How does D2C become a key profit driver?
“For several years now, online trade has been showing high growth rates, while retail trade as a whole has more or less stagnated. No brand can afford to ignore digital channels for marketing and sales. This is especially true for companies that so far have only sold via indirect distribution. Control over the brand experience and direct customer contact is too important. In many cases, an online shop is a central element of a powerful digital strategy.”
– Philippe Mettler, Digital Commerce Consultant, Swiss Post
Direct supply of end customers by manufacturers is not a new trend. However, digitalization of retail has accelerated this development in recent years. Many manufacturers now operate their own online shops in which end customers can buy directly. Brands and manufacturers are implementing such a “Direct-to-consumer” (D2C) strategy to widely varying degrees. In order to examine how they assess the D2C market, what experiences they have, and what their goals are, 15 companies with end-customer shops were surveyed in this study. The University of St. Gallen actively supported the study with an analysis of the market.
At the very latest, the COVID-19 pandemic has shown that it is an advantage not to have to rely on a single sales channel. But even before, changes in buying habits and customer expectations were already apparent. Digital touchpoints play a decisive role in purchasing decisions, regardless of whether the products are ultimately purchased online. For an increasing number of companies, it is becoming crucial to build up digital commerce expertise, regardless of the industry they operate in. The more time passes until the necessary capabilities are developed, the more companies fall behind the competition.
“Direct-to-consumer” (D2C) is a marketing and distribution approach in which brands address the customer directly without involving intermediaries or platforms. In addition to higher margins and access to new customer groups, it is especially promising in terms of more detailed insights into customer behavior and, building on this, improved customer relationships.
Advantages of D2C
The advantages of D2C are quite evident:
Giving up less margin
The margin, which is passed on to resellers in conventional distribution, remains entirely with the manufacturer. This promising scenario is maintained even when the costs and investments for setting up and operating the D2C distribution channel are taken into account.
Control of the brand experience
Manufacturers keep the brand experience design completely in their own hands if they use their own sales channel. As owners of their brand, they communicate exactly the content they want to communicate. This is hardly possible when working with retailers or marketplaces.
Obtain customer data and direct contact
Via their own shop, companies gain data about their end customers. With these exciting insights they get to know their consumer better. They can also get in direct contact with the customers and develop the relationship in a more targeted way.
Option to expand into new markets
The online shop facilitates getting into new markets. There is no need to invest in setting up a partner network or even own branches.
Challenges of D2C
However, the direct sales channel also poses some challenges:
Potential for conflict with partners
Existing distribution partners will naturally view the D2C strategy with skepticism and may perceive the activities as new competition.
Higher level of complexity in IT
The integration of an online shop or other digital channels creates a higher level of complexity in the company’s IT environment. The requirements on data, systems, and interfaces are generally more demanding.
Know-how must be built up
Successful online distribution requires additional know-how and new skills within the company.
New way of thinking required
Depending on the company, new ways of thinking are needed to ensure that the new business model is successful.
Changes in logistics
Logistical processing of orders placed by end customers differs significantly from the B2B sector in many cases. Its complexity probably increases because both ways now have to be operated in parallel.
The clear majority of the companies surveyed are “Followers.“ These companies do not (yet) implement D2C strategically, but are beginning to pursue D2C. The challenges and objectives differ significantly, depending on the level of D2C development.
On the following pages, we show the main lessons that have resulted from the interviews with the companies and the market analysis. The companies themselves will repeatedly have their say.
D2C in the digital age
With digitalization advancing, commercial transactions are increasingly shifting to the internet. The digitalization of private households is growing, and consumers are spending more time online. Distribution channels are also changing to the same extent.
Manufacturers have various options for online distribution:
- Product sales via marketplaces and platforms, e.g., Amazon or Zalando
- Direct sales via an own online shop
- Unified commerce approach with a variety of digital sales channels, such as social commerce, voice commerce, and seamless integration of offline and online points of sale.
As mentioned, when listing the advantages, a direct-to-consumer strategy potentially offers higher margins, access to new consumer groups (for example, by expanding into new markets), managing the brand experience, and obtaining one’s own data on customers.
The gathering of data and information, in particular, is rarely possible with sales via intermediaries, whether stationary or online. It is precisely this data that makes D2C worthwhile, as the data obtained provides insights into consumer behavior, is the basis for direct communication with the customer, and can also be used to further develop the product portfolio.
