But before we dive headlong into what this means and how the emergence of these born digital models will impact the future of the CPG space, we must first give a clear definition of what the often-overused term actually means in the context of CPG brands.
At Fahrenheit 212, we often joke that D2C is like teenage sex… All the major brands are talking about, everyone wants to be doing it, but even those who are, probably aren’t doing it all that well. So, what does D2C actually mean and how can CPG brands leverage the power of strategy to do a better job of understanding and meeting the needs of a consumer who demands a more seamless and omnichannel brand experience?
Most jump immediately to think about how to sell directly to the end consumer. In essence, cutting out the middleman, and keeping a larger share of the margins in-house. While this approach is relevant, it is a fairly short sighted definition for, and understanding of, what D2C should mean.
Instead, we prefer to think of D2C through the lens of creating a more intimate, inspiring, and aspirational connection to the end consumer. Yes, a sales channel that allows a consumer to purchase directly from the brand might be a relevant part of this strategy, but a true D2C strategy needs to deliver an intuitive, seamless, multi-channel, user-centric experience. One that consumers are increasingly expecting.
So, how does a legacy CPG brand embrace a new D2C business model to engage the omni shopper without cannibalizing sales from their brick-and-mortar retail partners?
From Frenemy to Wingman
The winds of change in consumer purchase habits and behavior are undeniable – over a third of consumers report purchasing products directly from a brand manufacturer’s website in the last year. But despite this growth, tradition in-store retail is still dominant. Brick and mortar stores still account for nearly $3T of $3.4T, or almost 90% of retail sales in the US. The opportunity is to create a reason for an in-store shopper to have a direct relationship with a brand.
In an effort to create a more direct connection with consumers, Kimberly Clark launched the Huggies Reward Club to attract and educate new parents. Parents can submit or upload receipts for the purchase of Huggies products to earn points that can be redeemed across a variety of retail locations (many of which also carry Huggies products). In launching this initiative, Huggies not only helps drive consumers to their retail partners and creates a direct connection with their end consumer, but is also able to collect valuable data on the other types of products parents are buying. Furthermore, through the branded website, Huggies enables consumers to buy directly, fulfilled by retail partners. This eliminates any fear of cannibalization, and more importantly, allows Huggies to sell direct to consumer without the need to build the back-end infrastructure required to do so.
Different, Not Cheaper
The reality in the CPG space is that a D2C sales model has the potential to create significant channel conflict. While this may be true, the D2C strategy will have significant impact on how a direct offering will impact channel partners.
Yet channel conflict can be avoided if companies focus on strategies and approaches that are focused on introducing D2C products/services that activate new consumer to categories, instead of stealing sales away from existing retail channel partners.
Through “Nike ID”, consumers can customize every aspect of their sneaker buying experience. Users can personalize the color, sole type, and even fabric weave to get a truly one-of-a-kind sneaker that reflects their personal style. Not only has this D2C model fostered a cult following among sneaker aficionados, it has significantly impacted Nike’s bottom line. Today, “Nike ID” generates $250m in revenues, representing 22% of total revenue. The channel is growing at a rate of 30% per year, cementing brand loyalty for years to come.
Create Unique Reasons to Engage
Amplify the Brand
D2C is the one channel where all aspects of the brand are under your control. It is here that you can create an entire ecosystem of brand immersion and ensure that brand values shine through.
One of the fantastic things about the digital world is that it’s just you and your consumer. Brands have the responsibility to make the most of this opportunity. From the online presence to transactional ordering or collecting data, each touch point needs to be embody the brand look, feel, and values. So, whether it’s a mobile phone app, Facebook community, or Snap Chat filter, if it doesn’t feel like your brand it’s a missed opportunity.
Patagonia recognizes that sustainability and environmental impact are two things its consumer base cares about. In launching “Worn Wear”, Patagonia offers the ability to send in used gear to be ‘upcycled’ or repaired. The D2C program embodies the values of the brand while incentivizing consumers to engage directly with the company. To date, over a million articles of clothing have been upcycled, which reinforces brand loyalty and continues dialogue with consumers who otherwise might have moved on to another brand.
Embrace the Petri Dish
D2C becomes a testing lab to get deeper insight from consumers, to gain feedback on new products, and to validate new strategies.
Shelf space and merchandising can be an expensive and risky bet for untested/unproven products. With product development cycles that can range from 18-36 months before a consumer could purchase a product in store, CPG brands have embraced D2C in order to de-risk new product innovations and gain valuable consumer data and insights. Many brands are now launching new products online through D2C channels before rolling them out to traditional brick and mortar stores. This strategy builds confidence in the product market fit and allows brands to be more focused in which products ‘earn’ valuable shelf space.
Coca-Cola is perhaps one of the most iconic brands out there today. Based on the simple insight consumers often make their own blends when filling up a cup at the soda fountain, Coke launched Coke Freestyle, a unique soda fountain that enables consumers to mix and match flavors to make their own personalized drink each and every time.
Freestyle not only lets the customer get exactly what they want every time, it allows the company to collect data on what consumers are drinking without having to invest in a single pour from a traditional fountain. This strategy creates a unique and memorable experience for the consumer, while creating a unique dataset that allows Coca-Cola to derisk new product innovation by better understand how consumer preferences are changing in near real time. Essentially crowdsourced innovation.
Make it Special
With the rise of flexible manufacturing and mass customization, brands can now serve consumers in a way that feels personal and customized to ‘my unique preferences.’ Today’s consumer no longer has patience for products that seem ‘one size fits all.’ Instead, they’re looking for the things they buy to directly represent their preferences.
Wisconsin-based engine manufacturer Evinrude realized that for many of their consumers, their boat was an extension of who they are. It said a lot about the type of person they are, and how they want to be seen. Yet in the motorsport category, products are sold through dealers, and require professional installation, and have traditionally come in a rather bland set of color options (mostly black, white, or grey).
To better serve their customers’ unique styles Evinrude launched a line of customized panels and wraps that can be easily swapped out on their premium E-TEC G2 line of motors, allowing owners to tailor the look of their engine to match their boats color scheme and their own unique personalities - everything from patriotic stars and stripes to urban camouflage.
“Just Right” customized dog food from Purina lets pet owners tailor a special dog food blend to their dog’s unique nutritional needs and taste preferences. Owners can even upload a pic of their pooch for the label and have it shipped to their door. Purina is creating brand loyalty while building a database of customers and pet food preferences they can leverage at scale down the road.
As manufacturers consider D2C strategies to increase consumer loyalty and improve their bottom line, it’s important to remember that D2C is not redistributing slices of the pie– it’s making a bigger pie and making consumers feel more excited about eating the pie at the same time. So, whether it’s investing in a unique online experience, generation of content, more comprehensive online purchase, or offering custom or collector products online, a D2C strategy is successful when instead of competing with retail channels, it creates and reinforces multi-channel benefits.