Article by Jan Horlings, Business Consultant at Osudio.
The ‘direct-to-consumer’ (D2C) trend is taking the retail world by storm. Thanks to the successes of disruptive companies like Dell, Apple, Amazon, Nike and Tesla, also FMCG companies are becoming enamored with cutting out the middle-man. The highlight so far has been the 1 billion dollar acquisition by Unilever of Dollar Shave Club, a D2C start-up that is going after Gillette sharply. But acquisition is not the only solution. The question that remains is: How do you point your entire range of brands towards the consumer and optimize revenue?
It’s the Age of the Customer, and with it, comes the next generation of commerce. According to a recent study by WFA, consumers would not care if 74% of today’s brands would disappear tomorrow. It’s all about connecting. That’s why new start-up brands forego traditional retail channels: they focus completely on connecting directly with the consumer online. With an unwavering customer focus, the building of meaningful online relationships, continuous innovation and often better pricing, these start-ups are taking on the monopolistic brands. Because after all, the global online FMCG sales are expected to hit the 130 billion dollar mark by 2025, and the current FMCG leaders seem slow to respond.
What’s keeping the FMCG leaders from D2C?
To be successful with D2C, there needs to be a clear consumer value proposition that identifies and solves a clear consumer problem. Putting your whole product portfolio online is not enough. Customers of today chose higher-quality goods, lower price, greater convenience and a far superior shopping experience. While new D2C brands are working hard to build these propositions, the big players are stuck in their domination. That’s for several reasons: legacy systems, hard-earned shelf-space, marketing strategies that are often old fashioned and a reduced ability to innovate and form direct relationships with customers.
FMCG companies are also finding how difficult it is to beat the economies of scale of a retailer in terms of logistics, fulfillment and consumer attention. In contrast, their myriad of brands are often hosted on complete different platforms that fail to bring consumer data and insights together.
Think Big, Start Small, Scale Fast
The battle for the consumer is waged with data. Because with customer data, you steadily improve your proposition and the customer experience, and thus strengthen the relationship. FMCG companies have a lot of consumer data already, often locked in legacy. The first problem to tackle is legacy, and with swift solutions like code transformation, this is a no-brainer. You can transform data stored in silos and make it accessible and actionable with help of a business intelligence (BI) system. You can use this date to analyze the current situation and come up with improvement strategies.
The second step is to rethink your e-commerce strategy. Starting with e-commerce was relatively easy with a good product assortment and enough resources. But now, a large part of the low hanging fruit has already been harvested. You’ll need to scale up in both quantity and quality: improve the customer experience by increasing customer data and creating more structure.
Scale in Both Volume and Quality
This model shows two variables to consider:
- Scaling the business horizontally: Focus on quantity. Do more: more products, more customers, more countries, more orders and make more revenue. Doing more in a smart way means focusing on your tools and processes. To do this adequately, you‘ll need a good basis of data and governance forming a stable structure.
- Scaling the business vertically: Here you focus on quality. Each time one of your competitors is raising the bar, your customer’s expectations increase. You have to do things better, because just doing more is not enough. Be obsessed about the customer experience. You mainly need flexibility, so you can embrace continuous change and apply design thinking.
Scaling horizontally: Go for More Structure and Data
More products, more countries, more customers, more orders. But this also means: more products to onboard, more photographs and video’s to be taken, more stock, more service requests and more product returns. Depending on your situation, you‘ll also require more warehouses and more e-commerce teams. What does this mean for your e-commerce organization? How can you grow fast and sustainably, without losing control?
The key to horizontal scaling is structure. A clear and consistent structure enables you to plan, execute and report. Structure enables you to better adapt to new situations such as rollouts of new assortment or new channels. Structure is the solid basis that will enable you to react promptly and organized to new challenges. Structure translates to three important dimensions:
- Clean, complete, consolidated data: product data and customer data;
- Clear documented processes. That will protect the quality of your data when you scale up or change your teams;
- Tools that support this structure of data and processes in the core (by workflows, data model and architecture).
For an e-commerce organization, the main platforms that form the core of your business structure are:
- PIM: your product data management platform;
- CRM: your customer data management platform;
- Your e-commerce platform consisting of: pricing and promotions, transactions, order management;
- The Analytics or Business Intelligence platform.
With these four pillars solid in place, you will be able to feed your web frontends, your logistical service providers and your customer service with quality data. The better and more consistent the data is, the better you will be able to scale up in quantity while meeting your customer’s expectations.
Scaling vertically: Always Improve
Vertical scaling correlates with meeting or exceeding the customer’s expectations. This should be the core job of every online marketer and e-commerce manager, but in practice, it is not uncommon for a marketer to be focused on the next big thing. This could be conversion attribution, checkout improvement, implementing a DMP for merchandizing and personalization, etc. But one thing alone won’t solve all your problems. The market is simply too competitive. Whatever you are improving, some of your competitors will do the same or are already ahead. Therefore, the best solution is continuous improvement.
Week after week, make an effort to improve the weakest link. You will need your resources (tools, budget and people) to be able to react to changes and to continuously experiment for better ways of doing things. This requires flexibility, close collaboration across different departments and specialisms, and the ability to work on incrementally improving the results. And on top of it all: you’ll need to start obsessing over your customers and their experiences.
Increase Customer Experience with CEM and a Five-Day Design Sprint, for both vertical and horizontal scaling
Going D2C is all about getting to know and appeal to your customers directly. The shift many successful companies made, is to change from being transaction-focused to become customer-focused. That means figuring out what customers want and how they experience the value that you bring, across all touchpoints. Customer Experience Mapping (CEM) does exactly that: it maps the emotional, rational and transactional elements of the contacts between the customers and your organization. Specifically, you’ll look at actions, motivations, questions and barriers. Doing this, will help you design an improved customer experience. But that’s just the start.
Whatever service or product you come up with, it’s imperative you show it to your actual customers. Especially in big companies, employees tend to look inwards and only consider the feedback of their peers. Instead, make a prototype, Get out the building and talk directly to your customers. Would this product work for you? What do you think? According to The Design Sprint as proposed by Google Ventures, you can do this in less than a week. This approach, as used by companies like Slack and Nest, is a five-day process for answering critical business questions through design, prototyping and testing ideas with customers.
Choose the Right Platform to Launch Your D2C Success
D2C presents a huge opportunity and a threat to FMCG companies. To keep up with the new players and stay dominant, scaling is key. Next to fixing legacy, choosing a flexible e-commerce solution that connects all your different brands with easy management and data warehousing is key. Changing your portfolio and adding a new brand should be effortless. A solution not only for collecting consumer data, but also to utilize this data for the personalization and continuous improvement of your proposition. Because while design sprint is a perfect tool for getting quick feedback on your offering, that’s only part of the puzzle. You’ll need the structure to capture every piece of feedback in each point of contact and be able to actually deliver your customer value. In other words, you need to structure in order to facilitate agility. Having a good (backend) structure in place enables you 1) to spend your resources on the customer instead of internal processes and 2) supports frontend improvements faster, with more stability and at a lower cost.
Need help with capturing the opportunities of D2C? Contact one of Osudio’s experts for an informal conversation.
- Ask Jan
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