It's no secret that 2020 changed how consumers handle their shopping needs. With many people around the globe facing lockdowns, limited shopping methods, and even watching previous shopping options go out of business, COVID-19 has had a massive influence on how humans purchase products.
In 2021, the fate of many businesses will be decided based on how they respond to these trends. One notable trend that any company previously reliant upon pure distribution models should pay attention to is the shift to D2C eCommerce.
In this article, we will outline what a shift from distribution to D2C (direct-to-consumer) can look like, what the reasons are for making this shift, as well as the potential risk and pitfalls businesses must avoid to succeed in this area.
From Distribution to D2C
Up until now, have you relied on distributors or retailers to get products to your customers? If so, COVID likely caused a dramatic drop in sales via retail partner outlets, due in part to increased store closures and less in-store shopping.
In some cases, many of your distribution or retail partners have even gone out of business. As a result, many companies that previously relied on distribution are now considering selling D2C.
The pandemic has condensed 10 years of U.S. eCommerce penetration growth into three months, disrupting the supply chain, the distribution chain, and sales for many organizations. Some companies fared better than others, and ones that did better in general already had a D2C eCommerce channel in place and were able to shift sales to that channel.
But how do you decide if building a D2C eCommerce channel is right for your organization? After all, for businesses who previously relied on distribution partnerships, the shift to D2C eCommerce can feel risky. For this reason, we will first explore the reasons why a company should consider moving to direct consumer sales, tapping into D2C trends from 2020.
Reasons to Move to D2C
Moving from a distribution-only model to a D2C marketing strategy can prove to be highly beneficial for businesses that make the shift, and make it strategically and intelligently. Selling D2C helps you diversify by providing an additional revenue stream that’s independent of fluctuations that can occur when selling B2B to retailers and distributors. This new sales strategy can also unlock the potential to not only know your customer better, but also have more control over your brand.
A huge benefit of moving to a digital eCommerce strategy that directly reaches your consumers is reducing your reliance on distributors or retail partners. If 2020 taught us anything, it's that the less dependencies you have on another business, the better.
When the pandemic shut down in-person shopping, many distribution-only businesses were abandoned. Without a separate D2C eCommerce strategy in place, these businesses suffered immensely.
(KYC) Know Your Customer Data
A downfall of only selling your product through distributors or retail partners is that you are at least one level removed from your customer.
D2C eCommerce allows you to get closer to your customers and start capturing more data on who they are, their preferences, and their purchase behaviors and patterns.
This can help you build a more intelligent long-term strategy for your business, influencing everything from R&D to future market expansion.
Control Your Brand
When you simply provide your product to another business to sell, you lose partial control of your brand. When you sell directly to your consumer through an eCommerce approach, you gain back control of how your brand is presented by communicating directly with your customers.
Additionally, you can influence their interaction with your brand through optimized customer service. In the competitive landscape of 2021, it will be necessary for brands to stand out in significant ways. A direct consumer relationship will be critical for success.
Expand Your Territory
With a strong product and marketing plan, your D2C sales can help you take market share from competitors and drive rapid growth. Distribution networks and retail centers often limit how far your brand can go.
The world of digital commerce allows you to transcend the traditional constraints of retail locations. With the right fulfillment and delivery strategy in place, you can reach customers across the country or even the globe.
With budgets tightening and consumers facing unprecedented unemployment rates, businesses need to look at ways to reduce their costs. D2C eCommerce is a method that can help to lower costs via increased self-service and automation.
Retail locations have historically relied on in-person interactions for sales. This comes with a cost. Ecommerce, when done well, can retain the in-person touch with a huge reduction in cost through self-service and direct-to-consumer shipping. With consumers doing some of the “heavy lifting,” your brand can focus on lowering product costs.
The Risks of Shifting to D2C
While the benefits to shifting to a D2C strategy are numerous, there are also risks and costs associated with going D2C. Businesses that have relied on a distribution model might find that selling directly to their consumers is not as simple as they would hope.
Loss of Partnerships
The reality is that not all partners will appreciate it when a previously distributed business shifts into the D2C market. This move can be seen as an aggressive attempt to steal profits from previous partnerships.
In turn, your distributor and retail partners may retaliate and stop distributing your products or remove your products from their shelves. This can be detrimental in the short-term, particularly during a year when revenue might be lagging. Navigating these partnerships is much more difficult for a business using a hybrid D2C and distribution model.
Complexity of Ecommerce
It’s not enough to simply build an eCommerce site, you also need to invest in the right partners, resources, and skill sets to support this new sales channel. Your business will need to focus on marketing, optimization of the customer experience, customer support, and, in many cases, even new fulfillment and delivery capabilities.
According to Harvard Business Review, in a study of 46,000 shoppers, 73% percent of those surveyed indicated that they use multiple channels during their purchasing journey. For this reason, you have to be ready to meet your customers in a variety of locations. This makes creating an omnichannel strategy a must. Consumers are no longer content to simply browse an online store and purchase items. They want to research, interact, and receive communications through numerous channels in a connected manner.
Navigating New Waters
If you are willing to make the financial and resource investment but are worried about your distributor or retail partners getting upset or retaliating, you still have options. Navigating these new waters requires a strategic approach backed by realistic expectations. The first step is to decide on the role your D2C channel will play: What do you really want your D2C efforts to achieve? The answer can be one of several options along a spectrum that emphasizes consumer insights on one end and sales on the other. The likelihood of channel conflict increases as companies get closer to the sales side of the spectrum.
Ease into Online Sales
If you want to ease into selling online and already have a website that lists your products, make the digital commerce experience easier for visitors to buy your products by displaying the online retail outlets where they can buy your products.
This allows you to slowly build a relationship with customers without alienating your existing retailers. Social media is an excellent outlet for starting the conversation with your customers, helping to create loyalty and personalizing your previously shelf-only brand. A great example of a company utilizing social media to engage meaningfully with their direct consumers is Elijah Craig.
Through a meaningful engagement with consumers, Elijah Craig is building a channel for direct purchases.
Choose Select Products
Start by selling a smaller set of your products. Think about starting your eCommerce off with sales around less popular or limited-release products. You can even create products that are eCommerce only.
This allows you to continue to let your distributor/retail partners sell the more popular, high-volume products while you build out your omnichannel strategy. It also offers you the chance to test the waters on products that your traditional retailers might be hesitant to stock.
Consider a Revenue Share Program
Institute a revenue share program with your distributors. For example, you can offer a kickback if they refer smaller or less profitable customers to your eCommerce site for self-service.
Although these approaches may not generate a lot of revenue from your D2C channel in the shorter term, it allows you to start building your D2C eCommerce competency and capabilities. Also, it allows you to learn more about your customers and how they would like to interact with you online. This can be extremely valuable as you look to build a strategic plan for shifting to a D2C model.
Choosing the Right Partner
For companies interested in shifting to a D2C eCommerce model, the right partnership is key. At Vaimo, we offer specialized omnichannel strategy and expertise in B2C and D2C eCommerce strategies.
For example, we can help you navigate the important difference between multichannel vs. omnichannel strategy. We can assist you in harvesting important data sets from your customers, building a strategic approach for shifting to D2C sales. We will also ensure that you can make this shift with as little risk as possible through exploring unique angles to approaching the D2C market.
We invite you to talk to our team today about how D2C eCommerce in 2021 might be critical to your company’s future success.