Direct to consumer: three practical mistakes and how to prevent the D2C project from failing 

Direct-to-consumer, DTC, B2C e-commerce - various terms for one thing, the digital direct sales of manufacturers or brands. Spoiler alert: there is no alternative to direct-to-consumer for practically all business models. 

However, the reality of implementation poses a number of challenges. Manufacturers often experience a "double transformation" through D2C: they themselves become retailers ("retail is detail") and digital ("tech & data as drivers"). The "omni-channel champion" requirement often comes into play here too, leaving digital newbies with increased pressure and a diffuse prioritization. Expectations and how-to steps are subject to many hurdles! In the search for stumbling blocks, three recurring mistakes can be identified in practice that pose a real threat to the success of D2C projects.

Error 1:

The danger of placing the project solely in the hands of a Head of Digital - D2C must be a CEO-driven strategy project in the interests of the company!

The basis for subsequent operational success is a solid strategic foundation. E-commerce managers in particular, whose approach is normally hands-on, underestimate this success lever. They are too quick to ignore relevant competitors and a lack of internal resources and skills. The focus or the obvious goal is often to get everything up and running as quickly as possible. Anyone hoping to achieve the transformation in 2-3 years should also be aware that the D2C project often takes 4-6 years!

Without a CEO-driven change process, people switch to doing too quickly and accept legacy IT and processes as a given without being asked. The result is merely optimizations "in the existing system" - instead of setting the maximum market potential through best-in-class standards.

Another strategic dilemma is how to deal with Amazon and other marketplaces: Should the established brand jump on Amazon - or fight it? Consultants and system providers in particular all too often propagate a supposed lack of alternatives when it comes to marketplace integration. But it really depends - and should always be discussed with the CEO and board in a structured, strategy-based manner. 

Error 2:

"We need an online store and the rest will take care of itself" - underestimation of the impending loss of customer access due to radically changed purchasing behavior and aggressive online competitors

Not least the impact of the coronavirus pandemic on purchasing behavior shows how important direct customer access is. However, this realization has not yet allowed manufacturers to sufficiently recognize the underlying shift. What is this shift? Today's customer wants one thing: the thing. Product selection before provider selection - the unique selling proposition is threatened by the market entry of aggressive pure plays or digitally native vertical brands (DNVB).

Example HRS: this clearly shows how entire industries can become completely dependent on individual market intermediaries. HRS initially appeared to be a welcome addition to market available beds. In the meantime, no hotel can afford not to be listed here. The pain for the hotels? Best price guarantee for the portal, accepting commission increases, the list goes on... This model is also being imitated in mobility with portals such as mobile.de or billiger-mietwagen.de

These examples vividly illustrate how the purchasing process has changed: Yesterday's customers first committed themselves to a provider through branding and marketing and decided on a suitable product there. In over-the-counter retail, a retailer was highly relevant to the customer if the advice was right. The point of sale was also the point of decision. 

Today's customers want the product first. Search engines, comparison portals and the influence of social networks play a huge role in this. Only then are suppliers visited and purchased. In contrast to the point of sale, the point of decision is gaining in importance. This is the neuralgic point at which manufacturers/brands lose customers and influence on the purchase decision without D2C.

On the market and competitive side, they are underestimated by decision-makers: Digitally Native Vertical Brands (DNVB) such as Bonobos, JustFab or Warby Parker. Traditional brands have to "provide" two to three times the mark-up for retail partners. DNVBs can offer the same product quality at half or even a third of the price through direct-to-consumer. 

DNVB is also worthwhile as a benchmark for more understanding of what customer experience and mobile should mean for brands today - because, according to Andy Dunn, CEO of Bonobos, they fulfill the following four criteria:  

1. The brand is born digital. The main channel for interaction, sales and storytelling is the web 

2. The brand is and remains the centerpiece, the e-commerce channel enables the brand and is always played with a very high level of excellence 

3. DNVB is obsessively focused on customer experience and customer proximity via digital channels. The user experience is mutually fueled by the physical product, web/mobile experience and customer service 

4. The brand is not only present online, but also in selected physical channels. One characteristic is always that the brand wants to control the channel, e.g. via flagship stores and selected retail partnerships

These new competitors are therefore not differentiated by the fact that they have an online store, but by their radical focus on customer interests. This is what makes them so dangerous in terms of the threat of losing customer access. Therefore, a deep understanding of the mechanisms of D2C is elementary: a clean set-up of the operating model right from the start!

Error 3:

"We simply teach ourselves online 'on the go'" - Rigid, fragmented and complex systems and processes limit digital business capability 

Keeping costs low, not "affecting" the existing business, the main thing is no disruption from the rest of the company! This is the wish of many stakeholders when implementing D2C. As a result, D2C projects start with limited possibilities, not least due to the basic structures of the processes, IT systems and organization. All too often, identified problems, e.g. in the product range or fulfilment processes, are left to the D2C manager alone as supposed additional ballast - instead of seeing them as an absolute opportunity to modernize the entire business model. 

Without a USP from the customer's perspective, such a claim cannot be substantiated! The necessary adjustments to existing structures and IT systems can be derived from this. 

• What are the building blocks for implementing the desired USP?  

• What are the actual value and cost drivers of the processes? 

• What resources and capabilities are required on this basis (e.g. lean IT)? 

• Due to its strategic importance or the (non-)existence of internal capabilities, should the process be mapped within the company or by external service providers? 

The mistake is often all too simple: self-imposed rules of thumb such as "strategically important internally" or "supposed support is outsourced". In addition to the content-related decision, it should also be borne in mind that there is a considerable amount of coordination and organization involved, and management structures that are working digitally for the first time quickly reach their limits. Setting up a management team and procuring the necessary capabilities can be overwhelming.

Many in-house teams have insufficient online skills, e.g. in merchandising, CRM, retention, customer care, logistics/fulfillment and service provider management skills. Analyzing data and translating it into next best actions plays a major role. The consequence? Knowledge is lost due to a lack of reports and the project only ever runs on sight.

One source of error when staffing a team is not using external support because either the budget is too tight or external expertise cannot be assessed correctly in terms of price/performance. The takeover of these mixed interim/inhouse teams better establishes digital business capability. 

In the sense of a senior-junior team, the tasks are gradually integrated back into the company organization. This approach ensures digital business capability in the long term.