Emerging technology, shifting consumer preferences and the entrance of new players in the market are presenting today’s brands with a new set of challenges. For one, the digital economy has reshaped the way consumers interact with and buy from brands. However, consumer expectations are higher than ever and businesses that meet them are rewarded with unmatched brand loyalty. For these reasons, brands are rethinking how and where they engage with customers and for many, that means selling direct to consumer (DTC).
With a growing number of retailers closing or reducing their footprint in order to survive, DTC e-commerce is an increasingly popular choice that also levels the playing field. Manufacturers no longer have to fight for shelf space in a retail environment—it’s unlimited on the internet. Instead, they’re competing directly for share of wallet, which requires an understanding of consumer spending preferences and behavior.
Digitally native brands such as Dollar Shave Club and Warby Parker are experiencing what seems like instant success by selling DTC. Today, more than 57% of consumer brand manufacturers looking for those same results are embracing DTC, according to an Ally Commerce study of more than 2,000 brand manufacturers. These include Nike, which reported that DTC sales represented 29.6% of its overall revenue in 2017. The brand predicts its DTC sales will grow to $16 billion by 2020.
When mastered, selling DTC can result in better margins, stronger relationships with customers, access to firsthand data and insights, better brand control and ownership, and much more. As we head into 2019, let’s take a look at some DTC trends and how we think they’ll manifest in the months to come.
Brands are learning to put the customer experience front and center
Amazon has reshaped consumer expectations by delivering seamless shopping experiences, fast shipping and free returns. The bar has been set high, causing brand manufacturers to prioritize the brand/customer relationship, part of which requires them to capture, analyze and use data, something that many brands navigate for the first time as they begin selling direct to consumers.
All of this brings new opportunities and challenges as brands discover the need to organize and build out a function that can manage the customer experience—from the customer’s journey in choosing the brand and then throughout the lifecycle of that relationship.
A rising number of retailers are closing
An unprecedented number of stores closed in 2017, and 2018 is shaping up to be equally grim. This year, we’ve seen nearly 5,000 store closures from well-established brands including Sears, Kmart, Victoria’s Secret and many more.
These retailers are failing to meet the evolving omnichannel preferences of consumers. As the next generation’s purchasing power grows, it’s becoming clear that retailers’ legacy approach to selling products is no match for the digitally native path of their competitors. Today’s online shoppers can easily compare and purchase a wide array of products in real time, a key differentiator that once belonged to retailers alone.
As a result, brand manufacturers are realizing that reliance on these disappearing distribution channels can be detrimental to success and many are choosing to sell their products directly to consumers online. This represents an incredible opportunity for brand manufacturers to rise to the top. The brands that will win are those that stay agile, embrace modern consumer needs, build a strong e-commerce engine and leverage valuable consumer data to fuel brand innovation and growth.
Brands are finding creative ways to bring dealers into the value chain
With retailers closing doors, brands are finding creative ways to bring dealers into the value chain. For example, consider a brand that manufactures a product that is notoriously difficult to assemble. The manufacturer can partner with local dealers, who receive the manufacturer’s local direct-to-consumer orders, assemble the product and then deliver them to the customer. So, while the dealer didn’t sell the product, it now has a direct connection to the customer and the opportunity to nurture that through service and support after the sale. The manufacturer is able to capture the sale and end-consumer, and provide value to the retail partner who is in turn stocking that manufacturer’s products and providing local support to consumers.
Direct to consumer also leads to brands investing more in marketing and in a much deeper way, from content to digital marketing. In turn, this creates a “halo effect” that positively impacts dealers and channel partners across e-commerce channels by increasing brand visibility and expanding the availability of product content such as images and videos.
Amazon is becoming more complex
Meeting the modern consumer’s need for speed, personalization and quality, Amazon now accounts for over 49% of all U.S. e-commerce sales, a number that shows no signs of plateauing. The gross merchandise value of goods sold through Amazon in the United States alone are expected to reach $258 billion this year, up nearly 30% from a year ago, according to eMarketer Inc. estimates.
Although it’s a giant source of consumer demand, brands must think strategically about Amazon as a distribution channel. How a brand taps into that demand has many considerations for manufacturers. For example, the decision to sell a product as a third-party seller (3P) and/or establish a wholesale relationship with Amazon Retail (1P) is an important one to get right. Amazon is complex and constantly changing. While there are multiple ways to sell on or to Amazon, success is reserved for those brands that create and execute a clear strategy.
It’s also important to understand that Amazon is a manufacturer. Nowhere is Amazon’s disruption to brands clearer than in its pursuit of manufacturing in-house. From private label clothing lines to housewares, Amazon is selling a growing number of products across categories. Competing directly with marketplace sellers, its strategy is clear: identify top-selling products so they can manufacture and sell their own.
Battery sales are a great example of how quickly Amazon can dominate a category. In 2009, Amazon entered the private-label business with a handful of items under a brand called AmazonBasics. Fast forward a few years and AmazonBasics has captured nearly a third of the online market for batteries, now selling more than both Energizer and Duracell. It is scenarios like this that are shifting Amazon’s relationship with brands from harmonious ally to competitive rival.
Taking advantage of DTC
It’s no secret that direct to consumer isn’t slowing down. Two-thirds of consumers today expect the ability to connect directly with brands, according to Interactive Advertising Bureau research. Don’t be intimidated by digitally native sellers that seem to have the direct-to-consumer strategy mastered. Instead, brands should look at this as an opportunity. Similar success can be achieved by any brand as long as it’s willing to adapt. It’s no small endeavor but does pay dividends. E-commerce is complex and constantly changing. A strategic partner can help manage the complexities of direct to consumer operations—from creating online storefronts on website and marketplaces, to managing payments, tax, fraud, fulfillment and customer service.
Craig Haynor is the vice president of account management and operations at Ally Commerce. Ally partners with brand manufacturers to drive their direct to consumer business, combining e-commerce expertise, technology and operational services.Favorite