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Are you a brand struggling to build or evolve to a direct to consumer model? Are you trying, but failing? Are sales from the digital channel below expectation?  

Or, are you a brand that has not yet made the move to a direct to consumer model, and still unsure if that is a move you should be making?  

If you answered yes to any of these questions, this article is written for you.

What is the most common barrier to brands evolving to a direct to consumer model?  Mindset at the top level. The lack of complete buy-in continues to be the primary hurdle.  

Why the emphasis on 'complete'? For brands, even though the transition from traditional models to a new direct to consumer model can and should be gradual the mindset cannot be 'lukewarm' to the notion of change.  

Those brands that are lukewarm or put in a mild attempt are those who do it for the wrong reasons i.e. their competitors are doing it. The brand must be all in or all out.   

It’s important to note, a brand who completely buys into a direct to consumer model is capable of servicing retailers and continue to manage these relationships throughout the change process. 

A recent Econsultancy article discussed the barriers to change and had this to say: 

The primary challenge within our organisation is that digital and the benefits of data are not being fully embraced by management as initiatives of value…Digital is failing to live up to it's potential because it can't be embraced without top down support. 

Why do senior level decision makers struggle to see this evolution?  What can be said to executive teams to initiate change?  Why is this model shift important for the future success of brands? 

To deal with these and other important questions, certain information should be presented and topical conversations should be had with senior level teams to stimulate the shift in mindset:   

Conversation 1. Recalibrate the brand's thinking of its model.  

This initial discussion in challenging the identity of the brand is an important first step:

You are no longer a manufacturer.

You are no longer a wholesaler.

You are a vertical retailer, who has complete control of creative, supply chain, and wants to build direct connections to your target market.

You have valued retailer relationships, however, your primary objective moving forward is to preserve these relationships and grow consumer connections via direct means.

The purpose of this conversation is to look at the business with new lenses.  By doing this everything looks different: 

  • The competitive landscape looks completely different.  
  • The retailers look different (they are both an ally and a threat, taking "your" customers) and suddently their treatment needs reviewing.
  • The internal teams appear unskilled and unprepared.

2. Deliver proof by showing trends of brand successes. 

Oracle partnered with the Economist Intelligence Unit surveying consumer goods manufacturers worldwide. It had this to say about the findings:  

To attract and engage the consumer, consumer goods (CG) manufacturers are increasingly exploring ways to integrate new channels such as mobile and social media into their marketing mix. 

Direct to consumer interaction is growing, as evidenced by the research, and it is critical in today’s highly-competitive global economy that consumer goods companies take advantage of every touch point with the consumer.  

As the EIU report shows, this now involves a combination of physical and digital environments, including social media and mobile platforms.

In another survey, the Economist Intelligence Unit (in 2012) found, the percentage of manufacturers selling directly to consumers is expected to grow 71% over the next year to more than 40% of all manufacturers.

And the number of historically wholesale brands on the top Internet Retailer 500 is growing from 51 in 2008 to 63 in 2012. 

3. Discuss the growing competition and challenge of grabbing the attention of retailers to support your brand and products.  

Brands are now facing unprecedented competition. Consider in 1980, there were six brands of blue jeans in the U.S., today there are over 800 (not including brand knock offs). 

Assortments are growing, intensifying the battle for shelf space. In 1968, Pringles had one flavour of chips. Today, it has 33. 

With increased competition comes less shelf space for brands in retailer bricks and mortar locations. Less shelf space equates to an inadequate representation of the brand, the brand story, and the product range.

4. Discuss the shortcomings of retailers and the advantages brands have over them.

There is no secret around the digital conduct of retailers and their continuous struggles.  This issue here is more with the retailer’s inability to support the brand as it is intended.  

Websites around the world convert poorly (under 3.5% on average) because they attempt to acquire customers who are in late stage buying only.  

Retailers need to engage with consumers in various stages of buying, and ideally those who are not even thinking of buying.  

Enter content marketing strategy...

The most effective content creator is the brand, the creator of the brand story, and the product (s).  A brand's ability to effective tell stories creates stronger bonds both pre and post sale.  

Brands hold all the power.

5. Present common issues with existing retailer/brand relationships.  

Common barriers to growth come from the loyalty of retailers to a brand and how it’s dependent on three things:

  1. Their margins.
  2. How they can leverage your brand for their own purposes. 
  3. How much marketing support/money they can acquire.

Think about these retailer demands and what it does to a brand’s model and mindset long term:  

  • In many cases it forces a brand to become operationally lean due to smaller margins.   
  • Increased profit comes in the form of streamlining manufacturing (moving the factory to China). 
  • Content development is around the training of retailer employees.  Due to high employee churn this is a vicious and continuous cycle.

