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What to Consider if you’re thinking of Opening a Direct-to-Consumer Channel

By Mel Tymm, Industry Principal at Maginus


Being an established brand with healthy profits and loyal customers is no longer a guarantee for future success. New players are relentlessly entering the arena. Without your baggage, but with the superior agility and flexibility of start-up’s and online marketing expertise, they can meet the needs of modern consumers who have less brand loyalty than ever before.

In the purchasing decision cycle, what is important to the modern consumer is brand and customer service. To stand out and get noticed, your brand needs to be consistently represented across all channels.  Multichannel and omnichannel may be somewhat over-used terms in the retail world but they do sum up the reality modern consumers expect. If your brand is strong enough that consumers are aware of it, they will expect to be able to interact with you through all the channels available to them. They will expect to find you in stores, they will expect to be able to research your products online and to see them recommended in social media, and they will expect to be able to purchase them directly from your website. 

To achieve this, many brands which operate in B2B markets are looking to open up new channels to reach their customers. One channel where we are seeing significant growth is Direct-to-Consumer (or "DTC").

Opening a DTC channel provides a manufacturer with direct access to their end consumer and all the insight that brings, it also strengthens your brand by meeting consumer expectations in terms of presence and service and done correctly this can all be achieved in a way that pays for itself. 

The benefits of this model for manufacturers are considerable, so if it's not something that you currently have in your plan it would make sense to at least investigate the options. This article discusses the many factors that are needed to be considered to make such a venture a success- so, let’s dive in to discover more.

 

The Value of DTC
 
Control

Many businesses are finding that introducing a DTC channel opens a window to end consumers that results in gaining rich data insights and unequivocal control. Control over pricing, inventory and branding, control of the process from production to the end-to-end relationship with customers.


For instance, instead of selling through retailers where poorly trained retail staff or inefficient business systems may have held a brand back, DTC allows a business to execute the selling process in line with its strategy.  Customers can speak to a business directly and engage with highly trained customer service brand ambassadors that can assist consumers in their buying decision.

 

Customer Insight

DTC gives a business more ownership of how the end consumer perceives its brand, allowing the business to shape the conversation and relationship with end customers. Reaching the end consumer gives the brand the ability to test out new product ranges with small quantities and gain valuable insight from feedback received. This feedback can be used to make amendments to the new products or messages to make them more appealing before a full launch.  Steve Wilson, Vice President at Capgemini Consulting says. “This is not necessarily about making an operating profit. It’s about engaging with the end consumer and getting data and then using that data to develop their wider proposition, to develop loyalty and enhanced products. I wouldn’t go as far as to say it could be a loss leader, but it doesn’t have to have the same profitability metrics as would a normal business.”

 

Grow Profits

Bypassing distributors and retailers enables improvements in gross margin, which can have a direct impact on the bottom line. DTC doesn’t only offer growth opportunities, but it also puts a business back in control of pricing. It provides the ability to offer promotions and offers to reinforce customer and brand loyalty.

A DTC channel offers a new way to reach customers and furthers opportunities for increasing sales volumes as a result.

The benefits of DTC are being realised by many businesses, as displayed by Nike. Nike is one of the largest retailers in the world and is working hard on direct sales. According to Market Realist, Nike, the undisputed leader in the sports apparel business, is focusing on its direct-to-consumer (DTC) channel and plans to grow this part of its business by 250% in the next 5 years. In the company’s forecast, its DTC sales will reach $16 billion by 2020—a massive increase from the $6.6 billion this channel generated in 2015. With such impressive benefits what could deter a business from leaping into DTC?


It’s clear that there are significant benefits to introducing a DTC channel, but of course, there are potential pitfalls to be aware of. I’ve detailed some of what I believe are the main challenges from a "behind the buy button" perspective below.

 

Customer Service

Traditional ERP back-office systems are designed to send bulk orders to a relatively low number of retailers and distributors. For companies currently reliant on these, it can be challenging to manage DTC. DTC operations need systems that can handle high volumes of end consumers while treating these customers as individuals.

For companies not used to dealing with the end consumer, they may be surprised by how demanding they are - their expectations need to be managed and where possible exceeded.

Key to this is offering exceptional customer service. I believe this includes keeping the customer up to date throughout the order journey. It is better to communicate any changes or delays to the customer’s order before they have to make contact with you to find out what’s going on. This will also reduce the volume of inbound calls received from the customer chasing their order or information relating to their order, thus lowering customer service overheads.

 

Expectations

A centralised, real-time view of the customer is vital. Allowing updates and orders across all channels to be visible and for the customer to have the ability to self-service 24/7 from their account section online. Alternatively, they should be able to call a business and its customer service agents who have a 360-degree view of the customer and their activity, thus being able to relay up to the minute, accurate information to the customer and record this interaction against the customer's account.
 
 A robust and feature-rich customer service system allows a business to record customer comments and track customer complaints through to a satisfactory conclusion.  A DTC business can manage customer service expectations if there is a system in place that is robust enough to offer a comprehensive recording of customer comments. Customer complaints can be turned into a positive by the business as it can supply rich insight into how customers perceive the brand and the products.


DTC means reaching people far beyond your traditional retail locations. Customers can interact with your brand 24/7 without having to leave their home. Customers who don’t have a retail outlet stocking your brand, don’t have to travel to find you, you become instantly accessible to them.  A DTC business can determine how it interacts with the end consumer and can ensure the consumer receives exceptional customer service from a brand.

