forecasting and planning solutions.
Automating the implications of cost factors, in real time, will ensure that success spans all functions of your business, including your new D2C arm. Knowing your customers will give you greater confidence that you’re focusing on the right KPIs, which inform optimum volumes of products for your B2C operations.
Familiar KPI metrics to gauge D2C success, to this end, include customer acquisition and lifetime value, net profit and target margin, and cost-to-serve to ensure that tools and movement are not eating into overall profits.
A Growth Engine, Not a Side Hustle
The benefits of a D2C model may encourage CPG brands into taking a leap of faith, thinking it will simply be an extension of existing processes. But it simply can’t be a side hustle. The practices required to fulfill a single box of toilet paper from a manufacturing plant to a 3PL provider, to the end consumer, is very different from taking a pallet full to a retail partner. Drop shipping is normally a good way to test the ability to satisfy the needs of individual consumers.
With the former, there is a need to orchestrate that order from start to finish, even if the journey is shorter. Moreover, you have to juggle the management of stock for these orders in conjunction with parallel B2B network agreements, in order to ensure profitability across the complete landscape.
Putting yourself in the direct consciousness of consumers also means that breaking promises with them – should people, tools and strategy fall short – will also incur reputational hits to the brand as a whole.
However, these notes of caution aren’t to dissuade. Far from it, the potential of B2C, including D2C, to the CPG contingent is massive. In the modern climate, it can be the trigger to driving brand awareness, to rebuilding consumer loyalty, or to smarter product development.
In this vein, if done right, B2C and DTC can be the very growth engine for your future organization.
Learn more about Blue Yonder’s Order Management (OMS) microservices.