Consider these steps if you are thinking of selling direct to consumers while maintaining your retail relationships
By Danny Wong
Editor’s note: This story and graphics are reprinted with permission from Salesforce.com. (Find the original at the Salesforce.com website.) San Francisco-based Salesforce.com is a leading supplier of cloud-based customer relationship management software.
Over the past two decades, there has been an upheaval within traditional commerce. Previously, department stores and specialty retailers curated the best products for consumers to purchase. For shoppers, discovery primarily happened in these brick-and-mortar locations. Brands targeted customers using radio and television ads in an effort to drive foot traffic and sales to their retail partners. When e-commerce arrived, manufacturers added online advertising to their marketing mix but still focused their ad spend on sending audiences to third-party points of sale.
Progressively, companies realized they could offer their products through a new channel: direct to consumer. This new channel allows companies to sometimes circumvent their traditional distribution channels but can result in additional sales and potentially a broader audience, especially online.
In this article, we’ll first explore how we got to where we are today. As commerce evolves and the internet plays an increasingly larger role in consumers’ lives, manufacturers have found advantages in using D2C sales channels. After we dive into that, we’ll look into three ways companies can put D2C into place — while online channels are an obvious route, D2C also can be achieved in person. Finally, we’ll give strategies for handling potential D2C channel conflicts and increasing channel coordination.
The evolution of commerce
A common misconception is that the most direct channel for consumer products is from manufacturer to retailer to consumer. This misunderstanding stems from traditional business models. With the more typical model, companies rely on selling their products wholesale to distributors and retailers at a fraction of the price shoppers will pay. Customers can discover the products at their local stores and through online retail channels.
Previously, this was an easy method to get volume sales. Brands could leverage economies of scale to lower their manufacturing costs, invest in advertising and then get their products stocked on the shelves of even more retail partners. While some shoppers actively would seek out a brand’s product at nearby stores, it was the local retailers — not the manufacturer — that developed a relationship with the customer.
Today, brands can tap into multiple distribution channels outside of partnering with wholesale distributors and retail establishments by going directly to their end consumers. As such, companies now can create their own products; establish their brands through various marketing channels; sell directly to customers on their website, in pop-up shops and through marketplaces like Amazon; and retain 100% of the profits. Although it was uncommon to have a manufacturer selling D2C in the past, today it’s becoming more prevalent, especially because 52% of consumers “already visit a brand’s website with the intent to purchase.”
Six advantages of D2C sales
When manufacturers look beyond their wholesale strategy to include D2C channels, they tap into new opportunities to build relationships with existing customers, expand their reach to new audiences and grow sales beyond the limitations of current retail partners.
Below is a list of six advantages of going D2C:
Data capture and personalization: Through its website, email lists, point-of-sale systems and social media channels, a brand can better identify its customers and deliver targeted promotions and offers. Often, this information is collected and guarded by wholesale partners. For D2C companies, though, it’s easy to capture this information and then use it to upsell and cross-sell shoppers.
Expanding sales despite partner limitations: Wholesale brands depend on their distribution partners to give them more shelf space, placements in additional locations and onsite marketing opportunities.
D2C brands, on the other hand, can fill in uncaptured pockets of opportunity. This is especially important as many larger retailers consolidate their businesses and shutter locations. Manufacturers actively should build their own D2C sales channels online.
Rapid testing and iteration: Both online and offline, D2C companies can pilot sales of new products, survey customers about their preferences and ultimately innovate on their offerings. In a traditional wholesale model, many retail distributors can be reluctant to stock their shelves with untested products without larger financial commitments to offset potential losses.
Improving product margins: Without an intermediary taking a commission and distributors purchasing goods at discounted rates, manufacturers can sell their products directly to customers and keep all the profits. Over time, this can become a more cost-effective and efficient way of acquiring customers.
Smarter marketing investments: Armed with data about which ads drive sales to your website, average order values and more, D2C companies develop an in-depth understanding of what it takes to convert customers and the cost of doing so. They can turn those insights into actionable steps to market to even more customers profitably and multiply their sales.
Valuable feedback loops: As brands collect customer data based on user actions, they can ask shoppers directly about their unmet needs. Through the use of automation, artificial intelligence, analytics and simple questions, manufacturers can use customer relationship management tools to regularly engage customers to learn more about how to best address user pain points.
Diversification with a modern D2C strategy
An overreliance on retail partners can limit a brand’s growth. Instead, manufacturers are best served when they diversify their distribution channels by also going D2C. Retailers these days face increasing pressure from niche stores, other brands going D2C and even marketplaces like Amazon.
