Erik Morton, senior vice president of product & strategy, CommerceHub
A direct-to-consumer (DTC) strategy is now table stakes for brands. At the same time, differentiating against digitally native brands and private labels to build long-term customer value has never been harder. As Amazon focuses on private labels in multiple categories and venture capitalists pour money into startup brands, consumers have more choice than ever before.
Forrester Research reports that as of Q1 2019 56% of US online adults admit they are always open to test-driving new brands and products. With this intensifying competition, established brands are adapting and launching their own DTC strategies, including new ecommerce storefronts and direct sales through marketplaces like Amazon and eBay.
If DTC is table stakes, what strategies can brands deploy to compete? Forrester Research also found that customer experience leaders grow revenue faster, drive higher brand preference and can charge more for their products, so it should be no surprise that brands are learning from Amazon and building their DTC strategies on a holistic view of customer experience.
Customer lifetime value
Traditionally, many brands were designing their DTC strategy with the goal of maximizing the quantitative metric of customer lifetime value. Do brands that worship at the lifetime value alter need to renounce this time-honored metric in favor of the qualitative and more ambiguous concept of customer experience?
The answer to that question is a definitive no. We recommend that brands use a “customer experience mindset” as a catalyst for transformative changes throughout a brand’s supply- and demand-chain, and then measure whether those investments are paying off through the use of customer lifetime value as the key performance indicator.
The essence of customer experience is simple: provide an engaging experience that converts a browser into a customer, set expectations with a delivery promise, and then meet or beat that expectation. With a customer experience mindset, brands focus on optimizing the way they engage with—and make delivery promises to—customers before and after purchase.
For example, many brands give customer a blanket estimated delivery date, regardless of the geographic location of the customer and the product. Brands that optimize for customer experience are calculating dynamic estimated delivery dates that factor in the customer and product’s relative location and the expected carrier transit time. Delivery delays can happen during any part of the fulfillment process, and brands that value customer experience will proactively notify the customer by text message or email if the promised delivery date is at risk due to a delay in the parcel carrier network.
Marketplace and retail channels
We believe that optimizing for customer experience, and specifically accurate customer promises, increases customer lifetime value. But what about brands that use marketplace and retail channels to boost sales? Should brands ignore customer experience for channel sales? Not a chance.
The customer experience mindset forces brands to value the customer experience in every channel—even channels facilitated by resellers or enabled by third-party marketplaces. One tactic brands can employ to help ensure exceptional customer experience in any channel is to control fulfillment by drop-shipping on behalf of the channel.
Traditionally, brands would send pallets and truckloads of products to their retailers’ distribution centers. Today, brands are now increasingly holding on to this inventory and then drop-shipping the products directly to the retailer’s customer as items are ordered online. The benefit of this approach is that the brand has more direct control over the delivery experience received by the end-customer.
Two approaches
Brands can support customer experience through reseller and marketplace channels through both reactive and proactive approaches.
The reactive approach will trust that the reseller or marketplace values customer experience and enforces that experience through service-level agreements, which establish the requirements for how quickly a brand must ship an order after it is received. With this approach, a brand that meets the SLAs is inherently supporting the customer experience expectations set by the retailer or marketplace. This works when the channel actually cares about experience but backfires when SLAs are lax or not in place at all.
With a proactive approach, the brand sets its own service-level agreements across all channels, which should exceed the channel’s expectations by processing and shipping orders faster than the channel’s SLA mandates. The brand is then ensuring that it will fulfill above and beyond expectations and pass the product on to the carrier with much stronger likelihood of meeting the delivery promise made by the channel.
In the end the customer experience mindset places a high value on the customer delivery promise and then uses carrier and fulfillment data to increase the accuracy of delivery promises and to identify delivery problems before they impact the customer. With Amazon taking an ever-increasing share of ecommerce and new startup brands launching all the time, the stakes have never been higher. All brands need to reorient their businesses around customer experience and then allocate investments to ensure customers are getting what they expect.
CommerceHub provides drop-ship, fulfillment, order management and content management services to retailers. The company was acquired this year by private equity firms Sycamore Partners and GTCR.