Why read this? : Launching direct-to-consumer (D2C) challenges functions like sales, IT and supply chain. We share examples of typical barriers they put up. Learn the types of objections you’ll get, and how to handle them. Read this for ideas and inspiration on overcoming D2C challenges.
For example, you connect directly with customers. It’s just you and them. No middlemen.
There’s a strong commercial argument. You get more income at the top of the profit and loss. Net sales is based on the retail, not trade price. That’s good. Though you do have to cover all the extra delivery costs further down the P&L. That’s less good, and often freaks out your accountants.
The challenge of D2C challenges
However, it’s not all benefits with D2C.
If you already sell through other channels, chances are you’ll face challenges to your D2C plans.
Existing businesses come with baggage.
They’ve already got processes and people in place. Those already connect to customers, drive the commercials and come with some level of control.
You need to show the value D2C brings beyond what you already do.
There are already many barriers to e-Commerce. Launching D2C makes it even harder. It means a big shift in thinking and how you do things. It changes your whole e-Commerce culture and capability planning.
There are also changes for sales, IT and supply chain. They have to work out how this new channel fits in with what they already do. They’ll have specific D2C challenges you have to overcome. Those 3 functions are what we focus on this week.
Back to the future on D2C
We’re going back in time (in our D2C DeLorean) to do this with a mini case study.
We ran our first D2C project about 10 years ago. It was for a business already selling through traditional retail channels.
D2C wasn’t completely new, but it was still thought of as niche and unusual.
So, imagine there’s us, all Marty McFly about this D2C thing. Younger, enthusiastic and willing to give anything a go.
We’d seen an opportunity in D2C because going through existing retailers was slow. They were big, so nothing happened quickly. It didn’t help we’d had some supply and pricing issues with them. The relationship with them wasn’t the best.
Meet Andy from the sales team
Bearing the brunt of those issues was Andy, the National Account Manager.
You probably know someone like Andy. An old-school sales guy. Very experienced. But never happy. As he put it, he learned his trade in the sales school of hard knocks. His strength was face-to-face negotiations with buyers, and he’d got the battle scars to prove it.
The role of the sales team was simple for him. Shift as many boxes for the best price you can, and stop buyers getting the better of you.
Great in terms of having a clear focus. Not a great fit for D2C though. There’s no retailer and no buyer to negotiate with in D2C. You’re the retailer.
D2C challenges with the sales team
With that in mind, we were sure Andy and the sales team would have challenges with D2C.
First, your D2C store becomes a new competitor for existing retailers. They may see that as a threat.
Your store may take sales away from them. That puts you in a weaker negotiating position with them, and there’s a risk they’ll de-list you.
Then, you have to work out where D2C fits in your sales priorities.
Sales teams prioritise their efforts on customers from most important (usually the one with the most sales) to least important. Your D2C store has to fit into that somewhere.
Existing retailers are usually big. Your D2C starts small. Andy told us, you hit your numbers by going after the big guys, not the small ones. Hitting your numbers is what matters to sales teams. You go where shoppers go, and don’t take risks on unproven channels.
In fact, Andy was sceptical about anything new in retail. He’d seen many previous retail initiatives fail. Why would D2C work? He understood the convenience of online shopping. But to him, it was more convenient for shoppers to shop with retailers they already used. He also wasn’t convinced e-Commerce would ever be anything more than a niche opportunity.
How to get around sales team D2C challenges
It took a few conversations to get these challenges out of Andy. As we said, he was a skilled negotiator. He didn’t give a lot away. But, we persisted. You can’t overcome sales team D2C challenges until you know what they are.
So we asked questions. Lots of questions. We listened for objections. Only then could we plan how to deal with them.
Andy was a “Consult” in our D2C team RACI list of stakeholders. We needed his input but he wasn’t the final decider on the project.
The conversation went roughly like this :-
“Hey, I need 5 minutes to catch you up on where we’ve got to with D2C”.
“Sure. That’s still going is it?”.
“Yeh, there’s a couple of areas that connect with the sales team. Wanted to get your thoughts on them before we take it to the approval meeting next week”.
“Oh, yeah? Can’t really see how your store would have much impact on retailers, but sure, fire away”.
A different positioning
“So first, just in case the retailers think we’re competing directly against them, we’ve done a positioning that shows we’ve got a different target audience and different benefit. We shouldn’t cannibalise their sales”.
“Not sure they’d see you as much of a competitor anyway, but that’s helpful in case they ask. I wasn’t even going to mention it to them”.
“Also price discounting is definitely off the table for D2C. We sell at the recommended retail price. No danger of undercutting them”.
“Good. Wouldn’t want to have that conversation with them”.
“Cool. Next, we’re also going to show the new sales opportunities that come with D2C”.
“Well, like testing out innovations in D2C first, for example. New products. Special offers. Online services. It means we’re quicker to market. Quicker to learn what works and what doesn’t. Anything that works in D2C, we’d have evidence to help sell it into other channels”.
