#38-D2C Platforms - Why Direct access, Data ownership, and Digital Community matter?
Between the twin choices of traditional retail-based supply chain network and e-commerce led distribution a window of opportunity exists to build- DIRECT TO CUSTOMER. (D2C) platforms.
Perhaps the only real competition that Ecommerce companies will truly face, will be from D2C brands of big consumer, fashion, and retail brands-
Traditional retail supply chains are unpredictable and carry a lot of pain points when it comes to — inventory management, getting data on end-consumer preferences, and own the customer relationships.
E-commerce platforms while they ensure better inventory and seller dashboard systems, they create dependencies. They own access to customers and also can promote a particular brand over another.
Online platforms are no different that a supermarket chain where the ‘best shelf space’ is reserved for favorite brands.
Lets deep dive further:
Why D2C platforms matter a lot for consumers, Fashion, Retail Industries a lot?
There are many strategic reasons to build a D2C platform, but the most important ones are as follows:
- Direct access to consumer/userbase- Owning the end consumer in the age of big-tech and platforms is the best thing a business can do. Build a digital community centered around your product and then offer a superior customer experience to them. D2C platforms are the only way for big brands to own the end consumers.
- Data analytics- While the big tech and e-commerce companies may share data with the seller- a sizable chunk of data stays with them. D2C platforms enable the brand to harness customer data to personalize offerings. Personalization is the key to induce bigger and frequent transactions. This results in a higher ‘Share of Wallet’ for the brand.
- Higher margins- Ecommerce companies charge a good commission just like the traditional retail channel intermediaries. D2C platforms enable a brand to send something directly from the factory to the customer's house. This results in higher margins as mostly the expense is marketing and delivery.
- Better operations and forecasting models- D2C platforms generate consumer data as well as operations data that can help in optimizing the supply chain, inventory management systems.
- Future proof strategy- Retail shopping numbers are falling drastically in the post COVID world. E-commerce companies also charge a margin and even launch their own branded products if the 3rd party products sell well on their platforms. Thus to be future-proof it makes a lot of sense to build D2C platforms in parallel.
How to Win in D2C platform play?
It is difficult to compete with well-established e-commerce players, but it is not impossible to outsmart them
Identify the category that is best suited for Direct to Consumer (D2C) Platform — There are a lot of categories where a D2C (direct to consumer play is possible)and proven success models exist- Zappos (purchased by Amazon), Casper Mattress, Grooming products, gym products, maternity-related products, Yakult health drinks, office stationery, fashion wear and furniture.
Not all the categories of consumer goods/retail will go D2C, but there are definitely some winners that can be prioritized.
Play on the uniqueness of the brand.
In 2017, Walmart agreed to acquire Bonobos for the sum of $310 million, making it a subsidiary within its fashion department. Bonobos has most of its sales coming from its own online platforms.
Plan the best launch campaign use Social + Content Tailwinds: Dollar shave club hit the nail right on the head with a creative media campaign featuring its founder in 2012. The ad went on to garner over ~27 million views as of Dec 2020 on youtube alone. The company was acquired by Unilever in 2016 for 1 billion USD and now has over 3 million subscribers.
Kylie Cosmetics heavily depends on social media for its marketing. K Jenner has over ~10 million youtube subscribers, 204 million subscribers on Instagram. Kyle cosmetics was sold to Coty for ~600 million dollars (51% stake) in 2019.
Subscription models work best as they are invisible: Subscription kits are the new and most popular CPG business models.
Freshly was acquired by Nestle for 1.5 billion USD. It claims that it ships over 1 million meals each week across ~45+US states, and predicted sales for 2020 to reach $430 million.
Build a personalized view of customers: D2C platforms generate data. Data is the pre-requisite for the personalization of products being sold on the platform. If you know the CTR, Cart abandonment rates, campaign, and code success rate, a brand can rectify and increase the personalization quotient of the offering.
Consumers like to buy if the AI-powered recommendations are sent to them in a non-intrusive way. They do not even mind sharing their data if the trust has been established.
Complementary Partner platforms (non-cannibalizing agreements):
Non-cannibalizing partnerships is an ‘under-leveraged’ play when it comes to D2C platforms. E-commerce companies sell the ‘banner’ space but they cannot play favorites to 3rd party sellers without monetary arrangement.
D2C brand companies on the other hand can partner with each other (API-led integration) if the product and service lines are non-competing with each other. For example, taking a hypothetical situation a GYM gear D2C company can partner with a supplement D2C platform. Offers can be bundled and reward points can be made inter-operable on both the platforms.
SOMETIMES, EVEN OWNING A CONTENT PLATFORM HELPS. J&J baby center is a great D2C platform that sells/endorses a lot of products related to maternity and parental care. J&J owns a digital community via the platform that it purchased for merely ~10 million dollars from eToys
As per J&J’s news release-
In the United States, BABYCENTER® has long been the number one destination for new and expectant parents, reaching 78 percent2 of online pregnant women and mothers of young children. Celebrating its 10th anniversary in 2007, the only Johnson & Johnson media company is now in 12 markets and six languages and reaches more than 6 million3 monthly visitors worldwide.
Build a Digital Community (ideally driven by the highest quality content related to your product line) and leverage influencers- Casper looped in Kylie Jenner to unbox Casper Mattress. Neil Parikh, one of Caspers co-founders, quoted about Jenner’s March 2015 Instagram post that popularized their brand and made it a household name, which garnered more than 870,000 likes. Social commerce is going to be even bigger in a post-COVID 2019 world. K Jenner is also known to have sold over ~15000 shampoo bottles in over 3 minutes over a LIVESTREAMING event.
Logistics Agreements for better delivery experience: There are few pain points that e-commerce companies struggle with especially when it comes to last-mile delivery. If the D2C platforms can solve the delivery-speed and experience via the physical retail network or faster ‘pure shipping” partners then they stand a chance of outsmarting the e-commerce experience.
For example- in Singapore e-commerce products sometimes take 7–15 days to reach the consumer depending upon the seller’s domicile and the product.
Loyalty and reward systems: D2C platforms that offer subscription, and kits are able to engage users in the rewards and loyalty play. Loyalty programs ensure that customers like to repeat orders to consumer the points they are earning.
Develop a Gifting and Referral ecosystem: E-commerce companies have still not been able to capture the gift market in the manner they would like to. Opportunity exists for D2C platforms to launch a ‘gift-ecosystem’ where the customer experience is special compared to a run of the mill e-commerce company wrapped gift.
The online franchise model of the own brands can be executed if the economics and the support provided to the seller is better than what the e-commerce company is offering. This way local presence of the own brand, via approved exclusive seller listing on D2C platforms can be cemented. This will make the company platform resemble an e-commerce platform with decentralized partners yet the exclusive ones.
Genuine products and consumer trust is higher in the case of D2C brands: Customers can blindly trust the products being sold on the D2C platforms owned by the consumer/retail brand.
Counterfeit products from resellers is a big concern that the buyers have. This is the opportunity window that D2C brands can exploit. For example, a lot of supplement users in emerging markets feel that their brands are not genuine. If the companies have a genuine D2C platform or own e-commerce platform then the consumer trust is higher and thus the repeat purchases.
We all know while buying Nike gear, that the shoes and branded products listed on their platforms are genuine.
Best Regards,
Sidhartha Sharma
Digital Platforms and ecosystem expert. He has 14+ years of consulting experience and helps businesses with digital-first strategies
Views are personal
