Snapshot : We cover online store benefits and what you business could gain by looking at direct-to-consumer (D2C) as a sales channel. These include connections – the valuable marketing opportunity to build deeper relationships with your consumers. They also include commercialisation and how a D2C Profit and Loss (P&L) differs from selling to a traditional retailer in terms of your sales and cost mix. And finally we talk about control and the opportunity to own the entire end-to-end channel with less reliance on intermediaries.
Before we get on to online store benefits, have a think about this question. If you asked most Managing Directors or Chief Executives what the most valuable piece of equipment in the company was, what would the answer be?
In a manufacturing business, they’d probably point to something complicated in the factory. Some part of the production process needed to get products out the door.
In a service business, most likely some sort of server that only the IT team really understand. Something that holds the customer data that the business uses to understand its customers and market their services.
An even more valuable piece of equipment
While these are valid answers, we think there’s an even more valuable piece of equipment that most business leaders wouldn’t even think about.
And that’s a phone.
Not just any phone. It’s the phone of the sales account manager who manages the relationship with your biggest trade customers. Because often it’s the relationship with the trade customer that can impact your chances of success.
You can spend a huge amount of time putting together marketing plans and delivering brand activation. But if you can’t make your product available to buy, then you get no sales. And until recently, if you make products, then this has been the job of retailers.
So a lot of your business’s chances to succeed come down to the relationship with the retail buyer. How do they see you as a supplier?
Does the buyer see what you sell as an opportunity to grow their business? Do they actually like what you are offering them? How confident are they in your track record in delivery? Do they really feel that your new product or campaign will help deliver on their objectives?
Sometimes, the answer is yes to all these questions. In some cases, the relationship with the retailer can be strong. But often, it’s not.
Let us share two very contrasting stories about relationships with retailers.
We’ll keep the names anonymous in both cases, for obvious reasons.
First story, starts with a very competent account manager we worked with. He was at a company conference in another state a few years ago. A few beers into the evening event, he sent a ‘miss you love you’ type message to his wife.
At least he thought it was to his wife.
In actual fact, it was to the most frequently contacted person on his phone. Which wasn’t his wife.
In fact, he soon found out it was the retail buyer at our biggest customer when he got this text back. ‘Um, appreciate it mate. But I think you sent this to the wrong person ;-)’.
There was a bit of piss-taking afterwards, obviously. But because the relations was already good, it did not harm the relationship.
In fact, it probably helped.
Arguing about prices and margins
But many retailer relationships don’t work out well.
For example, we worked with another business who had been arguing with a major retailer on prices and margins for over a year.
The relationship was not good. Top to top meetings. Delays in launching new products. Nasty emails.
It got to the point where the retailer would send a list of demands every Friday afternoon. Always a Friday afternoon with a requirement to respond by Monday.
Just so they could screw up the weekend.
We know of another buyer who used to get so angry with suppliers in meetings, she would get right up in the face of the account managers shouting the odds. And those account managers got used to taking tissues to the meeting because they’d be wiping the buyer’s saliva off their face after the meeting.
Online store benefits?
You might well ask what all this has to do with online store benefits as we’ve titled this post?
Well, when you set up your own online store, you reduce your dependence on that relationship with the retailer buyer. All those nasty conversations and risks to your business? Not as important as they were before.
This lottery of whether your relationship with the buyer is going to work does not go away but it’s risk factor is reduced. Your reliance on the account manager’s phone is reduced.
It’s less important whether the buyer is in a good or bad mood the day you go in.
There’s not many businesses where D2C will completely replace traditional retail channels. But we do see many benefits to businesses having a D2C channel as one of their sales routes to market. And the biggest online store benefit is it gives you an alternative to depending fully on retailers to make your product available.
Beyond that, there are three key strategic online store benefits that we’ve seen that should make you consider using D2C as a channel for your business. These should be part of your e-Commerce planning process.
Online store benefits – Connection
You essentially extend the consumer journey further down the funnel. Awareness and consideration are great. But, what if you are able to directly manage trial and repeat?
When a a consumer is buying direct from you, they are showing a high level of engagement and trust with your brand.
What could demonstrate a consumer’s trust in you more than when they hand over their credit card details? When they trust your order to delivery process to deliver the product safely to their doorstep a few days later?
For marketers, D2C is the ultimate relationship builder. Where you move from ‘unknown’ user data in your Google Analytics to details of your actual customers. Their names. Where they live. Permission for you to contact them. And details of their purchase history from you.
It amazes us that so many marketers we meet aren’t more excited about this amazing marketing opportunity.
We’ve just updated our article on online store websites which covers more of the benefits of why D2C is great from a marketing point of view.
Online store benefits – Commercial
Then, there is the commercial opportunity.
D2C changes the way businesses think about their sales, costs and P&L mix. No more trade margin when you are the retailer selling direct. Except of course, very few businesses could rely on D2C sales alone.
So there still will be trade margin discussions (national account managers can breather a bit easier), but if 5-10% of your sales can come through a channel you own, you get a lot of commercial benefits from that. Less dependency on the retailers. The full consumer price coming in to your bank account.
Though as we cover in our article on online store business models, there’s also a lot of additional costs that you need to factor in to the mix before jumping on the D2C bandwagon.
Credit card surcharges, warehouse costs, packaging costs, delivery charges, refunds and returns just to pick out a few examples.
Online store benefits – Control
But ultimately where we see the biggest opportunity with D2C and online stores is the element of control it brings to your business.
In the good old days, this might have come through vertical integration. But of all online store benefits, if you directly manage all touchpoints from the first point of contact with the consumer to the product landing on their doorstep, you can act much more quickly to take advantage of opportunities and fix problems.
You have much deeper knowledge of the interactions between the consumer and your product. And you aren’t beholden to retailers for data about your customers or details about how your products are performing.
D2C is not for every business
This doesn’t mean we would recommend D2C for all businesses. There are no guarantees and many have tried and failed to make a success of it.
But we wouldn’t be so dismissive of it as some marketing pundits have been.
If you have the business smarts to work it through, it can be an amazing business advantage to have that direct connection with your target audience.