Manufacturers of consumer packaged goods (CPG) once had no choice but to place their wares in their retail partners’ physical stores, but modern ecommerce has given them a range of new ways they can sell straight to consumers.
Taking the direct-to-consumer (DTC) approach lets CPG manufacturers cut out the middleman. Consumers are becoming savvier at researching products and ordering them right from the manufacturer, so even some legacy manufacturers are setting up their own DTC plays to give their customers what they want.
Plus, going DTC helps to insulate manufacturers from the pressure of retailers constantly on the lookout for better margins, and potential industry disruptions caused by innovative startups. CPG companies don’t need to take an all-or-nothing approach, as they can choose to implement whatever elements of a DTC approach make sense for them.
Some CPG manufacturers pivot to DTC by acquiring trendy, successful brands. For example, Unilever spent $1 billion to purchase Dollar Shave Club, an early subscription model ecommerce pioneer.
But others are overhauling their operation to align their distribution channels with the radically different way consumers are shopping today. The decision to go DTC is different for each company, depending on the nature of their products and their industry.
It’s a hard and complex choice that each brand needs to make for themselves. Successful forays into DTC have these four features in common: a clearly defined role for DTC to play, a hook to entice and retain consumers, a detailed plan to obtain the necessary technical capabilities, and a scalable model that aligns with a strict focus on the metrics that matter.
Keep reading to learn more about how CPG companies are transitioning to a DTC model, and how companies making the change use the tools found on ecommerce platforms to satisfy today’s discerning ecommerce consumer.
What Will DTC Do for You?
A CPG company must determine right from the beginning what specific role DTC will play in their business. This means incorporating this new element in a way which furthers their strategic goals, but without alienating their existing brick-and-mortar retail partners.
A DTC approach can play one of four roles:
1. Insights and Intelligence
Modern CPG companies may want to control their own platform to engage with their consumers in a way which reflects and amplifies their brand, while also obtaining comprehensive data and crucial insights into consumer habits and patterns.
This approach gives CPG companies an engagement platform where consumers are encouraged to volunteer their own opinions and views. For example, brands can launch contests where consumers compete to create new products or marketing ideas for a prize.
It also allows companies to experiment with product development and read how consumers initially respond to things like pricing or merchandising.
Online retailers need a thorough understanding of how their consumers think in the process leading up to each purchase. The best ecommerce platforms scrape the internet to get a 360-degree view of each consumer based on important online behaviors:
Once this information is gathered, it’s used to sort consumers into different groups based on their prospective lifetime value as a consumer. Companies can invest their energy wisely when they have the right insights and intelligence about their consumers.
Most CPG manufacturers that adopt this approach don’t have the brand recognition or financial resources to boost traffic to their own website, so they strategically partner up.
2. User Experience Platform
Other CPG companies look to own the communication between the brand’s story and their consumers. These companies create a user experience platform by encouraging consumers to create content such as videos or narratives about products. This allows online retailers to give their consumers a unique and memorable brand experience.
CPG companies pivoting to a DTC approach looking to provide an immersive user experience need the benefits of an ecommerce platform built for headless commerce. By separating the platform’s front-end from the backend, creatives and UX experts are empowered to operate nimbly, offer unlimited personalization, and keep up with the swift pace of ecommerce without requiring tech support.
Such an approach provides the technical agility CPG companies need to meet rising ecommerce consumer expectations, as today’s shopper has become accustomed to immersive personalization.
3. Omnichannel Marketing and Sales Engine
This DTC approach is designed to bring consumers from the CPG company’s website to the retailer’s, where they will make their purchases. This approach lets companies exert more control over the broader online brand experience consumers enjoy before making a purchase.
These websites allow consumers to make direct purchases, but it also shows them the locations of brick-and-mortar stores that sell their products. Companies that choose this path tend to have one very popular brand.
4. Pure Sales Driver
Finally, manufacturers may decide to double as retailers by creating one website encompassing all their ecommerce needs, from marketing to transaction processing and more. These CPG companies are looking to reduce their reliance on their retail partners, and protect themselves preemptively from potential future disruptions in retail.
With their own full-fledged ecommerce website, CPG companies can insulate themselves from hazards like retailers putting margin pressure on suppliers, or weaker retailers going bankrupt or getting acquired. CPG manufacturers won’t have to count on retailers sharing proprietary information like data and insights, which they’re likely unwilling to do as they see this as a competitive advantage.
Ecommerce websites offer a full product catalog, and when driven by the best platforms it’s easy to configure loyalty programs, auto-delivery options, special discounts or promotions and more.
What DTC Model and Value Proposition to Adopt?
Now that a company has determined the role DTC will play for them, they need to adopt a sales model and determine a value offering their site will have for consumers. What does the consumer get in return for visiting a website?
Two CPG manufacturers could use DTC as a sales engine, but operate with two very different sales models. One may create an online subscription model business, while another gives consumers extra value by allowing them to make personal customizations to the product or brand experience.
