Nich Weinheimer, vice president, ecommerce, Kenshoo
Earlier this decade, selling fast-moving consumer goods (FMCG) directly to end customers was a novelty. A bold experiment to be monitored. But once Dollar Shave Club went viral in 2012 and proved it could be an immensely successful proposition, traditional brands were put on notice.
Fast forward to today and FMCG brands are doing more than just keeping a watchful eye. A recent report from Salesforce found that, of the 500 global consumer goods leaders they surveyed, 99% are investing in direct-to-consumer sales (D2C) (makes you wonder what’s up with those 5 brands that said D2C wasn’t a priority).
How did direct-to-consumer brands get a foothold?
So how did we go from one-off viral sensation to 99% prioritization in just seven years? Among the many market forces driving the D2C shift, a few really stand out.
1. Amazon has leveled the playing field
The ecommerce giant has completely broken down the barriers to launching a brand. You no longer need the mega-budgets previously required to go to market—budgets that would help you secure a top-tier ad agency, buy awareness-driving ad placements, pay for prime shelf space, and more.
Certainly, a D2C brand can launch its own website and declare itself open for business. But now that two-thirds of product searches begin on Amazon, there’s no denying that having a store in a busy (virtual) mall is going to get you a lot more business than hanging your shingle in your own quiet corner of the web. An Amazon store can be a brand’s main public showcase. And since Amazon provides everything from stocking and fulfillment to advertising and promotions tools, it’s a completely self-contained environment within which brands can easily do business.
2. Brand loyalty is not what it used to be
While some might argue that brand loyalty is a thing of the past, it’s not completely dead, though it has taken a pretty big hit and ecommerce has helped deliver the blow. Now that consumers can quickly comparison shop with just a few clicks, price and positive product reviews can easily sway the purchaser toward a new option.
But while good deals can often tempt consumers to try a new brand, if the product quality isn’t there, loyalty won’t be either. Brands need to find the sweet spot between offering terrific value and exceptional product quality if they’re going to earn a new customer or engender loyalty in today’s ‘swipe right’ kind of world.
3. Direct-to-consumer brands are using a whole new playbook
Brands in nearly every category face insurgent D2C competitors that have thrown out the old playbook and are giving consumers a new experience. The mattress industry has been flipped upside down by upstarts such as Casper, Purple, Leesa, and many others offering low price points, slick websites, great customer service, pop-up store experiences, and easy in-home delivery.
On the high end, shoe brand Tieks has been enormously successful by offering innovative design, exceptional product quality, and friendly customer service…then adding a nice surprise at the end of the shopping experience with gorgeous packaging that bolsters the luxe feel of the brand. Other D2C brands such as Warby Parker will strip away any unnecessary elements to give consumers great value wrapped in a modern feel.
Brands like these can pull this off because they control the end-to-end customer experience. Eric Best, CEO of SoundCommerce said, “Every aspect of commerce operations impacts customer experience and in turn customer equity, informing important strategic questions.”
Many D2C brands have fully embraced this and look to delight consumers every step of the way—because they can with no salesperson or retailer to rely upon to close the deal. And it doesn’t hurt that many of them are backed by deep-pocketed venture capitalists, so the pressures of profitability are not always the same as they are for incumbent brands.
How can legacy brands fight back?
While the equity that legacy brands have built is indeed still a valuable asset, these days that might not be enough to fend off the D2C competition. But fortunately, legacy brands can establish a strong D2C counterattack with a few key moves.
1. Build a presence on Amazon
Salesforce data revealed that 51% of the 500 consumer goods leaders they surveyed view Amazon’s marketplace as a critical threat, and 61% feel that Amazon is beating traditional retailers on repeat purchase and fulfillment. Moreover, 68% think that consumers are more loyal to Amazon’s Marketplace than individual brands. Clearly, Amazon causes some brands a little trepidation. However, overcoming that unease and embracing the opportunity that Amazon provides is a must if you want to accelerate your D2C strategy.
Amazon gives you the opportunity to quickly and easily gain access to a critical mass of the ecommerce market. Last year, nearly half of all US e–commerce sales happened on Amazon. There is no other single destination that even comes close. And since consumer behavior has shifted such that it is now the de facto starting point for most product searches, you need to be there.
One more point to consider: while brands will likely need to invest in their own D2C web presence, consumers as yet don’t want to go through a fragmentation of single web sites for every item they want to purchase. That may change in the future, if capabilities like voice search or other such advances can make that experience more seamless. But for now, go where the shoppers already are.
2. Leverage Amazon Advertising options
Amazon has become the third-largest advertising platform in the world, behind Facebook and Google, and its growth trajectory is steep. Not only that, because Amazon has clear visibility into the entire transaction process within its ecosystem (unlike its advertising rivals), it offers brands better insights into shopper behavior and how ads can impact that behavior.
But be aware: Amazon is built on customer-centricity so your advertising strategy must be intertwined with your shopping experience. You can have the most compelling ad copy ever, but if you’re out of stock on your products or fulfillment issues are leading to negative reviews, Amazon’s algorithms will not display your ads. Successfully advertising on Amazon requires organizational alignment along with marketing savvy.
3. Consider launching a new or lookalike brand using a D2C approach
If you’re concerned that an upstart could siphon sales from your flagship brand, an effective defensive strategy is to broaden your own product portfolio with an upstart of your own. If you’re the category leader with a premium offering, a stripped-down version could be an effective approach. If your brand is a decades-old, traditional go-to, could you open up new sales volume with a more modern-looking brand offering a slightly different value proposition?
Your own market research should help you tap into where your vulnerabilities are. The key is to turn those potential weaknesses into the strengths of a new brand, thereby broadening your offering and taking a page straight from the D2C playbook.
Kenshoo is a provider of digital advertising technology.
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