First and foremost, manufacturers seriously beginning to establish a direct sales channel should have a clear idea of the opportunity and a plan backed by data. (For more info on either of those points, click through to our run-down on each.)
The KPIs for any direct-to-consumer (DTC) pivot should be based on the percentage of the opportunity that is successfully captured and the achievement of strategic points in the plan. To hit those targets will always require an investment of time and money, to a lesser or greater extent.
These are the four most important areas where manufacturers need to focus their resources to enable their DTC success.
The initial challenge for many manufacturers is the state of their product data. Poorly-structured data will simply not be ready for retail online. Webstore and marketplaces alike require products to have a long list of data points presented in specific ways to each channel. Below is a short list of typical product data points required:
While some businesses will have most or all of this data ready to go, the majority have a significant job to do in this regard. It’s a worthwhile task, and must be considered as part of the DTC project.
Once the product data is ready to go, it needs somewhere to go to. Depending on the demand data and strategic aims of the business, different channels will be targeted, usually including a webstore and major marketplaces.
Manufacturers then need to ask which platform they plan to use for their webstore, and how the entire arrangement will be managed. Multichannel ecommerce is highly effective for capturing as much consumer demand as possible, but can become complex quickly with many moving parts.
Most manufacturers lack the necessary ecommerce expertise skills within the workforce to properly manage this, even with sophisticated channel management software. That leaves the alternatives of hiring a team or partnering with a service provider to manage the channels on your behalf. Ideally, the managed service provider should be actively involved in the planning stage and help to strategically guide the business through its direct-to-consumer journey.
Hiring a team is a longer-term aim in the majority of cases, and makes sense in the long term. The obvious downside to only seeking to follow this path is the missed revenue potential in the short and medium-term.
These images illustrate that in the direct-to-consumer channel, the manufacturer becomes responsible for sales channels and fulfilment (more on that below.)
However, these approaches are not in fact mutually exclusive. Using a managed service to take care of the day-to-day running initially can provide a stable and scalable base from which to develop an in-house ecommerce capability. At Volo for example, we specialise in offering our own proprietary intelligence and management platform to manufacturers when they are internally ready to begin using it. Until that time, we manage their ecommerce presence using our retail expertise.
We’ve touched on ecommerce knowledge and skills already, but it’s crucially important for manufacturers to realise that there is an immense amount to learn about the best practices for selling online. Many of these practices are general, some are specific to individual channels, and others are totally unique depending on category, product or geography.
Long-term ecommerce success is directly related to the ability to adapt and continually optimize merchandising, pricing and product selection on each and every channel. It’s not enough for manufacturers to create and maintain a static presence, because competition, changing consumer behaviour, and changing rules and policies on marketplace channels require them to be agile.
This is arguably one reason why traditional retailers with massive slow-moving organisations have suffered in the ecommerce era – the cycle of innovation is much quicker in ecommerce than for in-store retail.
The most obvious challenge for most manufacturers is in fulfilment on a one-by-one basis. Very few are set up to pick, pack and dispatch in the way that direct-to-consumer orders require. Once again, the consideration is whether or not to outsource the fulfilment process.
There are a number of reliable 3rd party logistics (3PL) enterprises in both the UK and the US, as well as continental Europe, who can take palletized goods, break out those pallets, warehouse the products, and fulfil individual customer orders. The 3PL industry was worth 750 billion dollars in the US alone in 2016, and is projected to grow significantly in coming years.
Third Party Logistics (3PL) Market Size By Solution (Domestic Transportation Management, Dedicated Contract Carriage, International Transportation Management, Software, Warehousing & Distribution) Global Market Insights 2016
Once again, over the long term there might be an argument to bring this capability in-house, so that it closely synergises with the business’ strategic vision and values – but the level of investment and disruption to the business makes such a move prohibitive in the short term.
There are hundreds of specific areas that we could delve into that manufacturers would need to consider when selling direct-to-consumer. Thankfully, the wide array of specific solution providers out there can cover a lot of these challenging but small areas like tax obligations.
The areas we’ve highlighted are the high-level challenges for manufacturers who are beginning to execute a direct-to-consumer strategy.
Product data – is it ready to go?
How is your product going to get to your customers?
Who manages the channels, how, and with what resource?
Who optimises and maintains the channels?
These are far from insurmountable challenges. As mentioned throughout, internal resources, outsourced or managed service provision and specific solution providers can all aid manufacturers in solving these problems.
The costs and benefits of moving these capabilities in-house varies, but broadly it’s fair to say that in the longer term this may be a desirable aim, while in the short term the opportunity is there to be taken, and partnering with the right services enables manufacturers to make the most of it without disrupting their business or spending massively upfront.
Volo aims to intelligently connect manufacturers to consumer demand online. We work with manufacturers to understand where their products are in demand, help them shape a DTC strategy, and provide a full service to manage their ecommerce presence. To find out how we can help with your direct-to-consumer sales, get in touch.