 

Stock & Delivery

Having the right stock to fulfil orders is paramount to success in the DTC channel. With expectations set by their experiences with competitors like Amazon, consumers expect next day delivery as a minimum. MetaPack Head of Marketing Chris Hoskin said that for customers next day delivery was the “new norm”.

 

Pick and Pack

In order to meet these expectations, how the warehousing "pick and pack" process is operated needs to be reviewed, Will Shepherd, a director at LCP Consulting commented ‘“Most of the consumer product manufacturers have got warehouses that are set up for supplying high volumes of pallets and cases into grocers, and they’re not designed for single-pick items,” says Shepherd. “Direct-to-consumer selling screws up the channel economics because the cost of handling and logistics for single-pick items goes through the roof.” Vital to meeting delivery commitments is being confident in the stock held and allocating it efficiently to ensure a smooth pick, pack and despatch.


It can sound like a daunting task, but with a strategic approach and the right technology, implementing an effective pick and pack process is simple.


Alternatively, many companies considering a DTC channel are initially outsourcing the customer delivery to third-party logistics providers who are experienced in managing delivery in the DTC arena.

Baby food brand Piccolo state that having a competitive pick-and-pack rate helps, especially when it comes to small orders, where only a few units are despatched. For many B2B brands, this change of the make-up and volume of orders means they need to reassess their picking process and introduce new models for the DTC channel. Ensuring the right product is sent to the customer first time relies on accurate picking and packing processes.

 

Mobile Warehouse Solution

It is also worth considering investing in a mobile warehouse management solution for the DTC channel which allows products to be scanned at the point of pick and despatch to ensure the correct product is sent to the customer every time. To streamline the scanning process, it is recommended that products are barcoded correctly at the point of manufacture before them going into your warehouse storage.  

 

Packaging

Thinking outside the box is a cliché, but when it comes to offering customer service thinking out of the box can result in success. Think about customer experience in terms of delivery and packaging, for example, consider the implementation of welcome packs in parcels or offers off the customer’s next delivery. Research has shown that the customer is most susceptible to purchase again if they are delighted with the products sent to them on their first shipment.


Research has shown that implementing branded packaging makes the brand seem more upscale to the consumer. A recent study: How Fast Delivery and Quality Packaging Drives Customer Loyalty by Dotcom Distribution reveals some powerful insight into the benefits of branded packaging including:


-    Branded packaging increasingly impacts brand perception- 68% of online shoppers have reported that branded packaging makes the brand seem more upscale.
-    Customers expect more. More than half (61%) of online shoppers said that branded aesthetics get them more excited about receiving/opening a package.
-    Consumers want brands to go above and beyond. Over half (55%) of online shoppers said they would be somewhat more likely or much more likely to purchase from a retailer again if they ordered a package online and it came with a free giveaway.

 

Returns

Returns will happen, and you need to make this process as streamlined as possible for the consumer. Richard Wilding professor of supply chain strategy at Cranfield School of Management says “If you’re looking at clothing and the like, up to 40% of the product you send out will come back to you. Before you know it your return supply chain is your biggest supplier.”


So, how can a business make returns a simple process and exceed the expectations of today’s demanding consumers? Here are a few top tips:

  • Communicate with the customer throughout the process. If you can automate an email to the customer to let them know their parcel has been received back into your warehouse and the return is being processed, you can cut down on customer queries to your call centre, saving costs and offering a better service to your customer.

  • Make the returns process easy and intuitive.

  • Offer a multi-channel returns option. The customer should be able to return their order to you through any of the channels in which you operate. This, of course, requires that orders ad stock are visible across all your channels.

  • Consider sending out pre-paid returns labels or writing off the stock of lower value and send out the new order immediately.


Having visibility of returns will allow you to accurately cost this element of the DTC operation and have clarity of the cost implications on margin. Being able to analyse the reasons why products are being returned to you can help you adjust the product information you give to your customers or improve elements of the products to try and reduce the quantities of returns being received.

A top tip from Baby food brand Piccolo regarding returns if you’re thinking of opening a DTC channel “At the beginning, it is advisable to avoid arranging customer returns until a bigger size is achieved. Instead, try to send new stock with an apology note to keep customers happy.”


Integrations

A key challenge in offering a DTC channel is systems integrations. To effectively operate a DTC channel, all systems should be integrated. If a customer contacts a call centre, the agents should have visibility of all the customer's activity, including orders and returns across all channels. Similarly, if the customer logs onto their account online, they should have the same access to all of their orders and be able to self-service actions, such as creating returns. Often this area is overlooked when introducing a DTC channel, but it can have a massive impact on a customer’s experience with a brand.
 

Great Rewards or just a Headache?


To take full advantage of all that DTC can offer, a business should implement changes through proper planning and business process re-engineering, allowing business operations to adapt accordingly. The impact that opening a DTC has on the behind the buy button operations should not be underestimated.

Today’s consumers are more demanding than ever - they expect Amazon levels of service as a minimum. If these expectations are not met, a business will watch its reputation, customers and profits disappear. Agility, responsiveness and insight should be core to the minimum viable service to go live with. If this is not a feasible option for a business thinking of starting a DTC channel, then the idea should remain just that, an idea.

Although opening a DTC channel is not without its challenges and needs to be thought through carefully, the rewards of opening a DTC channel are significant in terms of strengthening your brand and gaining invaluable insight into consumer buying patterns, feedback and the challenges your retail partners face. With more and more companies following this trend, the expectation on manufacturers to follow suit isn't going to go away.