Partner Customer Strategy
& Applied Design
“Direct to consumers requires the creation of an ecosystem which provides a win-win situation for all involved stakeholders.”
The question of whether it pays off to build new sales channels that directly target end customers is not new to producers. What changed in 2020 to make this topic even more relevant – and why is now the right time to act and approach customers directly?
"Many manufacturers have long postponed the decision to set up a direct to consumer sales channel. Reasons for this range from high investment requirements, to uncertainties on how this new model can be integrated into existing sales structures. However, in the last few months it became more apparent that we operate in a highly volatile and ever-changing environment in which strategies, markets and operating models need to be adapted in order to survive. In this context, it is even more important to have direct access to end consumers and gather insights that will enable manufacturers to make fast, data-driven decisions.
Recognizing customer needs and being able to react quickly to changes will differentiate winners from losers during uncertain times. Furthermore, current studies show that online sales and services have risen ~30% on a global scale – a behavior change that we expect to be long-lasting. This opens up potential for manufacturers to directly sell online – even in categories where it seemed to be difficult to do so in the past. In addition, gaining control over end consumer channels provides an opportunity to properly manage both brand and customer experience, while also generating revenue and benefiting from additional margins."
While the relevance of eCommerce has increased during the crisis, the main risks that manufacturers associate with direct to consumer sales remain unchanged. An important challenge is that by engaging directly with consumers, manufacturers are positioning themselves in direct competition to their existing retail/wholesaling partners. Is it possible to avoid these conflicts?
"The essential success factor is to create a retail ecosystem which provides a "win-win" for all stakeholders involved - this is not easy, and the specific situation of each manufacturer must be taken into account to shape scenarios that are designed for mutual success.
The aim is to define the role of each stakeholder along the customer journey, and at which touchpoint each party can create value for themselves - while also creating a seamless experience for customers. Direct to consumer should not be seen as a replacement of traditional retail, but rather a complementary opportunity for additional growth.
One example of such a win-win would be a manufacturer of i.e. construction materials usually selling all their products via wholesaler and distributor networks – never getting in contact with building companies or professionals. By setting up a marketplace ecosystem that not only offers own products and new services, but also includes distributor products, all parties can benefit: the manufacturer can sell more, increase their brand awareness and learn more about distributor and customer needs - leading to new, better fitting and differentiated solutions. The distributor has the possibility to sell to a broader audience and position own products and services. The customer has full breadth of product, services and know-how, all in one place. The result is an overall higher lead generation and activation of new customers.
Of course, in theory, this idea sounds good, but it does not come without risk or complexity – for example, pricing and brand messaging need to be kept consistent across all channels. At the same time, feasibility, from a stakeholder perspective but also from a technological and operational aspect, needs to be ensured at an early stage, while developing the concepts."
Introducing a direct to consumer channel is associated with high investments and cannot be realized overnight. Considering current highly volatile and uncertain times, is it worth the effort - and how long does it take until first success stories can be realized?
"The cost for implementing direct to consumer strongly depend on the objective and on the scope of the technical solution. The good news is that costs can definitely be influenced by the chosen project approach. It is possible to implement direct to consumer in an iterative process, which starts with smaller pilots and selected use cases. This offers the advantage of testing concepts at an early stage, learning and then developing them further. For example, pilots that leverage social commerce channels, like Instagram, can generate the first direct to consumer sales within a few weeks. A second factor that influences cost is the chosen direct to consumer model, which can range from consumer engagement to fully embedded eCommerce. The decision of which capabilities to establish within the own organization and where to partner needs to be considered carefully and taken in line with the overall objective."
What are the challenges that manufacturers need to overcome when implementing a direct to consumer sales model, and how can they be tackled successfully?
"Adopting a multi-channel strategy that includes direct to consumer requires a concise plan, as it affects multiple parts of the organization and needs commitment to rethink from the familiar manufacturer’s perspective towards a retail-based approach in doing business.
To achieve a successful implementation, the concept should be validated at an early stage. This includes answering a number of key questions to ensure the desirability, feasibility and viability of the concept. Is the concept attractive for the end customer? What is the impact on other stakeholders, which partners are needed for the implementation? Is it feasible from a technological point of view and is there a positive (additive) sales forecast? Also, from an internal perspective, it is important to take the organization on board. Internally as well, the entire team must be taken along on this journey and the effects on the organizational structure and processes must be considered at an early stage."
If a manufacturer decides to go direct to consumer at large scale - how can a global rollout be realized easily and successfully?
"The complexity largely depends on the business model, the target operating model and legacy systems. Let’s take a look what is behind these drivers:
1. A heterogeneous multi-product/multi-brand model with a different sales approach globally drives complexity, as it is necessary to customize front- and backend processes accordingly
2. Building up local delivery setups and market-specific operating models also drives effort and is better tackled market by market than with a big bang
3. On top of that often comes the alignment of technology solutions across decentralized IT setups and integration in different technology stacks
These complexity drivers need to be understood well in advance, and need to be taken into account when designing the concept, to prepare for a successful roll-out right from the start. The importance of combining customer strategy with the ability to execute is embedded into our offering set-up at Deloitte. By incorporating customer insights and technology understanding from the very start, into the strategy definition, we can shape strategies that are desirable, viable and feasible."