D2C – a mindset shift for brands and manufactures | Whitepaper | diconium

D2C

A MINDSET SHIFT FOR BRANDS AND MANUFACTURERS*

*ACCELERATED BY CORONA

Introduction The demand for online food has increased massively since the spread of the coronavirus. In Germany, for example, the e-food market is growing by 142 percent.1 Since long waiting periods and delivery bottlenecks occur both offline and online, manufacturers are now increasingly turning directly to end consumers. Even traditional food manufacturers, which previously focused on B2B business only, are now pursuing direct-to-consumer (D2C) approaches.

able products. Remarkable about this is the fast implementation within a short period of time: Ricola, for example, reports only three weeks from the idea to the actual launch. This is even surpassed by Lindt Canada. Within just five days, the online shop went live.2 Plus, there is also a social impact integrated in quite a few of these new solutions. Lindt Canada donates one Gold Bunny for a frontline worker for every order; for every care package ordered from Ricola, one Swiss franc is donated to a coronavirus fund, and Heinz offers free delivery for all frontline workers, in gratitude for their work and commitment.

In Ricola’s recently launched webshop, we care

by Ricola, care packages can be ordered for colleagues, friends or family members including a personal message – and sent directly to the desired recipient. At Heinz, Heinz to Home is now available as a pre-assembled food box consisting of three different products; and Aptamil makes part of its product assortment available in the Aptashop, but limits orders to two products per order and one order per week to ensure a fair distribution of avail-

However, D2C is no novelty. It was already considered a trend, both before corona and outside of the e-food sector. More and more manufacturers, especially in the CPG market, see the potential that results from direct contact with their customers.

https://insights.afterpay.nl/german-lockdown-boosts-e-commerce-purchases-7-fastest-delivery-time-will-become-more-important than-ever.html, [26.04.2020].

2 https://www.shopify.com/plus/customers/lindt, [26.04.2020].

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What exactly is D2C? – 3rd party Marketplace Following the motto „Win with the winners“, manufacturers can also use the infrastructure and reach of existing marketplaces and sell directly to end customers. The sales process is usually handled by the marketplace operator.

– Multi-Channel In a multi-channel approach, there are several touchpoints with the customer, such as the online shop of a brand and the stationary trade through retail partners, while these co-exist independently of each other.

– Omni-Channel The omni-channel strategy is based on an approach for a seamless shopping experience for the customer. With services such as click & collect at the retail store or an online live assistance by retail staff, the manufacturer is increasing the flexibility of the customer journey.

– Ecosystem The creation of a brand ecosystem bundles various brand products and services in one transaction location. According to the principle of share-of-wallet, the goal here is to generate as much revenue as possible from each customer.

Direct-to-Consumer, often also referred to as D2C or DTC, entails direct sales to end customers without an intermediary. The goal of D2C solutions is not to harm the intermediary, but to interact more actively with the own customer, gaining faster and more specific customer insights. In fact, a survey conducted by RedPoint Global showed that 50 percent of CPG manufacturers actually report sales increases for their channel partners due to their D2C approach.3 D2C solutions are often implemented as additional sales opportunities. It is not just about setting up and operating an online shop. Possible strategic options are: – Online Shop / Marketplace: The online sale of branded products and services can be carried out either via an own online shop or the own operation of a marketplace for (specialist) dealers and end-users.

In this case, the customer makes purchases in the manufacturer‘s own brand front end.

– Loyalty Program The introduction of a loyalty strategy, e.g. in the form of bonus programs or the establishment of a community is a classic D2C measure to stay in direct contact with the customer.

D2C Strategic Options

Loyalty Program

Online Shop / Marketplace

3rd party Marketplace

«Incentivize customers.»

«Online the only way.»

«Win with the winners.»

Multi-Channel

Omni-Channel

Ecosystem

«Using multi customer touchpoints.»

«Shopping anywhere, anytime.»

«Build a brand ecosystem.»

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https://www.redpointglobal.com/wp-content/uploads/2019/03/infographic-CPG.pdf, [26.04.2020].