“And I guess it’d also screen out dud products too? So, I’d have less bad marketing ideas to sell in, yeh?”.
“Uh-huh. It’s like a little test lab for new products”.
“OK, that all sounds fine. No issues with any of those. To be honest, price is the only one that worried me. If that’s off the table, it’s all good. Anything else?”
“Well, the last part is D2C helps us grow our e-Commerce capabilities. We learn more about how to sell better online. Those lessons we can share with you and your team, and you can use them with retailers”.
“Sounds good. Sold”.
Of course, the actual conversation wasn’t quite that easy. But you get the idea. We listened to his D2C challenges. We built answers into our plan which helped him and his team. A unique positioning which didn’t compete against existing retailers. An opportunity to test new products before showing them to retailers. And access to e-Commerce lessons to grow the skills of his team.
These were all relatively small changes, but they made the D2C plan stronger. It was like when Marty McFly got the 1950s version of his parents back together in the first movie. You only need a few small changes to make a big difference in the future.
Meet Brian from the IT team
So, we got the sales team on board. Next up with D2C challenges was the IT team. We needed IT skills for this project.
Brian, who headed up the IT team, was another experienced manager. Experience can be a mixed blessing. It brings expertise and knowledge, which is good. But it can also stop many people from being open-minded about new opportunities.
Brian told us the IT team’s role was to support the current business.
Top priority was supporting SAP, the business’s Enterprise Resource Planning (ERP) portal. Next priority was the technical infrastructure to support the business. For example, servers and networks to store our data, and hardware like laptops and mobile phones. Anything outside those wasn’t a priority for him.
He was also under constant pressure to keep IT costs down while keeping service levels up.
IT challenges with D2C
Talking to Brian helped us identify 3 IT challenges with D2C. These were real pain points for him.
First, he had a capacity issue. In his opinion, there’d be a lot of IT work in D2C.
He had a small team, and they were already working hard on other big projects.
He didn’t have the people to handle a project this size, he told us. It’d get in the way of supporting SAP and the tech infrastructure.
Then he also pointed out there was an expertise issue. None of his team had worked on D2C before. They had good skills in SAP and technical systems. But no real experience with D2C IT requirements like setting up payment, order processing and inventory systems. It’d be a steep learning curve. For him, D2C needed a fully resourced and skilled IT team to map out processes, run testing and provide support when technical issues came up.
Lastly, he was concerned that once we got into D2C, there was too much risk of it all going wrong. He was worried his team would bear the brunt of all the technical challenges. He didn’t have the budget to bring in extra people to support D2C if it took off.
How to get around IT team D2C challenges
Brian was also a “Consult” on the project RACI. We’d to listen to his D2C challenges and come up with a plan so he’d be on board. It went something like this :-
“Hey Brian, how’s it going?”.
“Yeh, OK. Just had to replace Karen’s mobile again (Karen was the MD, and was well known for breaking IT equipment). But hey, you know …”.
“Yeah, I heard she’s heavy-handed with technology. Anyway, wanted to talk you through the IT parts of our D2C meeting next week. Just to make sure we include your feedback”.
“Oh, that’s still going ahead is it? I tried to tell Karen we’ve got too much on, but she wouldn’t listen”.
“Well, yes, she’s already sold on the benefits. But as we both know, there’s a lot of work to do to make it happen. We want to make sure D2C works with the existing IT set-up but also sets us up for the future”.
“How do you mean?”.
“Well, I’ve been in touch with that global IT team contact you gave me. They’re interested in working with us as a pilot on this. They want to be more involved in sales and marketing projects. They want to send one of their team out here on a 12-month secondment to be the lead IT person on D2C. Once they’re done, they’d go back, and help roll it out in other markets”.
“Ah yeah? Do we know who they want to send?”.
“Oh, Martina. Do you know her? She worked on D2C before she joined us. From what I’ve seen so far, she knows her stuff”.
“Ah yeh, I’ve met her. She’d be a good extra pair of hands for our team. But what happens to us when her 12 months are up?”.
“Well, one of her big objectives will be to document everything and train the IT team here in D2C. She’ll look at payments, order to delivery and inventory tracking, for example. So, worst case, she does that training, but D2C doesn’t work out, and we close it in a year. But with your team much more skilled in those areas”.
“OK, that’s interesting”.
“Plus, if D2C works out, it’ll be driving sales. We’ll have evidence for a business case to grow the team. The great thing about D2C is that link to sales. We can use that to justify future investment if it works out”.
“OK, that’s reassuring. To be honest, as long as the costs don’t come from my budget, I’m not too bothered. It’s your project. The buck stops with you if it goes wrong”.
“I know that. And we’re going into this knowing the risks. In fact, we just added a risk matrix to the plan. We want to be prepared if things go wrong. We’ve got contingencies in place for all the risks we can think of. There shouldn’t be any impact on you or your team. Do you want to see that? Happy to add your risks and contingencies if you want?”.
“No, no. That’ll be fine. I’m sure it’s OK. As long as we’ve got one and everyone knows the risks, I’m on board”.