This is true for all companies: established businesses that want to strengthen an existing brand, or startups and smaller businesses. Smaller manufacturers, in particular, often do not meet the requirements of large platforms in order to receive appropriate support. D2C makes entering global distribution easier.
However, digital commerce is more competitive than ever. In a world of attention economy, it is difficult to stand up to the dominance of the big platforms and, therefore, to be noticed by consumers at all. The undeniable challenges of a D2C strategy include logistics and potential conflicts in existing distribution channels.
The effects of the COVID-19 pandemic have led to a change in thinking among many manufacturers worldwide. Without warning, lockdowns around the globe robbed companies of an entire distribution channel because customers could no longer visit retail stores. Many manufacturers were therefore required to find a solution as quickly as possible to get their products to the consumer regardless.
Against this backdrop, the study addresses the questions regarding when it pays off to set up a D2C channel, what decisions need to be made and what the best strategic and operational approach is.
The current situation of D2C
What is the state of digital direct sales in 2020? Which brands rely on D2C and which do not (yet)? To find out, German-language brands from nine selected industries answered whether they operate their own online shop to researchers Prof. Dr. Katarina Stanoevska-Slabeva and Maximilian Schacker of the University of St. Gallen.
All 340 examined brands from the German-speaking region have their own website or their profile on the brand family website. Direct purchasing on the brand website is only possible for 47 percent. There are considerable differences between the various industries. In-house online shops can be found particularly in the clothing and textile sector (59 percent) and in the sports and leisurewear industry (60 percent). Only 29 percent of the surveyed brands in the beverage industry have the option to order online. However, direct sales at the production sites are often highlighted.
These differences can be attributed to product characteristics (transportability, shelf life) and typical purchasing context (average cart value, planned vs. emotional purchases). The dynamics in the watch and jewelry industry are particularly attractive. Based on their characteristics, watches are ideally suited for online sales. However, manufacturers in the luxury segment, in particular, shy away from digital D2c strategies. They apparently fear a loss of emotional product value and the increased price transparency that usually comes with this step.
For manufacturers with their own online shop, D2C rarely is the only digital sales channel. This is confirmed by the further analysis of 25 selected brands with their own online shop. 76 percent of these sell their products via their own shop and on Amazon (60 percent). In Switzerland, 64 percent sell through the online retailer Brack and 56 percent via Galaxus. Of these brands, 36 percent have their own brand store on Amazon and 12 percent on Brack.
While these multi-channel or omnichannel strategies provide maximum reach, they also carry the risk of channel conflicts or negative price spirals. Which channel mix works best for the manufacturer depends on a variety of factors and requires careful strategic considerations.
Having their own online shop is particularly common in the clothing and textile sector (59 percent) and in the sports and leisurewear industry (60 percent). In contrast, only 29 percent of surveyed brands in the beverage industry have a digital D2C store. 76 percent of the examined D2C providers have additional digital distribution channels.
Goals and value proposition
How do manufacturers decide whether a digital D2C strategy is viable for them? There is neither a simple nor universal answer to this question. The first consideration should always be the question of ‘why’.
Only the ones who define goals for a D2C strategy can compare the advantages and disadvantages of an end customer shop with these goals. A successful D2C strategy creates value and does so for companies and customers alike. The definition of this added value forms the foundation for the decision to enter the D2C business. This is a decision that should never be made in isolation but must be made in the context of the current and planned mix of distribution channels. In this regard, the potential reactions of current trading partners must also be taken into account. Additionally, a look at financial resources is also important. After all, implementing the strategy requires investment before getting started and during continued operation to ensure further development.
The D2C model can only work if the customer is given a distinct added value compared to buying from a large online retailer. Examples of such possible added values are:
More information: Manufacturers are the undisputed experts for their products. Customers can rely on getting complete and up-to-date product information when purchasing in the D2C shop.
Better brand experience: Especially with emotional products, shopping is an integral part of the customer experience. The manufacturer can design the shopping experience more individually on its own site. This is why it is often perceived more positively by customers than purchasing on platforms.
Offering original goods: Depending on the product category, fakes are often being sold on platforms. This is a problem of which consumers are also aware of. When buying directly from the manufacturer, they can be sure to receive original goods.
