The enormous expansion of e-commerce over the last five to ten years has established its importance as a crucial asset for businesses adapting to an increasingly digital world. COVID-19 emphasised this point: e-commerce was critical in surviving the pandemic’s obstacles and will continue to be so in the new normal. Due to the restrictions of in-store purchasing, many customer segments that were previously sceptical of online shopping were obliged to give it a try in 2020, and many haven’t looked back. Direct-to-consumer capabilities are well-positioned to capitalise on this trend, but many businesses face significant barriers to D2C.
Direct-to-consumer (D2C) e-commerce offers innovative brands the potential to develop direct interactions with their customers. The term “direct to consumer” refers to the practice of selling a product directly to the consumer via a company’s website, bypassing third-party merchants or distributors. For businesses, developing direct-to-consumer e-commerce capabilities it enables them to communicate directly with end-users, guiding brand strategy and innovation based on real-time consumer information.
These insights can assist a business in directly responding to consumer requirements, thereby increasing both consumer devotion to the brand and lifetime value. D2C can operate as a defensive strategy in the long run and provides a potential for rapid share gain: it reduces the company’s reliance on e-giants like Amazon and Rakuten, and it presents an opportunity to acquire a larger share of the increasing online market.
Numerous enterprises are attempting to expand their direct-to-consumer businesses, with varying degrees of success. Leaders in this space have established D2C as a critical component of their organisation, not only as a growth platform. Others, even though they are seeing some growth in this new channel, are having a hard time shifting their focus to D2C due to how much money is still made through traditional, indirect routes.
Building a D2C business may be easier for some organisations due to their direct selling experience and the desirability of their brand and category for direct sales. Regardless of how big or small your business is, you can use D2C e-commerce. You can do this by learning new skills or getting access to tools like marketplaces, ready-to-use platforms, and software as a service that make it easier for you to get into the online world.
This article focuses on the management shifts required for any company trying to move from existing D2C to “breakthrough” D2C—by which we mean moving away from consistent double-digit growth on a small base to 2–3x the growth, or from say $100 million to over $1 billion in revenue.
To do so, it is crucial to understand why some businesses can use and grow D2C e-commerce to become an important part of their operations, while others see little growth. Companies like Nike and Lenovo are well-known leaders in D2C e-commerce like this. We look at industries where D2C e-commerce can help build brand affinity and where people are more likely to shop for these things online. Consumer electronics, luxury goods, fashion, and clothing are some examples.
Our review of leading D2C companies found that factors for success or failure can be categorised by three core elements: top leadership commitment, customer-centricity, and digital talent. Within these, we identified three “individual” and three “overlapping” factors that collectively determine whether companies manage to implement and grow D2C e-commerce.
Inadequate prioritisation of D2C by senior leadership frequently results in D2C being treated as an afterthought, especially if management is pursuing an excessive number of strategic objectives. Lack of priority for D2C in comparison to other areas tends to stymie “breakthrough” decisions and can aggravate the other issues impeding achievement.
Brands can make the error of attempting to execute a slew of fragmented D2C concepts and solutions, such as using the D2C platform for both brand-building and sales growth in a nonintegrated, totally separate fashion. As a result, new initiatives and investments are justified progressively in the traditional business-planning process, resulting in slow progress and limiting buy-in for faster and greater investment, creating a vicious, self-perpetuating loop.
D2C teams are frequently developed organically inside organisations, with leaders in their mid-to-late careers migrating into D2C and e-commerce responsibilities. These leaders often lack the expertise to build the new type of business required for effective D2C, which necessitates disruptive and innovative thinking fit for the fast-paced digital world, such as testing and learning new data-driven ways of working. Leaders who lack specific D2C and digital talent may struggle to adapt and may be unable to unlearn certain ingrained organisational behaviours. This is true across functions like marketing, merchandising, supply planning, information technology, and product development.
Existing channels must frequently be disturbed to grow a new channel. Fear of offending channel partners (such as retailers) can become an impediment to D2C e-commerce growth, when new items or promotions are delayed or “watered down” to appease established channels, such as retail and eMarketplaces. Misalignment can also occur as a result of variances in marketing messages across different communication channels, which are controlled by teams responsible for distinct channels and customer groups. Finally, if supply is limited, problems emerge as to which channels receive stock allocations and which must disappoint customers.
D2C teams usually have little or no incentive to prioritise consumer-centricity and journey thinking, which are generally seen as the realm of other teams. Instead, the widespread belief is that D2C is “merely a route to sell” and will be profit-driven. Furthermore, D2C often lacks control over product or brand development, making long-term consumer value generation difficult to prioritise. Another prominent example is supply chain management, which has lately emerged as a competitive advantage for e-commerce. Online “pure-plays” and major multi-category retailers are setting the standard for operations-enabled customer experience characteristics like delivery times (“Same Day” and “Next Day”), product personalization, and simple returns. Developing a competitive supply chain and operations function for e-commerce will need a different approach than serving current retail customers (B2B2C). It comes at a price, necessitates cross-functional collaboration, and oversees partnerships with logistics contractors. The cross-functional dynamics and amounts of investment required typically dampen the ambition to establish a world-class customer experience on the D2C platform and may hamper long-term growth.
Growth in D2C e-commerce may be impeded by a reluctance to take advantage of the considerably broader set of product choices that e-commerce enables, particularly given the direct-customer interactions that D2C may provide. This broader set of options can be capitalised on through in-house product creation, white labelling, or even third-party products (3P) and marketplaces.
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