Strategic questions to ask
In order to validate the relevance of the D2C model for your brand, beyond the current momentum and the best practices that we have just seen, you must ask yourself some strategic questions . Direct-to-consumer models are indeed very different from more traditional distribution models in terms of offer, but also logistics and marketing costs, which drastically changes the economic equation. The COVID crisis has shown in particular the fragility of certain DNVBs, weakened by ever higher marketing acquisition costs and no longer succeeding or no longer in generating a margin. It is therefore essential to understand what the value proposition of a potential D2C channel is, and whether it is economically viable for your brand .
The value proposition
The first question to ask is that of the value proposition : succeeding in a direct-to-consumer model does not mean putting your entire catalog online. On the contrary, we have to think about what differentiates this distribution channel from the more traditional channels.
From the consumer's point of view, buying online only makes sense if it allows a more convenient and pleasant shopping experience (UX, ease of delivery, etc.), by accessing products or services that you can't find it elsewhere, if possible at an attractive price compared to other points of sale. The DNVBs, by focusing primarily on a limited number of products and on a unique shopping experience, have thus changed the expectations of consumers, who have gradually become more demanding and accustomed to an irreproachable quality of service.
It is therefore necessary above all to define the value proposition for the end consumer : in what way is buying directly online from the brand relevant for the customer?
- Which product / service or product line should be distributed online? Is it relevant for all of the brand's products (depending on their size, value?). Can customers find products / services online that they cannot find elsewhere?
- How can the customer experience be different online? What services can be added to support the customer in their purchasing journey (subscription, tutorials, conversations, customer service, etc.)?
- How can we engage in conversation with customers (content, sharing on social networks, gamification) to create more engagement and recommendation?
The economic equation
The second question to ask is that of the economic viability of a D2C model., which involves many changes from an operational and commercial point of view. The absence of an intermediary means knowing how to manage the entire supply chain, delivery issues, payment management, any returns and customer service. The brand must also develop new skills in direct marketing (acquisition and activation campaigns) and no longer only in terms of branding. As we'll see, all of these things don't necessarily have to be internalized, and there are plenty of providers out there that can help a brand that's just getting started. However, these different operational bricks remain expensive, and it is absolutely necessary to check whether it is possible to generate a margin after taking into account all the logistics and acquisition costs.
- Order size : does the average basket finance logistics costs (order preparation, delivery)? Is it possible to increase the size of this average basket? In particular, you have to ask yourself the question of the size and average weight of an order and compare it to its average value, in order to verify that the delivery cost does not become exorbitant.
- Recurrence of orders: is my product / service the subject of a one-off or recurring purchase? Is it possible to generate recurring income through this distribution channel? Many online offers thus offer subscription models, making it possible to simplify the customer experience (who no longer need to worry about redeeming) and to generate a significant income per customer in the long term.
- Acquisition and retention costs : how much should we invest to bring a new customer to a D2C site? Is it possible to use customer data that already exists within the brand in order to reduce this cost? How to ensure customer loyalty and avoid too rapid a churn (loyalty costs such as CRM campaigns, promotions, etc.)? Unlike branding campaigns, it is possible to measure the cost per customer of direct marketing campaigns very precisely, and care must be taken that this cost does not eat into the entire gross margin.
It is important to model these variables correctly because only those categories of products whose average basket and frequency of purchase are high enough to offset the acquisition costs and logistics costs associated with delivery will be profitable in the long term .
The DNVBs thus seem to position themselves on two main types of models:
- expensive products with high margins , purchased infrequently (such as mattresses, expensive accessories), where the average basket, necessarily high, covers the cost of acquisition and delivery costs
- recurring daily products (if possible in the form of a subscription, such as toiletries, razors, etc.) where the low margin and customer acquisition costs are offset by recurring revenues and a long-term relationship with the consumer.
The indirect value of customer data
The last strategic question to ask is that of the indirect value provided by a D2C model . Indeed, even if the economic equation is not profitable in the short term, the D2C model can provide additional value that is more difficult to model but which is critical for the future of the brand.
The main advantage of a D2C model is the ability to collect a large amount of personalized data, normally inaccessible through traditional distribution channels. Brands can thus obtain immediate customer feedback and understand in detail their expectations and habits and, ultimately, refine their segmentation. This data makes it possible to improve the customer experience on all distribution channels, in particular by developing additional services.
Moreover, by creating online discussion spaces with customers during the development and testing phases, as Lego does, brands avoid the pitfall of an inadequate product launch and can adjust very quickly to customer expectations. their consumers.
Therefore, the launch of a D2C channel can be justified for a brand, whatever the economic model in the short term, because the indirect value generated by the knowledge of the customers will be very important for the future.
For example, we can ask ourselves the question of the viability of the economic model of the D2C sites launched by PepsiCo during the Covid ( Snacks.com and Pantryshop.com ), as the products offered are of low value. But by imagining the volume of data collected thanks to these new distribution channels, it is easy to understand that for PepsiCo this is a way of sticking as closely as possible to the specific consumption trends that appeared during the period of the pandemic and of confinement. It is also a way to test new product prices and assortments in real time, which could eventually be passed on to physical stores and to collect relevant customer information.