Customer service and warranty: Many retailers refer to the manufacturer in case of a problem with the product or the need for spare parts. Therefore, it may be more practical for the customer to buy directly from the manufacturer. This way, they know immediately who to contact if they have any questions or problems. Manufacturers also often offer extended warranties.
But how do the surveyed companies see the advantages of the D2C business model themselves? The next chapter provides answers.
Advantages of a D2C strategy
Manufacturers have many reasons for operating a D2C online shop, as was revealed in the interviews with the surveyed companies. All companies are generally satisfied with their own D2C solution, regardless of the dimension and type of D2C business.
The Manufacturers provided different reasons for pursuing D2C activities, but their importance varies greatly. This is related to both the significance of D2C within the company and the type of products sold.
The companies submitted the following aspects as the primary motivation for the D2C strategy
#01 Brand building as the basis of D2C
For many companies, it is important to be able to create a comprehensive brand experience for their customers. This is crucial for brands that position themselves in the high-price and premium segment. The focus is on offering customers a shopping experience that matches the high quality and relatively expensive products. This brand experience can practically only be fully controlled when companies use their own touchpoints.
For example, ON AG explicitly chooses not to sell on Amazon (with the exception of Amazon Japan), as the customer experience does not reflect what they want to present to their customers.
“We have high standards for all sales channels. We want the sales channel not only to fulfil a transaction function but also to represent our brand well. We don’t see that as a given at Amazon yet.”
– Samuel Wenger, Global Head Direct to Consumer, ON
#02 Full product range and spare parts
For companies with a very wide range of goods, offering the entire product range is particularly important. For some companies, their own online shop is the only sales channel that offers the complete range of products, which also applies to spare parts or consumables. Giving customers complete access to the entire product range not only offers companies the chance of increased sales but is also an additional service that keeps customers loyal.
The shop also partially assumes the role of a comprehensive catalog, which is used not only by end customers but also by resellers in their search for information.
Garmin has a wide range of products. It includes sports watches, outdoor handheld devices, and navigation devices for nautical use. Almost no retailer sells the whole range. The Garmin online shop is, therefore, not only a sales channel but also an important product catalog and showcase for our brand.
“Our shop is an important source of information, not only for end customers.”
– Prisca Collins, Country Manager Switzerland, Garmin Switzerland
Foodist also uses its own shop as a bundled touchpoint for all its products and services.
“For once, this is our product range, which you will find neither in retail stores nor in other online shops. Then there is the combination of the subscription model and individual purchases. And our cooperation with influencers, who have their own pages on our site with items that are exclusively available for purchase from us, which is also a unique selling point.”
– Alexander Djordjevic, CEO, Foodist
#03 D2C as an important marketing tool
An online shop is also rightly considered a strong marketing tool, as it supports sales on other channels and helps to acquire new customers. Since consumers now mainly search for products online, a shop contributes to visibility on the internet (e.g., via search engines). An online shop is a prerequisite for using Google Shopping, for example.
Some of the participants see the online shop as a good environment for experimenting with online marketing. The success of measures can be seen more directly and faster than with offline campaigns, and additional sales are immediately apparent. This way, the online shop ensures a fast learning curve in online marketing. Some of the surveyed companies also stated that they have now taken over these tasks in-house. Thus, it has been possible to reduce marketing expenses without diminishing the success of the measures. This is especially true for companies that have built up a larger community on social media platforms.
“Another consideration in the D2C decision was that at that time, with little brand awareness, we were better able to reach customers via social media. With Facebook, Instagram & Co., it was easier to build a new brand – easier, at least, than to get in touch with retailers. This way, we were able to scale our business for a start.”
– Alexander Djordjevic, CEO, Foodist
In addition to its entire product range, Zweifel repeatedly offers special product bundles or other limited products, such as its own advent calendar. These are exclusively sold in its own online shop.
“Due to the popularity of our products and brand, with special offers we are fortunate enough to achieve considerable sales figures with very limited marketing budgets. For example, we were surprised at how well and quickly the Zweifel advent calendars were sold. We were able to sell more than 1,000 items without Mediainvest, simply using organic social media posts. This also gave us the opportunity to keep trying out different themes and quickly learn from them.”
