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The Role of D2C in an Evolving Commerce Market

Monday, August 20th, 2018

For many years, direct-to-consumer (D2C) was the unicorn aspiration of brand and marketing managers in the western world. Having people care enough about a product to seek it out online was a tease that compelled many brands to collectively waste billions in investigating a way to have a direct commercial relationship with your customer.

The goal was obvious. Cut out the middleman. Access full margin, data, and consumer information. Create a reason for that expensive, under-performing website we so lovingly built.

We saw mainstream brands of all kinds, from beauty to beer, rushing to create “active online relationships” with a view to one day commercializing them through direct purchase and delivery.

People love their beer. In fact, it’s one of the few fast-moving consumer goods (FMCG) categories where people love the brands. But that love is at the bar, in the fridge, in a glass or bottle on a warm summer afternoon, in the moment. It doesn’t extend enough to want to order directly from the brand (unless they’re selling a keg, then, well, maybe).

Recent data shows online marketplaces are consumers’ preferred places to shop. This preference underscores the reason that D2C remains a unicorn for most brands. Choice is a key driver of the chosen retail environment. It doesn’t have to be large, just relevant (and ideally curated) choice. D2C does not offer choice, while online marketplaces do.

In online marketplaces, consumers can choose between options, compare prices, and make an informed decision. Within the same platform they can look at complementary items, other items on their “list” or even browse randomly.

D2C eliminates that basic and universal purchasing behavior. Consumers simply don’t want to have to go to a number of different shops to research or purchase products.

There are exceptions. Brands that offer something truly unique —HiSmile, for instance. While there are many teeth whitenerg options available, few have approached the market with the vigor and verve of HiSmile. The product works (according to reviews), it represents relative value (you can spend a lot on whitening — and a lot on oral hygiene in general). It uses pretty people and their Instagram feeds to promote itself and has built a cult following.

Koala (an Australian version of Casper in the U.S.) has done the same for bedding. Disrupting the market by offering something high end at value price and delivered hassle-free and direct to your bedroom.

The key thing is that these brands have been built from the ground up to be D2C brands. Their cost structures, their operations, their customer service, marketing, and focus are all different at a DNA level to a brand that uses a traditional retail model.

It would be impossible for Koala or HiSmile to sell through a third-party retailer at the same price. The margin breakdown doesn’t allow a traditional model to achieve the price point they need. Price aside, a third-party retailer is also unlikely to deliver the same level of service and utility to the shopper.

And this is a key point — there is enough of a benefit for people to pay attention to their offer in market and, ultimately, shop a one-offer destination. Consumers will shop direct if there is a benefit — value, utility, and/or experience.

But if you’re a can of beans or box of beer brand, creating value, utility, or experience enough to change people’s purchasing preferences and behavior is going to be a challenge.

As consumers, our lives will continue to be delightfully disrupted by brands that redefine categories enough to stop our thumbs and have us consider — or even purchase – something while on the bus, on the couch, or at work. But it’s unlikely this delights will come from brands we find in the physical retail environment.

There is an upside. The D2C model was a response to real barriers in the market that existed in the near past. However, the rise of sophisticated marketplaces has broken down those barriers — attracted audiences, solved distribution, and created developed trust and a flow of data. Existing, established, retail-centric brands no longer have to overcome the barriers of the past on their own. While they might not see full margin upside, the significantly greater number of people they’ll reach through a marketplace will more than compensate for this.

Unless you’re talking to a business built to be D2C at the DNA level, the D2C model might not be the best way for a client to deliver against the needs of their shoppers. Rather, they should find the unique value proposition that will appeal to their audience in a marketplace and connect where shoppers are looking. Go to the people and woo the crowd there because it’s easier than having them come to you.

Contributed By: Wylie Fowler, Integer Australia

Image Source: Unsplash

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