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Opportunities and chances also create challenges We identified three major challenges in D2C approaches that are to be considered but also provide a solid starting point for a potential D2C strategy discussion.

customer service. As a D2C novice without prior B2C customer service experience the decision must be made between outsourcing to a dedicated company or building up an internal service team.

Another example is logistics. When tapping into the world of B2C, the rules are different compared to the B2B market. Topics like next day delivery do not play a strong role in B2B but are considered hygiene factors in B2C. Having a B2B warehouse handling pallets of products is not suitable for B2C logistics, where employees in logistics are picking goods for each individual order – most likely not a full pallett. Those two examples show how companies must deal with several decisions concerning each part of the value creation.

– Define the value proposition and excite consumers – Intertwine the e-commerce building blocks with the defined USP – Full control of the data First, a proper definition of the value proposition is needed. Why should customers buy directly from a company and not via retail? The value proposition could be a special assortment (e.g. Ricola Care Packages), a special service with personalized products (e.g. adidas or Nike) or a different business model such as a subscription model. Just another “me too” D2C approach will not be successful. Understanding what consumers expect is the starting point. The goal is to find a spot in the unexpected zone of consumers or even hit them in the wow-zone which is outside of the expectation range of consumers in our industry.7 Based on that USP, a business model and a go-to-market strategy can be elaborated.

Data and direct consumer feedback are drivers of the D2C trend. A company’s organization and its IT systems need to be prepared for such change.

Controlling data is the key challenge. A useful and future proof setup of the CRM is fundamental. But it is not only about the ability to capture data like consumer feedback, storing sales data and consumer data. The company needs to excel at exploiting data to generate valuable insights.

Therefore, the right employees are needed to translate data into learnings. On the other side, the organization’s obligation is to take measures from newly generated insights. Besides of establishing processes to respond quickly to consumer feedback, an adjustment of a current product or a feedback loop into the current New Product Development (NPD) process is needed.

A key challenge is to align the building blocks of the e-commerce value chain with the previously defined value proposition. An example could be the customer service. If customer service is defined as a key component of value creation, the D2C strategy should aim for providing an excellent

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Read more about our customer expectation framework: https://diconium.com/de/news/customer-expectation-framework, [26.04.2020].

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Putting it in order While D2C is not a new concept, it has gathered much more attention in the recent weeks and months due to several large corporations swaying towards D2C solutions within their sales channel selection. Some large enterprises have already implemented D2C into their daily business, while others completely neglected it before and then again there are (especially newly rising) companies that have focused solely on D2C as their way of selling.

The illustration below displays several examples of companies going the D2C route. Some quicker than others, some more involved than others. Yet, it shows rather easily the distinctions between the listed companies on a very fundamental level: whether D2C is the only (pure D2C) or an additional sales channel to the retail partner (plus D2C); and whether the regular assortment is offered or if there is a special or even personalized assortment available.

“Understanders“

“All-Rounders“

Special/ personalized Assortment

“Tippy Toers“

“E-Commerce-Enthusiasts”

Regular Assortment

“Omnichannel-Hunters”

“Circumstancial Adjusters“

Pure D2C

Corona-related D2C implementation

Plus D2C

D2C already prior to Corona

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Contact Mai Vu associate management consultant mai.vu@diconium.com +49 151 19650976 diconium strategy GmbH Rommelstraße 1 70376 Stuttgart www.diconium.com Andreas Hell senior management consultant andreas.hell@diconium.com +49 711 2992 0 diconium strategy GmbH Rommelstraße 1 70376 Stuttgart www.diconium.com Kai Wershofen associate management consultant kai.wershofen@diconium.com +49 172 7369 756 diconium GmbH Mollstraße 1 10178 Berlin www.diconium.com

... and Verena Simon | Master Student

About diconium Since 1995, we have supported industry leaders such as VW, Mercedes-Benz, Bosch, Allianz, Kodak Moments and Sick in exploiting the potential of digital transformation and offering millions of customers extraordinary experiences. As a strong partner, we accompany companies through the entire digitization process: from Innovation & Strategy, UX, Data & AI, Commerce and Technology to Building of Digital Units.

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