To overcome these challenges, brands themselves must find ways to go D2C as a means to complement existing wholesale channels.
Three of the best ways to initiate D2C sales are with a branded website, through owned retail channels, and through product marketplaces.
Branded website: Build a digital shopping experience that makes your products more accessible and desirable to online audiences. Between free shipping, bundled discounts and in-depth product information, manufacturers can create a branded website that customers will frequent in addition — or as a substitute — to existing points of sale in your distribution network.
Owned retail channels: To provide a more holistic customer experience, manufacturers can lease their own retail locations. Within these self-branded stores, companies take an omnichannel approach to offer more access, convenience and education to customers.
Product marketplaces: It is hard to ignore Amazon’s sheer dominance in e-commerce. In fact, research from Salesforce reveals that “68% (of consumer goods companies) think that consumers are more loyal to Amazon’s Marketplace than individual brands.” Knowing that, manufacturers can turn to platforms like Amazon to sell D2C on a larger scale, and even provide a more seamless shopping experience for repeat buyers. The report also notes, “While 50% of consumers make a first-time product purchase directly from a retailer and 31% buy from marketplaces like Amazon, their second purchase is a different story. Forty-seven percent of consumers choose marketplaces for that second purchase versus only 34% returning to retailers.” When you embrace these marketplaces, you incidentally help returning customers purchase your products again and curb the chances that they explore alternative sellers.
Channel conflict resolution strategies
Some retail distributors may see a manufacturer’s D2C expansion as a threat to their partnership and to the retailer’s bottom line. This reaction is understandable. Potential pain points with D2C include:
- Market oversaturation
- Undercutting prices or other forms of price competition
- Conflicts over physical territories
- Issues from selling to the same target audience in a particular market where both D2C and a retailer or distributor exist.
Channel conflict can be reduced when both parties remember that there are ways in which a smart D2C strategy can actually complement existing channels and boost overall sales.
Four ways in which this can manifest include:
- Brands can use their acquired customer lists to drive foot traffic and sales to retail partners during special promotional periods.
- As manufacturers increase investment in marketing themselves, their products become even more popular among shoppers at partner retail locations due to heightened brand affinity and awareness.
- When a company tests a new item on its website, it can quickly determine its level of popularity, as well as its ideal price point. Then, it can use those insights to offer distributors new bestselling items that will fly out of stores, ensuring both you and your partners thrive.
- Manufacturers can use the D2C channel to create a unique experience apart from or tied into retail channels. Create specific content marketing to help consumers in their customer journey and give them immersive brand experiences to drive sales.
These are often the best outcomes among brands balancing D2C sales and wholesale distribution, and they are also the best channel conflict resolution strategies.
Every action you take when you sell D2C impacts your wholesale buyers. When you strategically decide to engage in activities that bolster your brand among consumers and use new data to help your partners drive even more sales, everyone wins.
When you appreciate and recognize there is a symbiotic relationship between your D2C initiatives and your distributor network, then you can work to apply an integrated marketing approach and amplify success for all participants. Understanding this also helps in managing channel conflict to increase channel coordination.
Manufacturers should know, too, that some channel conflict is inevitable. In a recent Salesforce panel, Gary Penn, the global vice president of digital and e-commerce for Nixon (a premium watch and accessories brand), explained that channel conflict doesn’t just come from your owned channels. It can come from marketplaces and platforms such as Amazon, affiliate networks that promote your products for you, and even your social media channels.
Fortunately, you have more opportunities to mitigate that risk and compensate with mutually beneficial initiatives, such as marketing campaigns that promote your products at local retailers and only offering wholesalers items with demonstrated consumer interest. Plus, by diversifying the breadth of your D2C distribution, you make your brand ubiquitous among audiences who will purchase your products through a variety of channels versus just one.
While D2C may not work for every product or offering, it’s still important for companies to understand it fully before considering it as an addition to their current sales channels.
Among manufacturers, there may be a reluctance to invest in D2C channels. Opportunity costs is one concern as a shifting focus toward D2C expansion can displace existing resources that have driven their wholesale business. Another is worry regarding distributor backlash. All things considered, brands that execute D2C initiatives properly end up improving sales across all their channels as more customers actively seek out their products online, in stores and through the various points of sale within reach.
If your company has done its due diligence and has strategies for getting started with D2C channels, embrace the opportunity with a long view of bolstering business for yourself and for your distribution partners.
More D2C Tips for Manufacturers From Salesforce.com
- Download the free ebook: Going Direct to Consumer, a step-by-step guide to starting a D2C channel