Article image

D2C eCommerce: Questions to answer before investing in Technology

With rapid changes in consumer behaviour, brands are jumping on the D2C eCommerce bandwagon with a never-before sense of urgency. Before embarking on this journey, brands should answer some critical questions and determine their strategy, before investing in tech. "If you build it, he will come" is as much a fallacy for brands as is for startups.

The role of D2C Channel for your brand

There are many reasons for brands to invest in their D2C eCommerce channel. Not all apply equally for every brand. Before venturing into establishing a D2C Channel, brands should clearly identify the specific objectives they would like to accomplish. 

  • Brand Differentiation and Product Showcase - Brands invest in building amazing websites and apps to help differentiate from their competitors. They put in great efforts to catalog and showcase their products in vivid detail. The objective is to influence and sway the consumer buying decision, both during online and offline purchases.
  • Incremental Sales - D2C eCommerce platform can be a source for incremental sales. Not surprisingly, many brands have this as the core focus of the D2C strategy.
  • Overcome Marketplace Restrictions - Brands experience many restrictions on marketplaces; typically, this could be restrictions on order quantities, order value, packaging etc. On a brand's own website, the brand has total freedom and flexibility to experiment on parameters that can help acquire and retain consumers. 
  • Avoid Marketplace Competition - To overcome operational challenges related to technology, inventory and delivery, some brands use marketplaces as their only direct consumer channel. This leaves them open to competition from competitor brands who jockey for positioning through paid sponsorships and could ultimately result in losing out the customer to the competitor.
  • Breakout of Geographical Constraints - While it may not be viable for brands to establish a traditional distributor/retailer network across geographies and at scale, the D2C channel allows brands to focus on individual customer personas spanning geographies, reach them through digital channels and establish a long-standing customer relationship.
  • Better Profitability - A brand that has nailed the D2C eCommerce execution can achieve significantly higher profitability compared to traditional channels and marketplaces.
  • Improved Cashflow - For most brands, sales through distributors and retailers involve offering 30, 60 or 90 credit for stocks being maintained by the distributors and retailers.  This is a significant bottleneck for brands looking to scale up. The D2C channel allows brands to receive payment prior to shipping products to customers; thus significantly lowering the cashflow requirements.
  • Customer Loyalty - D2C channel offers multiple avenues to build customer loyalty, through subscriptions, loyalty programs etc.
  • Customer Insights - The ability to interact with customers directly allows brands to better understand customer behaviour and preferences. In today's world of constant innovation, these insights are invaluable.

Product Packaging & Delivery Experience

The D2C channel requires brands to operate differently with respect to packaging and deliveries.

For sales through retail & distributor networks, products have been traditionally transported in larger quantities (through own/leased commercial trucks) and in bulk packaging (typically boxes, cartons etc.) to distributors and retailers. The D2C eCommerce channel handling of consumers orders in smaller quantities (typically a few retail packs, of multiple different products). 

For many brands, this may require significant effort in reworking retail packaging. The packaging has to be robust enough for shipment through courier services like FedEx, DHL and through local, last-mile delivery services. Some brands look at this as an opportunity to bring out a D2C centric packaging that can be a real unboxing experience for the consumer.

Brands also need to realise that the delivery experience given to the end consumer on their D2C channel also contributes significantly to the brand experience. This is quite unlike the traditional bulk transportation for distributor and retailer orders. A D2C juice brand includes a handwritten note by its founder with every delivery specifically addressing each customer by their name. 

To stay ahead of competitors, brands need to think beyond omnichannel packaging when incorporating a D2C strategy. 

Customer Lifetime Value

For a profitable D2C business, the Customer Lifetime Value (CLV) should be at least a few multiples (2 to 5 times) of the Customer Acquisition Cost (CAC). For some brands, the CLV is the value of a single purchase (e.g. a sofa) For some others, the CLV is the value of repeated purchases of multiple different products (e.g. cosmetics, health foods etc.).

The CAC in D2C eCommerce is typically higher compared to retail channels. Brands need to figure out the right strategies to achieve significant CLV; prior to scaling up D2C marketing.

Investing in the consumer journey, from product discovery to unboxing, is key to retaining consumers and building up CLV. The brand website (and apps) play a very important role in building a strong, direct consumer relationship.

Not surprisingly, brands that create wow experiences on their D2C eCommerce website on product experience pages, on reorders and have a simple checkout process have significantly high consumer retention. Keeping Product FAQs & usage tips up-to-date and including lots of valuable content (just like we do here in this article) are simple but effective ways of keeping your consumers engaged on your website and apps.

Investing in Technology for D2C eCommerce

In today's world of DIY SaaS-driven eCommerce (there are platforms that claim to be hosting more than a million merchants), major brands need to ensure that the eCommerce platform they roll out reflects their brand equity.

The key is to determine the specific objectives that they would like to accomplish through their D2C Channel and identify the right technology that can help achieve them. 

Logo

© 2022 All rights reserved

Version 1.0.69