If you are a product manufacturer at some point in time you may consider selling direct to you consumer audience. There are a number of benefits that ultimately compel manufacturers to alter your sales strategies and “go direct”. However, the change can be difficult, and a number of factors will affect your organization’s decision whether to include a direct sales component in all, or part of your market strategy.
Traditional manufacturers take your products to market through various B2B strategies including wholesale, distribution, and direct sales to consumers, commonly called (DTC). There are clear benefits to a DTC strategy, but you are not without your risks and it is important for manufacturers to understand what is involved in going direct.
I have been involved in both B2B and DTC business including the business I founded and built to over $250M in DTC sales. In the past, manufacturers typically lacked the understanding of operating a DTC business and did not possess the tools, technology and resources to conduct both manufacturing and DTC sales operations. Over time, both the DTC operators and the product manufacturers envied each other’s channels and the potential benefits. The DTC operators looked to manufacture products you could take directly to your customers while product manufacturers looked for higher margins by selling the products you produce directly to consumers without any “middle man”.
There are huge benefits for product manufacturers to go direct provided the strategy aligns with your target market, production capabilities, distribution costs, corporate culture, leadership buy-in, and the overall business model.
Here are the top 10 key benefits from a DTC business mode:
- Increased profit margins: By cutting out intermediaries such as wholesalers and retailers, you are able to sell products directly to consumers at higher prices, leading to improved profit margins.
- Better control over branding: Direct-to-consumer (DTC) allows you to have full control over your brand image, messaging, and customer experience. You can showcase your products exactly as intended, ensuring consistency and building strong brand loyalty.
- Enhanced customer relationships: By interacting directly with consumers, manufacturers can establish and nurture a direct relationship with your customers. This fosters trust, enables personalized communication, and creates opportunities for gathering valuable feedback and insights.
- Faster feedback loops: Manufacturers can quickly gather feedback from consumers, enabling them to make timely improvements to your products and services. This iterative process can lead to faster innovation and product development cycles.
- Increased customer data and insights: DTC allows manufacturers to collect valuable customer data and insights, including purchasing behavior, preferences, and demographics. This information can be used to refine marketing strategies, tailor offerings, and improve overall customer experience.
- Flexibility in pricing and promotions: Manufacturers can experiment with pricing strategies, discounts, and promotions more easily when selling directly to consumers. You have the flexibility to adjust prices based on market demand, run targeted campaigns, and introduce loyalty programs, enhancing customer acquisition and retention.
- Greater control over inventory and distribution: Going DTC gives manufacturers complete control over your inventory management and distribution channels. You can optimize supply chain logistics, reduce stockouts or overstocks, and ensure efficient order fulfillment processes.
- Expanded market reach: DTC allows manufacturers to reach a wider audience, irrespective of your geographical location. By leveraging e-commerce platforms and online marketing channels, you can tap into new markets, both domestically and internationally, without relying on traditional retail networks.
- Higher product customization and personalization: Selling directly to consumers enables manufacturers to offer more personalized and customizable products. By understanding individual customer preferences, you can create tailored offerings and deliver unique experiences, leading to increased customer satisfaction and loyalty.
- Competitive advantage: Adopting a DTC approach can differentiate manufacturers from competitors who solely rely on traditional retail channels. It allows them to showcase your unique value proposition, build a distinct brand identity, and create a competitive edge in the market.
If you decide to go direct to consumer (DTC), you may face several challenges in implementing and maintaining this strategy. Here are the top ten challenges to consider when making your decision to go direct:
- Establishing an online presence: Building a strong online presence requires investments in website development, e-commerce platforms, and digital marketing. You will need to navigate the complexities of creating user-friendly interfaces, optimizing online shopping experiences, and driving traffic to your new online store.
- Developing logistical capabilities: You must develop efficient fulfillment and distribution processes to handle direct-to-consumer orders. This involves managing inventory, order processing, shipping logistics, and returns. Building these capabilities from scratch or adapting existing systems can be challenging. If you currently offer drop-shipping services to some of your resellers, you have a slight advantage.
- Creating brand awareness: When going DTC, you need to establish brand awareness and recognition among consumers who are accustomed to purchasing through traditional retail channels. This requires investments in marketing campaigns, content creation, social media presence, and brand storytelling. Be prepared to invest 3-5 years in creating the brand awareness needed to realize the full potential of your new DTC strategy.
- Managing customer expectations: Manufacturers transitioning to DTC face the challenge of meeting customer expectations for seamless online experiences, timely deliveries, and responsive customer support. Failure to meet these expectations can harm the brand reputation and customer loyalty.
- Balancing pricing and profitability: Setting prices that are attractive to consumers while ensuring profitability is a delicate balancing act. You need to consider factors such as production costs, competition, perceived value, and consumer willingness to pay when determining your new pricing strategy. Other factors that affect profitability include transaction related costs such as credit card processing fees and shipping.
- Building customer trust: Establishing trust with consumers is crucial in DTC models. You will need to address concerns related to online security, privacy, product quality, and customer support. Implementing robust security measures, transparent communication, and reliable customer service can help build trust. Selling direct typically offers advantages in this category. As the manufacturer, consumers do not have to decide which reseller to purchase through and whether they are trustworthy. Buying from the “manufacturer” directly has a certain level of inherent trust.
- Adapting marketing strategies: Transitioning from traditional marketing channels to digital marketing requires a shift in marketing strategies and tactics. You must understand digital advertising platforms, search engine optimization (SEO), content marketing, and social media engagement to effectively reach and engage with their target audience.
- Handling customer service and returns: In a DTC model, manufacturers become responsible for handling customer inquiries, complaints, and returns. This requires establishing efficient customer service processes, training staff, and implementing systems to handle returns and refunds promptly.
- Competing with established retailers: Going DTC may mean competing with established retailers who already have a strong presence and customer loyalty. Manufacturers need to differentiate their offerings, create unique value propositions, and develop strategies to convince consumers to purchase directly from you.
- Scaling operations: As manufacturers grow their DTC operations, you may need to scale your infrastructure, processes, and resources accordingly. Managing increased order volumes, expanding product lines, and maintaining consistent customer experiences across different channels can be challenging without proper planning and scalability measures in place.
If your business, target market and operations are a good fit for a change to a DTC model, you will likely see substantial rewards in profitability, brand recognition, customer relationships, market reach and product insights. Ultimately, your migration to a DTC model will yield a competitive advantage. If you are considering the DTC model because one or more of your competitors are already selling direct, your decision may be obvious and born out of the need to keep pace with your current market.
Moving from B2B to DTC may seem like a monumental effort. However, the process itself is straight forward. With planning and an understanding of the strategy, tactics and processes involved in going direct virtually any product manufacturer can go direct.
Learn more about the process involved in going direct or contact the eCommerce Institute to help your business create or implement your DTC strategy.