In our first article, we discussed what direct-to-consumer (D2C) is. This article raises some of the challenges faced by retailers for entering this marketing realm.
While D2C seems like the logical thing to do, there is more to this marketing approach than creating an eCommerce platform. You need to consider warehousing and the logistics and marketing behind successfully pulling off a D2C strategy. Over the next couple of weeks PushON will be speaking with Industry experts in order to answer these questions to help you create your own D2C strategy.
So what are the main challenges faced when incorporating a direct-to-consumer strategy?
Warehousing and Logistics
One of the biggest changes moving to D2C is taking full control and managing your products, including storage and dispatch. Having full control is the ideal situation, but is your business geared to manage your product storage and dispatch?
There is a huge amount of pressure for retailers to ensure their products are delivered on time to consumers and in one piece. The smallest delivery change or damaged packaging is enough for the consumer to take their frustration publicly. There is a high expectation from customers to get their items delivered on time, adding unwanted pressure to businesses. So, this is something that must be fulfilled from the get-go.
“Selling D2C tends to result in a lower shipment value versus bulk merchandise movements from B2B. This often means that de minimis thresholds are not exceeded for D2C”, Colin Stansbury, EMEA Strategic Alliance Manager, Avalara.
In terms of warehousing, is your warehouse management system (WMS) able to take on D2C and fulfil orders? Will you need up upgrade your current WMS set-up to hold thousands of products and update when an item becomes out of stock? If you’re unable to fulfil an order, the customer will look elsewhere for it. Are you digitally geared for handling small packages as opposed to comparatively fewer large packages? As a business, do you have the capabilities to pick, pack and despatch?
As our Head of Development Chris McCarthy-Stott discussed in PushON’s most recent virtual Meetup event, there are legal and tax implications, such as your third party logistics provider deciding to house your stock off-shore. This wouldn’t be as problematic if you went down the D2C route, as you would have more control over the logistics and warehousing of your products.
All marketing efforts should be modernised to ensure you’re reaching out to the audience while understanding your end consumers’ needs. Do you understand your end consumer and their behaviours online? Do you know how to engage the different personas within your audience? Ensuring your customers feel special by providing them with a unique service that you weren’t necessarily able to achieve beforehand, is critical to safeguarding a successful Direct-to-Consumer strategy. This can primarily be achieved through social media, pay-per-click campaign (PPC) and other online marketing tactics (email, content campaigns etc.), so it’s vital to get the messaging right and consider rebuilding customer loyalty.
You want your customers to be aware that they can buy your products directly and not through a big retailer such as John Lewis, and nothing has changed in terms of quality. The biggest difference will be a more tailored service, exclusive offers and bespoke messages while supporting the business as opposed to the retail giants. So how do you compete with retail brands that your consumers know and trust?
Data & Marketing Platform
It’s not a secret that manufacturers will be collecting data more than ever from their customers. But the question is, how do you digest this information and use it?
Data helps businesses understand their customers and what their interests are. So, you must have the capabilities to successfully collect this data, store, manage and interpret it. Manufacturers must consider the demand, capacity limits of selling and dispatching products themselves and avoid the surplus stock.
The platform you use to manage stock and data is vital to success. While many retailers use custom platforms due to cost, they can cause long-term headaches.
“D2C is not just an issue of having an eCommerce website. There is a whole range of behaviours and activities that your business needs to understand and execute”, Chris McCarthy-Stott, PushON’s Head of Development.
Our Head of Development Chris McCarthy Stott, discusses some of the issues in migrating to D2C from B2B:
Brands venturing down the D2C route need to rebuild trust with the end consumer. While these consumers bought from your brand in the past, it would have done through competing retail stores such as John Lewis and Debenhams. So, while there may already be trust with your brand, that level isn’t necessarily matched with making a purchase directly from you. You consumers aren’t just purchasing a product, they are purchasing an experience which starts the moment they land on your website. It also doesn’t just end when they receive their delivery.
The trust doesn’t just lie with your customers; it lies with your chosen team. To successfully fulfil a Direct-to-Consumer strategy, you need to decide what capabilities you have in-house to manage specific areas such as marketing, and what to outsource, such as warehousing, packaging and delivery.
Other Challenges to Consider when going D2C
You might think there are other routes to market that aren’t bricks and mortar and are digital. There are, of course, retailers who have the online reach and the ubiquitous marketplaces. The question is whether you want to surrender the space that your brand could own to a third party whose objective is to grow their margin, not yours and to own your customer? What is it that makes your brand strong and drives revenue?
So now you’ve become the retailer there are a few challenges you need to address. Some of them are technical; other processes but, the main one is how you speak to the customer. It’s perhaps something of cliché to say, but B2B tends to be a little brusque. The determinants of a deal though increasingly requiring finesse will tend to be to the point. Your consumer needs to feel valued and loved; therefore, you must nurture them. They have a wealth of choice as to where they can spend their money. This is a problem of emotional intelligence that may permeate into your customer communications.
BREXIT adds another level of complications to the mix. Here are a few implications to consider that Colin Stansbury discussed in our Magento Meetup.
- Import VAT
- Additional VAT registrations for eCommerce and B2B
- UK businesses require Fiscal Representative (not in Germany or France)
- 250m new customs declarations and checks
- Paying custom tariffs (selling D2C to France and Germany)
The new VAT obligations, if not addressed properly, can cause poor customer experience, fines and penalties, customers paying extra unnecessary costs and unwanted delays at customs borders.
There is a lot to consider when moving to D2C, such as:
- How can you get orders into the warehouse/ 3rd party?
- How will you manage requests for returns?
- How will you manage customer queries?
- How are your customers going to pay you?
PushON can identify differences of approach, culture and process across a typical B2B business.
The aim of this article isn’t a scaremongering approach. It’s to ensure you understand all challenges faced and prepared for moving to Direct-to-Consumer. Over the next couple of weeks, we will be providing you with the tools and information you need to transition to D2C.