The brand has little time and resources dedicated to focusing on consumer needs. 

6.  Present the benefits of brands having direct consumer connections. 

Brands driving direct to consumer relationships benefit from the following: 

1. Strengthened brand image. This comes by telling the brand story as its intended direct to the target market.  

2. Aggregate an incredibly rich source of consumer data (previously controlled by retailers) delivering insights into consumer needs, and buying behaviours. This direct contact allows a brand to develop a clear understanding of how their consumers buy and how to improve the delivery of one to one retailing experiences ie. personalisation.  

An IBM study found 90% of customers want better personalisation, and are willing to spend 20 minutes to set up their information to help retailers give them a better experience”. However, the same study discovered that less than a third of retailers are able to accommodate this growing consumer desire.

3. Creating direct social connections builds meaningful direct conversations building a greater understanding of needs, likes, and dislikes. 

It's partly about talking to your target market, but it's more about listening.  Brands no longer need to listen to customer needs through the 'retailer filter'. Success of a product was defined by retailer 'sell-through rate'.  With direct social contact, a brand can determine why a product was successful or did not meet expectation.

4. The harnessing of data provides local knowledge for global brands. This allows for the penetration into new global markets.

5. Better experiences build brand advocates or fans. According to Seth Godin (in his book "Tribes"), fans deliver the following: 

  • A fan will cross the street and avoid your competitors to buy from you.
  • A fan will bring a friend (or friends) to engage with you and buy from you.
  • A fan will reply to you if you ask them questions.
  • A fan will tell you when he/she is unhappy with the way you are conducting yourself.
  • A fan will pay extra for special or limited editions of your product (s).
  • A fan will not comparison-shop because they trust you.
  • And most importantly, fans connect with fans to amplify your brand, and your brand message. 

    Fan/peer behaviours form the foundation for social proof strategies. Some call social proof 'the new marketing', an important decision making influencer.

6. The combination of data, direct connections, and meaningful consumer conversations organically develops lifetime strategies.  

Brands can customise their offering (based on insights) to align to the customer to ensure the connection is longer and more meaningful.  

Why are these conversations relevant in today's business climate?  One could argue ecommerce has been around for a long time and brands should have done this 10 plus years ago.  

Ecommerce alone was never the single solution to brand evolution. The tipping point has come from the collision of four core elements:

  1. Ecommerce maturity.
  2. Mobile adoption.
  3. Social technologies,.
  4. The evolution of the consumer in how they want to purchase, information gather, engage with retailers/brands, and how they socialise.

The consumer is now empowered and in complete control of what content they consume and how they consume it and is why brands are conquering direct to consumer models. 

Greg Randall

Published 13 February, 2014 by Greg Randall

Greg Randall is a senior digital consultant with Comma Consulting and a contributor to Econsultancy. You can connect with Greg on Linked In and Twitter

19 more posts from this author

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Greg Randall

Greg Randall, Director at Econsultancy Small Business Guest AccessSmall Business Multi-user

I had a colleague read my article and provide some great comments and questions. Thought it would be work sharing:

Colleague:

Even given the compelling factors that should drive this shift, I am sure that many brands hesitate due simply, to what the impact might be, if a couple of retail channels just overnight say they will drop carrying the brands product. This could diminish physical point of presence in a flash, which would be difficult to replace. I am sure this is the short term barrier, even given the capability and engagement possible after a brand has established its own direct customer database. Interested in how you would answer this?

My reply:

Your question and points are accurate and is why I made a point of saying in my article, the transition needs to be calculated and gradual. I have full respect these organisations still need to "pay the bills".

Another barrier senior level management face is their inability to monitise the opportunity. All they see is cost of change and loss of revenue. And is why someone like myself must serve as the "change leader" in order to navigate their fears.

From a physical point of presence perspective, there is far less risk. Due to consumer behaviour evolving to digital researching before considering a visit to a physical store a brand can quickly accommodate their diminishing physical presence via retailers with increased visibility online with a focus on content marketing initiatives.

If these brands already have a physical footprint, then multichannel strategies should also immediately kick into action with the physical entity being more "experiential" in nature.

about 2 years ago

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Pratima Chandiramani

I appreciate with the your post.

about 2 years ago

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Jon Jagard

You've overlooked the distinction between digital brand engagement and the final mile of e-retail and order fulfillment. Digital brand building often has nothing to do with the actual products, which allows manufacturers to be both "all in" digitally and "all out" e-commercially.