– Andreas Eggli, Account Manager E-Commerce, Zweifel Pomy-Chips
#04 Close customer relations and comprehensive customer data
A direct relationship with end customers is becoming more and more important and valuable. This is particularly evident for large platforms. The streaming service Spotify has 120 million paying subscribers without producing music or content itself. With this business model, content producers, and copyright holders such as music labels have lost direct access to consumers. This also applies in a similar way to a marketplace like Amazon. Brands and distributors do not have access to customer data, which instead can be analyzed and utilized by Amazon.
Not all industries have such extreme cases of disruptive business models. Nevertheless, direct customer contact is becoming increasingly important for many enterprises. They should retain control over customer data and learn the skills to make the best use of this information.
Almost all the surveyed companies agree with this argument. They see the ability to understand their customers directly as an important advantage of the D2C model. This is particularly relevant with regard to future activities. However, the full potential is still far away from being maximized, as most companies limit themselves to sending newsletters.
#05 Cooperation with sales partners
Some companies see their own online shop as a wake-up call for their sales partners. On the other hand, it is seen as a form of support for the partners. Consequently, the knowledge gained in the shop is also made available to the partners. It becomes evident that a well-operating online shop and strong (online) marketing benefits both the manufacturer and the partners.
“Retailers might get scared that we’re trying to take things away from them. That’s why we also try to explain to them that both sides benefit when we expand direct customer contact. If the pie is growing as a whole, then there will be more left over for everyone involved. If our brands are more present on the web, this will also have a positive effect on the retail trade. We organize events together with retailers or launch online campaigns dedicated to specific retailers –regional Facebook marketing, for example.”
– Till Hess, Head of Digital Product & Tech, Fond Of
Instead of waiting for product innovations from other bicycle brands, ROSE Bikes already decided 40 years ago to take production into their own hands and integrate marketing into their retail concept.
“With our own products, we have brand and margin development in our own hands: we can bring our own innovations out faster and react to trends promptly. Through our own engineering, product design, marketing in combination with short time to market, we can build desire and have a positive influence on the margin.”
– Thorsten Heckrath-Rose, Managing Director, ROSE Bikes
Having your own online shop is not always an inexpensive sales channel. Staff, infrastructure, and above all marketing costs should not be underestimated. When considering the costs, however, it should be taken into account that the investments support brand marketing and the development of in-house know-how. The online shop does not just have a pure sales function. Customer data remains in the company and can be used for further communication.
#07 Expansion of product portfolio through customization
Another motivation for your own online shop can be the supply of special product ranges. A personalization strategy is often the driver here, as customized products are difficult to sell in stationary retail. Special product ranges can also be products with unusual packaging that have the characteristics of a gift. Especially favorite emotional brands can hit the mark with products and bundles tailored to their fans.
Kambly has a strong focus on gifts and customized products in their shop.
“With our standard products, we have nationwide distribution in the Swiss retail trade. In addition, logistics costs are very high compared to the value of a box. Therefore, we strongly focus on exclusive and customizable products.”
– Jan Cermak, Head of B2C, Kambly
#08 Not falling behind
Some companies have built their own online shop primarily in response to competitors. However, the focus remained on stationary retail or intermediate trade. Potential in the digital market was consequently underestimated and not fully explored. At the very least, since the COVID-19 pandemic, the effect of having an own online shop has been noticeable. Rapid development was observed for those businesses that gave priority to online sales.
For some of the participating companies, the usefulness of their shop was primarily in the B2B sector. However, it was quickly recognized that the products could also be sold directly. The brand becomes easier to experience, and partnership with wholesalers can also be enhanced. Direct contact with customers provides room for improvement, whether at a product level or in the multi-channel strategy optimization. Manufacturers who receive feedback from end customers and wholesalers alike can gain a more complete level of information.
However, the B2C strategy is not only about not falling behind. Sales channels are being expanded, and thus added value is created for the company. Strong branding is one of the major advantages of direct sales.
One participant in the survey, who sells premium products, focuses on clarity and attractive design in their online shop. Customers are also offered instructional videos and tutorials on repairs. They primarily want to learn about a brand or product online. In addition, retailers also use the content of the online shop as a reference guide. This way, the number of incoming queries could also be reduced. However, this advantage only occurs if the content is also kept up-to-date and properly maintained.
The strong competition in the retail sector should not be underestimated. Many companies are forced to become faster and implement or optimize lessons learned more quickly.
