When COVID-19 forced stores to close, many brands found themselves unable to maintain sales and revenue. The pandemic showed that some organizations were not agile enough to make a sudden shift to ecommerce. It has also shown that inadequate data on customer behaviors and product availability rendered many companies unable to meet demand. However, this challenging situation also creates an impetus to innovate, to become more versatile in terms of channel diversity, and to improve business resilience to unforeseen adversities.
For some brands, direct-to-consumer (DTC) selling – that enables companies to build, market, and sell their products and services themselves – was the only way to reach consumers and maintain revenues, and this alone kept them afloat. Direct selling channels, both e-commerce and social commerce, have exploded in locked-down countries where they enable enterprises to interact directly with their final customers, rather than work with third parties.
Existing channels such as customer service have also adapted to enable and support distant sales through phone ordering. New media have also emerged, such as livestreaming, as seen in Asia. This offers the possibility to promote products on social media, while using the sales force to answer customer questions through chat.
A long-lasting growing trend, amplified in the current context
DTC has been a long-term competitive strategy, especially in consumer products. L’Oréal says its online sales have increased by 52% over the last year, to reach 16% of its total sales, while DTC accounts for 32% of Nike’s total sales. Many newcomers within the banking industry have used the direct-to-consumer retail strategy to launch new models and established banks are creating new DTC businesses, such as Royal Bank of Canada that plans to release a direct bank by the end of 2020 in the US. In April 2020, 4 million viewers watched a livestream of Tesla on Taobao, the world’s biggest e-commerce website. This DTC trend is impacting all industries and luxury is no exception, with around 10% of total sales through digital today, and it is due to reach 25% by 2025.
DTC’s principal appeal for organizations is:
- To reduce reliance on third parties to improve profitability and / or revenue
- To offer an omnichannel experience and get closer to final customers, wherever they are
- To better understand customers to engage with them directly with the brand and adapt products accordingly.
Social media also plays a key role: It can be a great door opener to create awareness around products, with an increasing number of customers influenced by what they see online. Social channels have become selling channels per se, through social selling.
While brands used to leverage their stores to put forward their products and create unique experiences, they are now pivoting their models and channels to face the current situation. Furthermore, remote shopping is expected to become more prominent in the future. In fact, Capgemini Research Institute’s report ‘The consumer and COVID-19: Global consumer sentiment research in the consumer products and retail industry’ found that 40% of consumers think they will have high levels of interaction with online retail channels in the coming 6-9 months, compared with an average of 30% before COVID-19.
A need to transform while staying authentic and faithful to the brand
Companies that had already started their DTC turnaround accelerated their transformation due to COVID-19, which spurred them on to launch initiatives and test new selling channels. For those that hadn’t kicked off this strategy, COVID-19 only emphasized the need to do so.
Before jumping into DTC, business leaders should consider what their objectives and targeted KPIs are, to be able to optimally adapt the strategy and steer it in the right direction. They should also focus on building best-in-class, consistent customer experience on all channels. This can be offered though the implementation of new services that create connections between channels and provide the level of experience expected by customers.
The link with the physical store network is key to ensure geographical coverage and leverage the brand image. The store is therefore seen as complementary to the DTC channel, with a new role to be defined in this omnichannel strategy: Be it click and collect, personal shopping, advice on social media for sellers, or flagships and showrooms. Direct channels must be part of the store experience in an omnichannel approach, to offer a seamless experience to the customer both through online touchpoints, and offline ones in an organization’s own physical stores or third parties’ stores.
Data is essential in effective DTC selling: You need it to better target prospects and clients. We see more and more examples of producers offering an extra set of services in order to gain access to customer data and be able to engage directly with the end customer – online warranty or warranty extension with Dyson or Hublot watches, for example. This customer data enables a company to better adapt to consumer demands, which might include new ways of delivery, product personalization, and supply in direct points of sale. DTC necessitates a more rapid response to demand, which brings supply chain challenges and cost pressures for companies who are less mature in this channel. This creates an imperative for companies to shift their culture and become more data driven.
A strategic turnaround
The implementation of DTC constitutes a change of paradigm for companies in all industries and consequently, triggers a lot of questions in the following areas:
Customer promise and value proposition:
This new channel must have its own strategy, bundled in the overall company strategy, with its product mix, its platform and its rollout timeline, country by country. This channel can also be used to convey emotion and customer engagement.
Management of existing physical distribution networks:
A unique asset to a personalized and territorialized customer relationship – stores remain one of the key pillars of the brand image. The physical network therefore constitutes one of the main assets of the omnichannel experience, to serve customer needs: For example in-store pick up of orders (drive to store), or management of returns in store.
Handling of third parties (multi-brand wholesalers, licensed stores):
Just like physical stores, this network represents a geographical asset for companies, providing advantages for final customers (order pickup, returns). It is essential to offer third parties a new alliance so that they don’t feel left out and in competition with this new channel, especially since they contribute to a big part of the current business. Services such as training, B2B service (drop-shipping, event management), and limited editions can help sustain and foster the relationship.
The whole customer experience must be re-evaluated, leveraging the data collected from the customer journey. New standards can be introduced: customer knowledge and recognition no matter the channel, product personalization (embossing, packaging), multiple payment methods (PayPal, wire transfer, AliPay), adapted delivery means (tight slots in a short time horizon, white-glove delivery for premium brands), and access to exceptional experiences for VIP customers (a members’ club).
Supply chain management:
The demand forecast and securitization of distribution channels in an agile way are key to succeeding in managing stocks and meeting customer needs. The logistics scheme must be anticipated from the very beginning of DTC, by leveraging existing assets: International or regional platforms, new distribution scenarios and capabilities (last-mile partners, spot delivery), and handling of multi-brand delivery. Additionally, sustainability should be kept in mind, as customers are increasingly rewarding sustainable initiatives such as carbon compensation and electric transport.
Evolving the organization:
New skills are required to make this new selling channel work. But as well as specific skills for individuals, the organization as a whole needs to be reinvigorated to support this B2C model, for example with dedicated customer service, and incentives for the workforce on digital sales.
To succeed in this transformation shift we recommend adopting a test and learn approach, starting on a limited scale, with one pilot country or geography, product or channel. All this should be done while anticipating the scalability of the model from the very first steps and with constant iterations in line with customer feedback.
Principal Consultant – Consumer & Shopper Engagement Lead