What's more, it doesn't always pay to pursue e-retail: a manufacturer's online DTC shop is responsible for less than 5% of total online sales. Given that ratio, a 2% uptick in e-retail partners' sales is worth FAR more than a 20% increase in a manufacturer's DTC website. Small wonder that management in manufacturing is so wishy-washy about e-retail: they're too busy following the actual money.

about 2 years ago

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Chris V.

What this article seems to be missing is the need for advocacy by retailers who are in a position to influence the customer. Once the manufacturer goes to a 'direct' model, the retailer will also see the manufacturer as a competitor, and may move on to another brand's products.

If Rolex, or Ferrari started to sell direct, do their direct sales offset the loss of retailer support? Not an easy answer.

about 2 years ago

Greg Randall

Greg Randall, Director at Econsultancy Small Business Guest AccessSmall Business Multi-user

@Jon,

Firstly, thank you for your comments. It’s clear I struck a nerve with all the activity on Twitter re this article.

I completely agree with your point RE manufacturers are following the money. They have bills they need to pay, and is why I made the comment; the change/evolution needs to be slow and gradual respecting current revenue streams.

I disagree with your comment RE me overlooking the distinction of brand engagement vs a brand taking a consumer all the way through to a purchase.

Throughout my article I make it clear brands need to own the customer relationship. The phrase “direct to consumer model” means brands are commercially interacting with brands. And it does pay for brands to pursue e-retail.

Let me provide a little more detail behind some of my comments in the article to help illustrate my point:

Consumer experience.

Taking your point where you suggest brands should stop at the stage where consumers are ready to purchase. Think about the experience a consumer would have when he/she is ready to purchase a brand’s product.

When consumers get to the point where they have made their decision, they want it now. By not offering the chance to checkout the brand is creating friction in the consumers buying journey. Jumping around to find a retailer’s site can be jarring and will jeopardise buying momentum.

Buying intent.

The only true way to understand a consumer’s true buying intent is to control the entire consumer-buying journey (i.e. from information gathering to purchase). This data delivers key insights allowing brands to adjust the manner in which they sell to how the consumer purchases. This is part of a continuous improvement process with a purpose to grow the user experience. One of the key elements of user experience is content.

The data guides the brand on what new content should be generated.

This improvement in user experience grows sales.

Leveraging social proof.

Buy owning the customer relationship, the brand has the opportunity to leverage social proof (user generated content i.e. reviews).

Social proof (also known as social commerce) is 1 of the 6 key principles of influence, as researched by Robert Cialdini for his book titled, “Influence: The Psychology of Persuasion” and is a powerful tactic to influence decision making.

Social proof also becomes an effective feedback loop for brands where they can determine reasons for product success and failure, and test new designs before heavy investment.

Conclusion:

The operational challenges brought on by fulfilment, customer service, and multichannel development are dwarfed by the enormous benefits brands can gain from owning the relationship with their customers.

If you take a long term view of the benefits to the brand and navigate the retailers through the change process, brands have a recipe for huge success.

Thanks again for taking the time to comment.

about 2 years ago

Greg Randall

Greg Randall, Director at Econsultancy Small Business Guest AccessSmall Business Multi-user

@Chris,

You raise valid points and echo concerns by brands around the world.

The point of my article is to communicate how brands have the potential to be in full control to influence the customer.

Retailers currently are in a position to influence because not enough brands realise their true potential. How do retailers have influence currently? They have influence by default. Over the decades, brands have allowed this to happen.

How else have retailers gained this influence? By TV and radio campaigns i.e. large push messages? By simple pricing strategies i.e. be cheaper than competitors? By having a physical footprint?

We have dominant New Zealand retailers who literally have sales every weekend. I met the owner of one of the most successful retailer chains in New Zealand, his motto is “mark up to mark down”.

Retailers may have control currently but its not because they are delivering value.

This is the opportunity for brands.

Remember, consumers now have complete control. They gather information and consume media however, whenever, and wherever they want. My argument is, brands have the intellectual property and the power to take over the influence but in a manner that delivers value. As soon as brands realise this, its only a matter of time.

Ferrari is an interesting example. Firstly, they have “Ferrari dealerships” all over the world, secondly, Ferrari has an eCommerce site where they sell merchandise direct to consumers (http://store.ferrari.com/en/), and finally, they promote incentives to those who join the Ferrari club (called “My Ferrari”) to aggregate specific information (data and insights) on all Ferrari owners. Ferrari has a direct to consumer model.

I agree with you there is risk for manufacturers and is why the move to a direct to consumer model needs to be calculated and measured. However, the long-term benefits out-weigh the short-term risks.

about 2 years ago

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