This is the second part of our overview of the D2C sector of e-commerce. D2C e-commerce success requires six essential management shifts. Although these negative characteristics are ubiquitous in many firms and can be difficult to combat, our investigation has highlighted six management shifts that are required to counter them, promote excellence in the areas critical to expanding D2C, and allow companies to realise the rewards of robust D2C growth. We propose realistic approaches to execute these changes.
Management shifts were identified based on areas where leading omnichannel brands succeed, enabling them to achieve breakthrough D2C e-commerce growth and elevate their brands from excellent to outstanding.
To succeed in D2C senior management must be committed to prioritising it. First, the strategic role and goals of D2C need to be clarified. The strategic overview is to evaluate which customers are best served by D2C and which are better served by other channels. Then set clear rules for the value proposition that needs to be designed and delivered.
The CEO, the board, and the entire executive team’s duty is to design the details and support the organisation’s D2C e-commerce strategy and aspirations, then transform them into actual KPIs across various organisational departments. E-commerce requires tremendous cross-functional and cross-channel teamwork, as well as brave decision-making, to achieve breakthroughs and satisfy the extraordinarily high standards clients expect from an online firm today. These requirements can only be fulfilled if the CEO and the board completely support the strategy and its KPIs.
Shareholders will increasingly demand e-commerce outcomes from publicly traded corporations, since businesses with direct interactions with their customers dramatically boost value, for example, through subscription models. 2 From January 1, 2012, to June 30, 2020, subscription businesses gained revenue approximately six times faster than the S&P 500. Additionally, evidence for shareholders demonstrating the value of a great e-commerce firm is the fact that companies who have effectively switched investor views toward “tech” or “online” success have achieved much higher multiples. For instance, consider retail, where the Top 25 have amassed a sizable percentage of total wealth generation. 3 Non-public enterprises may even be better placed to leverage huge investments to achieve success in direct-to-consumer e-commerce.
A successful e-commerce business must have the required resources and technology to operate at scale. Hiring talent and establishing a new technology infrastructure necessitate significant changes for any organisation, and doing so while concurrently managing a “breakthrough” e-commerce firm inevitably increases complexity and risk. It is essential to plan ahead of time and provide the necessary resources, including people and technology, to a greater extent than usual.
Adopting a “Y+1” investment rationale would be a viable strategy to handle this reallocation of resources. The “Y+1” idea necessitates modifying resources and investment in advance of growth, with allocation rules calculating the percentage of investment with predicted revenue achieved a quarter or a year in the future as an input. Although this method would result in an over-allocation of investment in D2C e-commerce relative to other areas of the business, it would assist the company in moving from “being behind” to “being ahead”.
To maximise growth and profits, investment decisions should be made with an “external investor mentality”. External investors, who are looking for long-term returns, often place a premium on growth above margins. With the consumer shift to eCommerce anticipated to continue, businesses should invest ahead of the curve to guarantee they get more than their fair share of that burgeoning channel.
The remaining issue is how to prioritise and deploy investments. One way to analyse digital financing is to look at the cash flows they are expected to generate, taking into account both “do nothing” or base-case scenarios and the strategy’s ultimate objectives. For e-commerce, “doing nothing” may not imply a net-zero change, but rather a continuous (or accelerated) depreciation of value, particularly in light of post-COVID-19 trends. This investment logic is evident in banks, which have invested substantially in mobile banking apps and digital platforms in recent years to maintain and increase market dominance.
Another option to remain ahead of the curve is to view these investments as strategic imperatives and accept a longer-term return, similar to how IT CAPEX investments are realised. Whichever strategy is employed, executive teams can devise novel ways to determine the appropriate premium to place on e-commerce resources, investment, and strategic decisions to maximise the efficacy of their investment in e-commerce capability growth.
Successful e-commerce companies have implemented scalable CX solutions, from mobile and online experience design to flexible pick-up and delivery choices and driving personalisation through predictive models. Predictive models allow businesses to identify their customers’ needs and likely behaviours at scale. This includes their expectations of the platform and service levels and what would change their mind and prevent them from making a purchase or, better yet, registering themselves as a (loyal) customer.
Above all, CX and UX decisions should be influenced by a thorough and scientific understanding of customers and their demands in terms of experience, delivery, service, and product (a “360-degree view”). Historically, surveys were the primary source of this type of information. Executives are increasingly conscious that survey-based measurement techniques fall short of their firms’ CX objectives. Because of the proliferation of digital channels, businesses may supplement survey-based insights with real-time, customer-level data that is quickly accessible and analysed. Furthermore, the rise of predictive analytics has sped up the process of turning data into action.
A comprehensive set of customer journeys must be analysed, produced, and optimised based on data to deliver value to customers. This method should use technology to provide an integrated customer proposition to be delivered profitably. This is where scalability comes back into play. As predictive analytics allows for scalable insights, technology allows for scalable actions across platforms and supply chain solutions. Design, content, and marketing all contribute to CX. Because of technology, each of these levers can operate for millions of clients.
Finally, to ensure that the customer experience is delivered effectively, it should become a primary component of a company’s everyday operations. As such, it should be at the heart of performance conversations, incentive systems, and day-to-day discussions.
The last factor promoting D2C e-commerce growth is related to customer experience. An e-commerce channel must rely on a core of consumers because keeping a client costs up to five times less than obtaining a new one. Furthermore, increasing client retention rates by just 5% can assist in raising earnings by 25–95%.
We have identified three ways to drive recurring, long-term relationships with customers:
Subscription businesses can provide consumers with value, convenience, and individualised services while promoting stability and growth. A successful subscription model must adhere to four imperatives:
When implemented correctly a subscription model may be an extremely successful instrument for establishing a long-term relationship.
If a subscription is not the best solution for a brand’s value proposition, loyalty programmes are an option. However, the number of loyalty programmes has exploded. Contrary to expectations, this has not increased customer involvement but forced consumers to be more astute about which programmes they use. There are five billion loyalty programmes in the United States alone, but 55% of participants do not use the benefits. When done correctly, loyalty programmes give extensive value; members of top-performing programmes are 81% more likely to choose that brand over competitors. They are also twice as likely to increase their buying frequency. Success is accomplished by providing the correct advantages rather than fees, having a wide range of experience, and maintaining high levels of engagement.
Starting brand communities is a final option for long-term client retention. While building a community may sound appealing on paper, it is a challenging idea to master and may drain resources because the first client base is limited, and the brand must build content as well as the online experience.
Furthermore, it may not be an appropriate solution for all types of businesses. It’s critical to determine whether the company’s brand(s) fall into one of four distinct “community” categories: directive, transactional, conversational, or experiential.
If communities are viable for a brand, their feasibility is evaluated by a combination of the company’s strengths in brand recognition, personalization, purchase frequency, cooperation potential, content affinity, and capacity to deliver activities.
These proposed management changes show strategies to overcome the hurdles of implementing D2C e-commerce and chart a roadmap for enterprises wanting to realise the benefits of this rapidly growing and innovative sector. Making such adjustments comes at a cost, but the benefits might be significant.
E-commerce has demonstrated that it will continue to develop (D2C). It is a significant area in which businesses may adjust their relationship with e-commerce to maximise its benefits, ensuring that they remain competitive in a more connected and online world. To avoid falling behind, D2C should be placed on the leadership agenda—and the most effective method to do so is to define the value at stake and the chance to improve across our D2C management shifts for your firm.
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