“Ecommerce is not the cherry on the cake, it’s the new cake” – L’Oreal CEO
Having worked with more than 80 brand executives over the last couple of months, touching the heart of their challenges and strategy, we decided to combine common trends and data regarding their Direct to Consumer approach. Those trends have been observed across multiples industries (luxury, FMCG, hardware, med tech, and other SMBs) and across numerous markets.
Rethinking distribution model
“I want to make the most of my retailers, my ecommerce and Amazon in a perfect symphony” – CEO, consumer electronics.
- Most brands have lost between 40% and 90% of their distribution during the lockdown.
- Marketplace have shown their limits, lowering the brand’s image, unable to sustain the COVID increase in demand, reducing the size of Black Friday, and prioritizing mainly the largest brands.
- More B2B companies are also starting to push their eCommerce to increase resilience, digitalize their business, and manage clients more efficiently.
- Direct to Consumer is increasingly being used as a negotiation leverage with distributors and retailers.
- Brands are structured for B2B and not for B2C, hence the difficulty of handling end-consumers.
Ecommerce from “nice to have” to “profit generator”
“I am making $3M on my ecommerce but I am losing money” – Ecommerce manager, famous watch company
- Most brands generate less than 1% of revenue on their Direct to Consumer and are losing money operating it.
- If online sales have to become a growth generator, the eCommerce cost structure and economics need to be redesigned. Ecommerce profitability is a question of scale.
- Brands need to be able to pay $1 in marketing and generate $2 in profit.
- Ecommerce is becoming a question of corporate risk management, to overcome the slowdown of retail and avoid extreme dependencies towards retailers.
Direct to Consumer is not only a technical challenge
“We tried to replicate the business model of our competitor online but it never worked” – Brand manager, FMCG
- The key question to answer is “why would people want to buy it from you?”
- Brands are realizing that you don’t just need to put your product on a website to generate sales; they are developing strategies to create extra added value for their customers (loyalty, exclusivity, subscription, pre-order, etc.)
- Agility and speed are key to test, which added value will resonate the most with their customers and attract them to the brand site.
Developing a profitable Direct to Consumer channel is probably one of the biggest challenges brands face nowadays, but it is also creating far greater growth opportunities. This will increasingly revolutionize the way brands interact with their consumers while rebalancing their dependencies towards historical and online resellers. Ready for the big jump ?