Last year, Kellogg’s Co. shot a signal flare over the CPG horizon: you should start prioritizing direct-to-consumer sales, warned Senior Director of Ecommerce Chris Perry.
Perry estimated that forty-four percent of CPG companies either launched or were planning to launch direct-to-consumer (D2C) models in 2018. The main drivers? Long-term growth. Test-and-learn capability. And, perhaps most importantly, data ownership.
Disruptive, online-first D2C brands had also charmed VCs and consumers alike. By the end of 2018, the top 15 D2C brands by funding (including Harry’s, Warby Parker, Casper and Glossier) had raised a total of over $2.2 billion.
Today, more and more manufacturers and brands are realizing the need to skirt retailers and establish direct ties with customers. Several long-standing goliaths have already unveiled new private label brands, online strategies and/or partnerships to do so.
Below are three iconic examples. Read on to learn how each has set foot in the D2C playing field, and why D2C may be a good option for your company if you haven’t made the move already.
The food manufacturer is constantly refining its recipe for ecommerce success—which now includes an in-house team devoted to launching D2C brands. Just last month, Kellogg’s hired a new director of direct-to-consumer ecommerce platforms. The original job posting stated, “This is a greenfield opportunity to help Kellogg’s write the D2C playbook. Owning the work in strategy, capability, vision, influence.”
While the posting implies that the company’s D2C playbook is still in its infancy, make no mistake that Kellogg’s has already gotten the ball rolling: in 2018, Kellogg’s launched Joyböl and HI! Happy Inside. Both were brought to market in less than a year and launched to just a handful of channels, so the team could test and learn without the pressure of a larger product launch. Joyböl, for example, was introduced to several corporate cafeterias along with Amazon Fresh, Walmart and Boxed.
This limited rollout allowed the team to quickly gather and react to feedback from its target consumers, i.e., urban millennials with a habit of “deskfasting.” It also enabled them to take a non-mass-marketing approach to educate buyers on a new type of breakfast meal: a smoothie created by adding water.
By collecting data directly from its consumers, Kellogg’s could make quick fixes within a matter of days. The Joyböl you know now includes vertical instructions on its packaging. Why? Because early on, the company learned that the water line was too difficult to see and resulted in soupy smoothies (and who wants that?).
For several years now, Nike has been on the move to hit 250% more D2C sales by 2021. Their playbook has included the ribbon cutting of multiple sales channels, including brick-and-mortar stores, loyalty programs, mobile apps, Nike.com and online shops intended to help the brand “be more personal at scale.” One of the biggest shake-ups in their strategy occurred in February 2017, when the company decided to open an Amazon shop.
Aside from growing competition of flashy startups, Nike faced another marketplace reality: Amazon was teeming with counterfeits and Nike items that were never authorized for sale.
That number dropped dramatically (46%) after the company launched a limited assortment of products to Amazon. It didn’t take long for the company to quickly expand its Amazon partnership, if only because its top rival Adidas announced it would take part in Amazon Prime Wardrobe.
In fiscal year 2018, 29% ($10.5 billion) of Nike’s global sales came through Nike Direct, the company’s D2C division. While wholesale business still dominates Nike’s global sales, direct channels are reaping far greater growth.
Nestlé is selling convenience as part of its D2C strategy. The company launched an ecommerce subscription service, ReadyRefresh, in 2015 to deliver Nestlé Waters, Nestea, San Pellegrino and more to homes in 23 US states.
“It was a very unusual move for a CPG company, but it gave us a direct way to accompany our customers at every step of their journey,” said Nestle’s North America Executive VP and CMO Antonio Sciuto.
Since then, its subscription-based services have grown to include Sweetbake, Nespresso Club and others. The end goal: to control costs, acquire guaranteed revenues and gain a better picture of customers.
Besides taking a cue from the Dollar Shave Clubs of the world, Nestlé reportedly grew ecommerce sales from 2.9% in 2012 to 6.2% in 2017 by investing in digital. For instance, they company teamed up with Amazon Alexa to build GoodNes Skill, a “visual voice browsing” experience that lets users find and view recipes, how-to videos, nutritional facts and more by voice command.
The Bottom Line: D2C May Not Be an Option, But a Necessity
Ecommerce has put traditional wisdom to bed. What once required manufacturers, wholesalers and retailers to each play a hand in the customer journey has now been replaced by one-click direct purchases from manufacturers or brands.
If the above examples go to show anything, it’s that D2C is more of a necessity for several reasons:
- Data is your best weapon. One of the greatest advantages that the new breed of online category leaders (e.g., Glossier, The Dollar Shave Club, etc.) wields is product differentiation as a result of having complete customer data. This is a big reason why Kellogg’s introduced Joyböl: it was not only to increase their profits, but to learn more about (and cater to) specific customer preferences. Today, you risk competing with your eyes half closed when you splinter customer data across multiple retailers. Take advantage of shopping carts like Magento, Shopify and Bigcommerce to create your own webstore in which you hold all the keys to the kingdom. Also, leverage third-party marketplaces like Amazon to get in front of existing audiences, gain transaction data and to test pricing, brand messaging, and other factors that are crucial for clinching the sale.
- Your customers (and competitors) are already on Amazon. You leave your brand defenseless when you ignore popular D2C channels. As in the case of Nike, cheaper alternatives, counterfeits and other forms of competition fester online. In addition to this, your customers are increasingly searching for products on these channels, even as they’re walking the aisles of a physical store. Weed out unauthorized resellers and/or keep your brand top-of-mind by registering your brand on Amazon, eBay, etc. Control the quality of your product listings, prices and branding--ensuring that when customers search for your brand or similar products online, your brand is at the top of the search results.
- You customers want convenience. No medium outside of ecommerce has allowed consumers to experience instant gratification like they do now. Whether they be on their feet or on the couch, they expect to be able to order your products whenever they want them. By going D2C, you can offer easy purchases, fast delivery times and white-glove service across a variety of sales channels. You can even consider subscription-based models like Nestlé to automate repurchasing and replenish your customer’s craving for your products.
Interested in Taking Your First Step?
There are many resources available to manufacturers and brands looking to go D2C. Zentail, for one, has helped manufacturers like BBG Surgical launch thousands of products across multiple ecommerce platforms in less than half the usual time. Agencies like Quiverr additionally service businesses looking to expand onto D2C channels but don’t have the time to do it themselves.
Contact us at email@example.com for more information or to simply discuss the pros and cons of going D2C for your company.
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