Again, cut-down version of what happened, but you get the idea. We listened to his issues. And we came up with answers which helped the IT team and improved our plan.
Importing a D2C IT expert from the global team took care of his capacity and expertise challenges. It also gave his team an opportunity to learn new skills. And it linked IT to a project which directly drove sales. We could use that to support future investment. That took away much of the risk for him.
This reminded us of the events in Back to The Future 2. We’d to think ahead into what the future could look like. Thinking about the future helped us clarify what needed to happen now to get us there.
Meet Carole from the Supply Chain team
And then, we took on the last of our D2C challenges, the supply chain team. And in particular, Carole, the Supply Chain Director.
Carole was like the others, very experienced. She’d been brought in to fix the supply chain issues we mentioned earlier.
Her objective was to build supply chain efficiency. She reckoned efficiency would solve the issues. D2C wasn’t part of her plan.
She didn’t see it as an efficient channel.
Sending out orders to individual shoppers adds cost and complexity. Those were the main D2C challenges we got from talking to Carole.
How to get around supply chain D2C challenges
Carole was pretty blunt about D2C. She told us every time someone touches the product in the supply chain, it adds cost. And in D2C, supply chain touches the product a lot.
“Storing the products in a separate part of the warehouse. Picking and packing the product when an order comes in. Moving it to transport to deliver it to the customer. Setting up customer service systems to deal with enquiries and problems. Someone’s got to pay for all that. Someone’s got to manage that” was the gist of the first conversation we had with her.
Can you tell she wasn’t a fan of D2C?
She took the longest time to come around to the idea of D2C. She was a “Consult” on the RACI, but a very important one. Her objections could have delayed or even killed the project. We had to find very creative solutions to get her on board.
What follows is a boiled-down version of the many challenging conversations it took to get her over the line :-
“Hey Carole, can we catch up on where we’ve got to with D2C?”.
“Well, I don’t really have time right now. In fact, I’ve not got a free slot in the diary for about 3 weeks. Can we do it then?”.
“No, that won’t work. We’re presenting the final D2C business case next week. There will be supply chain questions. I’ve been trying to talk to you about this for a month now. I don’t want to have to say we don’t have a supply chain team capable of handling this project”.
“Oh, it’s not that, it’s just not a priority for us. And as I told you, I’m worried about the cost. Also, who’s going to map out all the processes? It’s a lot of work. I’d rather we focus on fixing the big issues with our current business than taking on anything new”.
Look at it differently
“OK, so what if we looked at doing it differently?”.
“Like how differently?”.
“Well, what if we outsourced all the order to delivery stuff? We still do the website. But we use a specialist D2C business to handle the payments, deliveries and customer service. They hold product and manage the whole back-end for us”.
“So, we wouldn’t be involved in the supply chain for D2C at all? Not sure I like that idea”.
“Well, we need to find capacity somewhere. And to be fair, we’ve agreed D2C will have its own separate profit and loss. We can cover all the extra costs out of what we get selling at retail, not trade prices”.
“So, it won’t come out of my cost centre then?”.
“Well, it might initially. But finance has agreed to transfer the costs to D2C. Plus, the business is expecting us to do it. This way we can go ahead and don’t need to bother you”.
“Let me think about it. I’m not happy not being in on the process. It’s still supply chain. We should have some control over it”.
Always available in D2C
“Well, interesting you should say that. Because obviously with the retailer supply issues, we get a lot of consumer calls to customer service asking where they can find products. We can highlight D2C as always having products available. That means your team should get less calls. And when they do, they’ve got an easy answer for customers. Get it in D2C”.
“Hmmm, interesting. Tell me more”.
Our answers to the D2C challenges with supply chain showed we’d listened to her concerns. We freed up capacity in her team and managed the cost and complexity separate from existing processes. The idea of outsourcing supply was a viable option too, and it played to a fear her team might end up side-lined. So, she had to agree to the plan to stay involved.
As one last tenuous Back to the Future reference, this felt like Doc Brown going back to the Wild West in the third movie. We were dealing with someone used to doing things a certain way, who couldn’t imagine what the future might look like. We needed to show the future could look better if we tried something different.
But we’d never know for sure unless we tried it.
Conclusion - 3 D2C challenges and how to overcome them
When you’re leading D2C, it’s easy to focus on the benefits. But every new way of doing things always throws up challenges. D2C is no exception. You need to work through those.
For example, you have to work with your sales team to make sure D2C doesn’t overly disrupt existing trade customers.
You have to build the right level of resources and expertise in your IT team to support D2C. Your current team may not be ready for that yet.
Finally, you need the supply chain team on board. Their expertise helps you store, pack and ship products. Show them how having more control over orders helps you solve availability problems more efficiently.
These are just some issues you may face with D2C. Check out our setting up an online store for the full process. Also, check out our barriers to e-Commerce article for more on overcoming e-Commerce challenges. Give us a shout if you need help overcoming D2C challenges in your own business.