D-to-C Success: Forget Your Product and Focus on Operations
The race is on. In a bid to capture increased wallet spend, brands around the globe, over 57 percent of them in fact, are racing to launch direct-to-consumer (D-to-C) channels. This explosion marks a shift in the way products are sold, disrupting established industries and causing a fundamental change in brands’ relationships with consumers. But perhaps the single most important reason behind the growing popularity of the D-to-C approach is the direct response to recent shifts in consumer online buying behavior, which indicate that shoppers, as much as 81 percent of them, want to buy products from brands directly.
D-to-C brands have unfiltered insight into customer behavior, direct control over their relationships, and highly competitive prices. Many such brands have built up a global cult following and success stories include $1 billion dollar valued firms, such as Dollar Shave Club, Gym Shark, and Glossier.
The rise of prominent D-to-C players has made this channel increasingly attractive to me-too brands that also want their share of the market. But as a business model, it doesn’t come without its challenges, particularly within the scope of retail operations. Some brands have hit bumps in the road, while others have completely fallen over while trying to make their D-to-C model a success.
While most brands are aware of everything they need to do on the front end in the race to attract direct sales, few seek to address the operational complexities that lie beyond the buy button. In fact, many brands switching to a D-to-C model quickly learn that managing all the operational touchpoints can be extremely difficult to coordinate. That’s because once a D-to-C brand bypasses a retailer, it becomes directly responsible for every single scenario in the buying journey, including pre- and post-purchase experiences, such as delivery and returns, inventory management, and customer communications. Once brands have captivated consumers enough to capture a sale, the real “work” truly begins. With brands in charge of every step of a customer’s purchase journey, brands must recognize that at any moment they risk getting things wrong, which can cause real backlash from customers.
Glossier initially had problems keeping its products in stock. In fact, Glossier staff still refer to “The Great Inventory Stock Out” when the beauty brand had major issues keeping up with demand for its products and ran out of stock on several items. As the company grew quickly, it simply didn’t have the inventory to keep up. This isn’t an isolated challenge, either. Twenty-five percent of shoppers have experienced items being listed out of stock after purchase in the last year, with a similar number citing it as their biggest point of frustration when shopping online. To ensure the issue didn’t occur again, Glossier hired operational experts and worked to be more on top of inventory planning.
Inventory challenges aren’t just a problem for emerging D-to-C brands, however. Adidas recently told investors that supply chain shortages would prevent the brand from fulfilling orders for midpriced apparel in the first half of 2019, reducing growth this year by up to 2 percent, and leaving the field wide open for competitors like Nike, for example, which reports that its D-to-C revenues were up 12 percent.
So, what does this mean for growing brands and those considering a shift towards D-to-C? It means there’s a real risk in not having a solid infrastructure in place to support demand. Seventy-five percent of U.K. brands agree that if you get your D-to-C approach wrong, it does far more harm than good.
Navigating the D-to-C Tightrope
Brands that are considering the D-to-C space have to understand that this channel is going to expand past what they previously had. When you’re operating in different markets and you’re scaling quickly, you have to have the right retail operations in place to respond effectively. Without those mechanics to handle inventory, shipping and logistics across multiple channels and locations, or for more real-time customer-facing support, the business is quickly going to run into problems.
When talking about the importance of operations to successful D-to-C models, Eve Mattress Co-Founder Kuba Wieczorek put it best when he said, “That whole back end is so mega important that if you don’t get it right you’re screwed.” Wieczorek argues that brands must ensure the supply chain is as good as it can possibly be before they launch into the D-to-C arena. “Not just go ‘let’s just launch this and see what happens,’ which is what I think a lot of young brands are guilty of doing.”
Wieczorek’s point is reinforced by the fact that a whopping 61 percent of consumers have told us they’ve experienced issues buying from brands online within the past 12 months alone. And what’s worse is that 69 percent of shoppers say that if their experience is poor, they’re unlikely to shop with the same brand again, which means future sales are being put at risk because of mismanagement in the supply chain.
The Secret Ingredient to D-to-C Success
The D-to-C opportunity is ready to be capitalized on, but shouldn’t be done at the expense of a brand’s operations. Post-purchase experiences, from delivery to returns, will influence a customer’s loyalty, and collectively, each of these scenarios should be recognized as equally important as those on the front end.
There’s now a clear need for D-to-C business models to be more customer-centric. In order to do that, you must have a full picture of your customer, ideally through data-driven insights that only exist in specialist retail operations and CRM software. Operating "blind" in the D-to-C space is only going to get you eaten for breakfast by more capable competitors.
The real secret of the D-to-C model though relies on understanding that ownership of the total customer experience is more important than the product itself. For D-to-C brands, shipping, returns and incredible response times all become part and parcel of the proposition. This means D-to-C is more than simply a channel. It requires thinking about the feelings you want to create for customers every step along the way, and then using intelligent retail technology to remove any potential bottlenecks in your operations. This will not only enable your brand to compete, differentiate and thrive in this new retail landscape, but ideally help you to avoid the same fate as businesses that have tried to build a consumer-focused strategy on top of unstable foundations.
Derek O'Carroll is CEO of Brightpearl, an omnichannel retail management system.
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