Why manufacturers should be trading direct online (DTC)

Online sales are growing at four times the rate of any other sales channel so the move to sell online is understandable and hugely beneficial. However, only 45% of manufacturers are selling directly online. Many of them really struggle with the idea of selling directly to their end users via ecommerce due to potential channel conflict. Since their inception, which usually pre-dates the Internet, they have always gone to market via more traditional routes, such as internal sales teams or via third party merchants or resellers.

Selling direct is a big change and one that often doesn’t sit comfortably with them. It effectively means changing their business model whilst trying not to upset the apple cart as it were. However, it really is a matter of time before these changes are almost inevitable, so can they afford not to take this alternative route and lose out on the huge potential benefits of trading directly via DTC ecommerce? Should they refuse to entertain it whilst their competitors steal a march on them? Even the owner of some of the world’s most recognisable consumer products, Unilever, are seeing the benefits of a direct approach with their ecommerce sales growing at twice the market rate [1]. Whilst other multinational brands like Heinz, Nike, Pepsi Co and Nestle are overhauling the way they sell to consumers in order to tap into these opportunities for growth.

Not only that, some new, digitally native manufacturers have completely disrupted the market by adopting a DTC ecommerce approach entirely. For example, the likes of Eve Sleep, Simba, Casper, and Emma have completely changed the way people buy mattresses by selling directly to the end user online. Other manufacturers like graze have started with a DTC ecommerce channel and, as a result of their success, expanded into other more traditional routes to market.

The age old maxim says ‘if it ain’t broke, don’t fix it’ so in theory it makes it even more difficult if the business is successful, profitable and growing – but coming from a position of strength merely provides further incentive for exploring opportunities for growth. Besides, in an ideal world, this new direct channel can work in harmony with their existing routes to market and, if handled correctly, benefits all parties. Here's just some of the benefits of DTC ecommerce:

Most resellers will only offer their customers a limited selection of a manufacturer’s products, and rarely the entire range. This becomes even more likely the larger the product range is, the more it grows, or the more niche it is. They may also not stock every size or variation of those that they do stock, or buy in such small quantities that they sell out quickly meaning shelves are left bare - neither situation is ideal.

By offering their end users the complete range of every product available, in every variation (size, colour, trim, flavour, style), they are far less likely to buy something from a competitor. Not only that, they may even find products they sell that they didn’t know existed and buy those too! If they were looking for one of their products from a reseller who didn’t have exactly the right size/colour/item, they may purchase a competitor’s product from that reseller instead, particularly if that competitor had occupied the prime shelving or website real estate.

Finally, by offering their entire range, they can include legacy/discontinued items long after their resellers have removed them from their shelves. There’s also any spares and accessories that their users may want for their existing products to consider - many resellers won’t stock those either.

Without selling directly to the end user it is very difficult to shape their thinking, influence their purchasing decisions, and understand what motivates them. By dealing directly with them, manufacturers get a much clearer view of who they are, what they want and don't want, how best to engage with them, and what they expect from their brand and its products. This also helps the manufacturer pitch their products and services at exactly the right level to match their customer's requirements.

The data they can collect on their website has great value. They get a first-hand view of exactly what their customers are buying, when they buy it, what they search for, what they interact with etc… It will help them get a direct idea of what sells well, what doesn’t, which promotions work best and which don’t, what their users are looking for (and can/can’t find), where their customers come from, how much they spend etc…. This should be absolutely vital in helping shape their business’ direction, research & development, and product strategy. Some of this information can be gleaned from third-parties but is much easier to gauge and measure directly from their own sources.

The recent global pandemic has highlighted the over reliance of some manufacturers on their traditional distribution and retail channels & partners. If they are unable to operate, the knock-on effect is catastrophic. Being able to sell direct to their end users mitigates some of those issues, providing they have measures in place to sell items directly. Those manufacturers who were already selling direct, or who were quick to respond to the demand for D2C ecommerce, have been rewarded with willing consumers happy to buy from the them. This trend is likely to continue to grow so it's important to have operations in place as soon as possible, whilst ensuring that their is a proper business structure for the longer term including things like staff, resources, budget, warehousing, and distribution so that the channel continues to grow.

A stronger web presence with ecommerce can help introduce more customers to their brand, spread their reach, and lead to further sales both directly and indirectly. It can be frustrating for consumers to discover a new brand but be unable to buy products without searching through shops or other online retailers in the hope of finding what they are after. Not only that, some consumers may never visit the retailers or websites that are currently selling their products.

Global ecommerce, with completely localised websites in terms of language, currency, taxation rules, payment options and fulfilment is another great way for manufacturers to reach completely new markets and customers without the huge barriers to entry that other sales channels may be affected by.

Nobody knows their products as well as the manufacturer, or is as passionate about telling their customers about them. Why leave that in the hands of an intermediary who is also trying to sell competitor’s products, when they have a chance to engage directly with their customers? Not only that, the breadth of information available about most items (particularly online) means everything is becoming more commoditised. This means specialist sales people and technical experts employed by their distributors/retailers are no longer required to sell their items, except in the rarest of cases. If necessary they can provide their own expert help via telephone or online (Live chat), which provides another customer engagement opportunity.

An ecommerce site is also a great opportunity to fully explain the provenance, craftsmanship, or story of a brand and their products, something that may not always be top of the agenda for their resellers.

By selling direct, manufacturers can precisely control the exact brand position, messaging, merchandising, offers, pricing and customer perception of their products rather than leaving that in the hands of resellers and distributors who may very well be selling their direct competitor’s products too. They may even have some tie-in or vested interest with one or more of them.

Selling directly means manufacturers understand and can shape the entire sales process, whilst also reducing the threat of a competitor’s products interrupting their chance of sales. It also helps in building direct, longer-term relationships with their end-users, and engendering loyalty.

Whilst their traditional and established third-party channels are currently, most likely, the backbone of a manufacturer’s business, they still take their margin when they sell one of their products, which means less profit for the manufacturer. Selling direct to their end users, even at the standard RRP, means cutting out the middleman and thus lowering the cost of acquisition, and increasing their margin on any products they sell directly. It also means a reduction in the ongoing costs of servicing those customers who continue to order online. I guess in the past selling through third parties was a great way to expand their business and its reach – however that concept has now been superseded by the Internet and the global coverage it can provide for their brand through ecommerce.

Unfortunately this is obviously quite a fragile situation to manage and has the potential to upset their existing channels so has to be handled carefully. See how they can manage and avoid any potential channel conflict.

A sales team and traditional channels might be great, but they won’t be taking orders in the middle of the night, or on Christmas day, or when they are ill. An ecommerce site expands the ability to make sales when humans cannot (particularly on lower value, more commoditised products), offering manufacturers the possibility of making sales 24/7/365 for a significantly lower cost. It also frees up internal sales teams to focus on higher-value, and potentially more profitable, sales such as B2B orders when customers are purchasing in far higher volumes. An international ecommerce platform also gives manufacturers the ability to easily sell in different countries at any time too.

Last, but by no means least, the obvious and important benefits (as outlined above) are to their customers. Anything that improves a customer’s experience and their perception of their brand, has to be a good thing. Allowing them the option of being able to purchase directly from them is definitely a benefit as it cuts out the middleman and could potentially save money, time and effort. Ecommerce enables this to become reality.

We work with several leading manufacturers who have adopted the approach of selling directly to their end-users alongside existing third party channels, with great success.

Find out more about our work with Healthspan
Find out more about our work with Pet Family
Find out more about our work with Amoena

References
[1] http://www.pymnts.com/news/2015/unilever-grows-ecommerce-sales-2x-global-market-rate/