Neither option is inherently better or worse, so long as the company offers their consumers a value proposition that is powerful enough to make them bypass the retailer’s website and visit the manufacturer’s.
The other key is to pick a model specifically because it addresses unmet customer needs. Otherwise, acquiring customers and retaining them is likely to become expensive and challenging.
One way to create a compelling and unique value proposition is to blend personalization with special deals and products in a way consumers can’t get anywhere else. However, CPG manufacturers need to be careful not to step on the toes of their retail partners.
To avoid this, they can sell online on a subscription basis, so that the in-store retail experience is sufficiently distinct from the ecommerce experience. Also, while online prices can’t be lower than in-store prices, there can be singular value-added elements, such as the additional convenience inherent to the subscription model or various forms of personalization.
The DTC Mentality and Tools Required
Whether CPG manufacturers decide to build their own custom ecommerce website, form strategic partnerships, or acquire the talent and technological capabilities to do it themselves, they need a digital approach characterized by swift and agile execution and a near obsession with providing the best customer satisfaction possible.
Successful DTC companies rely on advanced analytics to offer compelling personalization, as well as to predict future consumer needs. Any manufacturer looking to enter the DTC space can use enterprise-level platforms to get automated tools to drive customer satisfaction, maximize revenue, and secure all transactions and proprietary data.
Reporting and Analytics
Online retailers need a full and comprehensive understanding of each consumer because today’s shoppers expect online experiences to reflect their purchasing patterns and personality.
The best ecommerce platforms internalize this data so its artificial intelligence delivers a personalized experience to each consumer. But it also produces reports and analytics that put actionable intelligence into the hands of executives quickly.
Ecommerce companies need intelligent and sophisticated automation to sensitively address each consumer, and provide them with outstanding and personalized customer service. The top ecommerce platforms trace each consumer’s digital footprint by scraping the internet for revealing parts of their online behavior:
This technology allows the website to identify repeat customers, and provide them with the human touch and preferential treatment that is likely to close a sale.
For example, if the platform notices that a specific customer keeps closing the window before completing the sale, it could conclude that shipping costs pose a barrier and decide to waive them automatically. This technology allows DTC companies to scale up personalization, which in turn improves retention, drives customer conversions and reduces churn rate.
Smart Revenue Maximization Tools
Manufacturers that are just embarking on the DTC approach will enjoy automated revenue maximization tools found on the best e-commerce platforms.
The sticky.io platform has an Account Updater feature which prevents as much as 4% of all credit cards from exiting the recurring billing pool due to expiry, and manages to successfully rebill 80% of these cards. This is a seamless way to strengthen customer relationships while also preventing opportunities for billing cancellation.
Other features like Address Confirmation help to keep deliveries on track, while a slew of partnerships with fulfillment centers and other experts across the value chain ensure smooth shipping experiences. Consumers expect the products they order to arrive quickly, and any setback here can sour them on the brand and make them unlikely to order again.
Online retailers need to make the billing process as pain-free and comfortable as possible, so consumers can make purchases without encountering any hurdles. Ecommerce platforms allow online retailers to easily configure things like special discounts, order fulfillment, promotions or discounts and more.
The mentality to adopt is the opposite of the one which uses Dark Patterns to nudge consumers in ways that aren’t immediately apparent to them. Indeed, they should have effortless control over payments, even if they want to pause a monthly subscription — it’s better to lose the short-term revenue, but keep them in the system rather than have them disappear entirely.
Smart, Nuanced Security
Every ecommerce retailer encounters fraud eventually, so it’s essential to have robust, world-class protection. The top platforms offer PCI DSS Level 1 security, the highest standard that the major credit card companies can expect.
Leading platforms have security baked into their artificial intelligence, and they constantly refine and update their algorithm so it can more accurately decline fraudsters before the transaction is complete. The automation is a valuable layer of security that requires no labor to operate.
But the best platforms also offer personally managed security services. Real experts can set up and oversee the account if necessary, as well as provide specialized support for issues such as fighting chargebacks.
Industry leading platforms have features like Automated Alerts which prevent 25–30% of all chargebacks from occurring. This is in addition to using representment specialists who know your business when a chargeback has already occurred, a great way to dramatically increase your win rate in chargeback disputes.
Plus, companies can adjust their security setting manually as needed for each campaign, preventing excessive security from accidentally rejecting legitimate customers. Whatever DTC approach a company opts for, they’ll have effective and streamlined tools to fight fraud when they have the backing of an unified ecommerce platform.
Ecommerce evolves quickly, and even experienced online retailers can struggle to keep up with the pace. This failure can have dire consequences, as adopting the digital means to give consumers great ecommerce experiences may have as much bearing on their overall satisfaction as the actual product.
CPG manufacturers looking to modernize and begin selling directly to consumers first need to create a strategy that makes sense for them. Once they have a plan in place, the tools found on enterprise-level e-commerce platforms can handle the rest.