The COVID-19 pandemic has transformed the way we shop.
Consumers the world over have flocked to digital channels to continue to get the products and services they want. This meant business leaders – many of whom were forced to close their doors – needed to seek new ways of reaching their customers directly.
In this context, one of the breakout sessions at Our Digital Future focused on the future of customer commerce. I was joined by a panel of experts to explore how business leaders can maintain access to their customers – and find new ones – in the remainder of the pandemic and beyond.
Our panellists were:
- David Grimes – Founder and CEO, Sorted Group
- Oliver Haywood – Customer and Digital, KPMG
- Iain Prince – Operational Transformation and Supply Chain, KPMG
The rise of Direct to Consumer (D2C)
Global KPMG surveys taken throughout 2020 highlighted the emergence of a new breed of consumer during the pandemic: one who is financially cautious, digitally savvy, and keen to engage with trusted brands.
Social restrictions have driven the consumer online. And our research suggests that this trend will sustain: 45% of people say they’ll continue using online channels in the future. As David put it, the pandemic has “brought online retail forward by about five years”.
The shift to online has turbocharged consumer businesses’ use of digital technology to establish D2C routes to market.
But D2C is much more than a website where consumers can buy a brand’s products and services. Encompassing the entire offering and all customer interactions, it enables businesses to:
- reach new customer groups
- grow and scale new propositions
- access new sources of revenue and profit
- reset the brand’s purpose and market positioning.
As such, creating a D2C operation requires technology, data, people and supply chain capabilities; the right strategic partnerships; and a set of business rules to safeguard profitability.
So, what should a D2C model look like? How much investment will be needed to create a digitally-led, truly omni-channel (not multi-channel) proposition that consumers recognise, trust and want to engage with?
When planning or expanding a D2C venture, the first consideration should be the strategic rationale for going direct. There’s no single reason for embracing D2C – each organisation will have its own specific aims.
With this in mind, we asked those attending our session to give us their central reason for considering, or setting up, D2C operations:
- Increase brand engagement and acquire customer data: 50%
- Acquire new customers and open up new markets: 25%
- Protect against competition from D2C players: 25%
- Reduce capital expenditure: 0%
- Increase sales and revenue: 0%
Clearly, business leaders are thinking hard about their objectives; our results reflect the fact that D2C isn’t merely a cheaper way of getting products into customers’ hands. I was reassured that brand engagement is the most common goal; I see this as the primary opportunity where D2C is concerned.
Laying the groundwork
Just as there’s no one overriding motive for establishing a direct model, there’s no one-size-fits-all approach to doing so. However, as Oli pointed out, the first step is to ensure a crystal-clear understanding of:
- which consumers you want to target
- where they’re located
- what needs you’re trying to fulfil
- the product(s) and proposition(s) that will meet those needs.
These factors will then influence which D2C model you should implement. There are four models to choose from marketing, marketplace, new propositions or platform play.
Whichever you opt for, remember that physical shopping will bounce back in the post-COVID-19 world. Whilst 45% of consumers said they will continue to use these new ways of engaging, 55% did not, and over 80% of grocery shopping remains in-store even during a pandemic. So when physical does return, consumers will want to move between physical and digital channels at will – so don’t think of them as separate entities. You’ll need to provide a consistent experience across channels: what I call a ‘unified commerce’ offering or truly omnichannel.
Implementing your model
Having selected your D2C model, the next question is: can you build it yourself, do you need to buy it in, or should you rely on partners to provide it?
As CEO of a delivery management platform for retailers, David was ideally placed to give us the partnership perspective. He emphasised that partnerships are “essential in today’s market”, as they help businesses adopting D2C to achieve speed, focus and innovation.
With the groundwork done, what must businesses think about when setting up a D2C operation?
Iain advised that they should prioritise the following:
- Understand the market dynamics. How have your market, consumer and channels changed during the pandemic? What does that mean for your business model?
- Know your customers. Analyse your customer data and leverage that insight to provide the journeys they expect.
- Gain full visibility of your supply chain. How can you work with your manufacturers, suppliers and/or carriers to ship your products directly to customers?
- Identify what can be done profitably. Offering everything to everyone, everywhere simply won’t be profitable.
- Set the right business rules. What service levels do your customers expect, and what can you profitably provide?
Oli drew attention to how service levels caught brands out early in the pandemic. Some businesses built effective digital sales journeys but neglected the post-purchase experience. And they quickly lost brand equity when unable to process refunds and returns efficiently.