More and more manufacturers are taking the initiative to offer their products directly to end customers. Consumer behavior shaped by digital and social media has strongly promoted the development of Direct-to-Consumer and was even accelerated by the Corona pandemic. Due to government-ordered store closures in the lockdown and the associated elimination of stationary distribution channels, manufacturers were forced to immediately rethink their previous distribution strategies and establish new distribution channels with direct customer contact in a short period of time.
Direct-to-consumer can be implemented in different ways by manufacturers. Online marketplaces and platforms such as Amazon and eBay offer product listings and direct sales to end customers. Alternatively, manufacturers can operate their own online shop or use social media platforms such as Instagram to offer products in the context of Social Commerce. Numerous start-ups pursue a pure Direct-to-Consumer approach and can demonstrate considerable growth, making them attractive acquisition targets.
Despite its current popularity, Direct-to-Consumer is not a recent phenomenon but has been around for decades. The business model of brands like Vorwerk and Tupperware is entirely based on pure Direct-to-Consumer sales. What is new, however, is that the E-Commerce sales channel is taking precedence and there is a shift from offline advertisers to social media influencers. The brands Peloton, Tesla, Mermaid + Me or everdrop are just a few examples that handle their sales exclusively online and have established a direct connection to the customer.
Figure 1: On the timelessness of Direct-to-Consumer Brands
Many Direct-to-Consumer brands have emerged from the vision of the founders to create a more sustainable product and thus achieve more fairness and safety for people and the environment. However, Direct-to-Consumer brands do not only emerge from start-ups; established manufacturers are also considering building-up a Direct-to-Consumer brand or acquiring existing ones. The aim is to bypass the multi-level distribution system with distributors and establish direct contact with end customers.
The consumer goods manufacturer Henkel has recognized the attractiveness of Direct-to-Consumer brands and secured a majority stake in the Berlin company Invincible Brands Holding in 2020, which includes the fast-growing Direct-to-Consumer brands from the premium beauty segment HelloBody, Banana Beauty and Mermaid + Me. With more than 1.5 million active customers, Henkel wants to strengthen its digital positioning and expand direct customer contact. At the end of 2020, the food company Nestlé also acquired the British cooking box start-up Mindful Chef and the US ready-meals start-up freshly – both pure Direct-to-Consumer brands with a large customer base.
Regardless of the specific goals pursued by building or acquiring a Direct-to-Consumer brand, the following requirements must be met for a successful Direct-to-Consumer strategy:
- Product Differentiation: Products must strongly differentiate themselves from competitors and independently generate end-user pull, as there are no distributors or retailers involved to do this.
- Direct-to-Consumer Delivery: Manufacturers must be able to deliver products directly to the end consumer or work with partners who can provide this service.
- After Sales Service: The shift towards Direct-to-Consumer puts manufacturers in touch with customers who may need after sales services.
- Rapid Product Development: The Direct-to-Consumer environment is known for its dynamic and fierce competition. Rapid product development and go-to-market is essential to be competitive with other vendors.
- Creating User Experience: Manufacturers are now responsible for the entire customer journey and must create a clear and excellent customer journey and customer experience.
- Business Intelligence System: Direct-to-Consumer collects a lot of customer data that needs to be analyzed and processed. Therefore, the integration of a business intelligence system is essential.
Figure 2: Prerequisites for establishing a Direct-to-Consumer strategy
Awareness and engagement with the topic of Direct-to-Consumer strategy began at the latest with the acquisitions of Flaschenpost.de by Dr. Oetker and Invincible Brands by Henkel. For sustainable success in establishing a direct-to-consumer brand, a systematic strategy is required that should answer the following questions:
- Market potential & trend analysis: What is the sales potential of the brand and products to be established? Which trends and which zeitgeist exist so that the brand and the products can be aligned with them?
- Environment analysis & USP definition: Which competitors are active and how are they positioned in E-Commerce? What distinguishes the competitors and what are the unique selling points of the own brand or the own products?
- Definition of a technology landscape: Which IT systems are required for the successful implementation of a Direct-to-Consumer strategy and which components already exist to create synergies?
- Develop a marketing strategy: Which online marketing channels should be selected to achieve the highest possible return on investment?
- Development of a logistics strategy: Which logistics options can be considered, and which should be chosen to meet the special needs of direct-to-consumer and to be able to supply customers optimally?
- Organization & Governance Design: How should roles and responsibilities be distributed and created within one’s organization to work efficiently and effectively?
- Business plan based Direct-to-Consumer strategy: What are the benefits and costs of building a Direct-to-Consumer brand and is it profitable?
Figure 3: Direct-to-Consumer Strategy Framework
More details on the Direct-to-Consumer Strategy Framework can be found here:Landing Page: Direct-to-Consumer (D2C)
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Markus Fost, MBA, is an expert in e-commerce, online business models and digital transformation, with broad experience in the fields of strategy, organisation, corporate finance and operational restructuring.Learn more