The importance of online sales will further increase. Almost all participants in the survey agree on this. Only a few businesses continue to see their online shop as a niche service or believe that sales in the D2C sector will not increase significantly.
Competition for the partners (and a chance)
As mentioned, the implementation of a D2C strategy can lead to a potentially competitive situation with the own sales partners. Conflicts arise not only externally with actual partners, but possibly also in-house with the established sales department.
It is quite possible that account managers and the sales department feel threatened by the new sales channel. This is certainly understandable. On the one hand, there is the fear of losing sales, which can have a negative effect on achieving objectives. On the other hand, they are the ones who are facing adverse reactions from customers. Other parts of the company may also be critical of the move towards D2C.
Negative reactions of current sales partners are among the most frequently named reasons for hesitation in entering the D2C business. Concerns include conflicts or even sanctions by the sales partners. However, hardly any of the surveyed companies have experienced an event like this. To avoid conflicts, most manufacturers pursue a cautious strategy concerning pricing and marketing. Manufacturers’ online shops are rarely price leaders and are mostly reserved in their discounts and promotional offers. In some cases, the shops also have other priorities, such as customization, which are not offered in traditional retail.
Only a few of the heavily D2C-oriented companies stated that they had experienced any serious conflicts at all when entering the D2C business, for example, by having their products removed from product ranges. None of the interviewed companies had to suffer consequences that jeopardized the implementation of the D2C strategy. Existing conflicts could usually be resolved quickly.
Retailers rarely suffer as a result of the manufacturer’s shop. On the contrary, they are more likely to profit from the manufacturer’s marketing efforts. Discussions calm down as soon as this becomes apparent in the retailer’s figures. Having your own online shop helps you better understand customer needs. These are insights that can also be shared with the partners. In addition, good brand marketing increases sales on all channels. This is evident not only online, but also in traditional retail.
ON has recently started to selectively open its first own branches – for the moment, concentrating on Asia and the US.
“We have realized that opening our own physical branch or a pop-up store at partner stores can lead to increased sales of our products and not to cannibalization. This is driven by the increase in general brand awareness in the local catchment area.”
– Samuel Wenger, Global Head Direct to Consumer, ON
Formulate specific goals
The higher the ambitions with D2C, the more critical it is to clearly define and implement the strategy. This also includes having strong management support for the strategy. Otherwise, there is a risk that internal critics will be able to considerably slow down the project.
Without automation and good process management, however, it will not work.
“Many more packages are going out, and many more requests are coming in. So it is the sheer mass that makes it difficult. About 100 packages in B2B become 10,000 packages in D2C. In addition. The backpacks come to us in packs of ten, which we then forward directly to specialist retailers. In the D2C business, you have to take out a single backpack, repack it, and add a water bottle or another purchased product. This makes it more complicated. So now we have to automate a lot and create new processes.”
– Till Hess, Head of Digital Product & Tech, Fond Of
Some companies have outsourced order processing, and there are good arguments for both options.
Outsourcing can reduce necessary investments. This can be an advantage if it is not yet certain what quantities will be shipped. However, outsourcing comes at the expense of the margin.
Large fluctuations in order volumes are one of the challenges in logistics. Figures can easily double annually with an online business that is currently being established. This means there are always new challenges for infrastructure and logistical processes. This applies to both internal and external solutions.
ON Running has consistently doubled the number of shoes sold in recent years. This leads to logistical challenges:
“The strong growth is a challenge in logistics. Existing solutions are frequently too small again. In some regions, we were better able to cope with this; in others, the quality of logistics has suffered somewhat. In some cases, this happened simply because such growth is challenging to plan.”
– Samuel Wenger, Global Head Direct to Consumer, ON Running
Direct sales increase the complexity of product availability planning. Some of the surveyed companies stated that they are regularly facing challenges in this respect. Most companies use a common storage facility for the online shop and wholesale. Some of them also supply several countries from their central warehouse. This makes it difficult to provide reliable availability in real-time.
Nevertheless, customers clearly expect information on delivery times. Complex ordering and delivery processes, however, make this difficult to implement. If the sales department and the online shop access the same stock, the ability to plan is less reliable. This can potentially also lead to conflicts regarding the availability of products.
Garmin Switzerland has a local warehouse in the country. The most common products are always in stock. Items that are needed less frequently are restocked from the UK, which is the storage facility for Europe. This is a fast process.
“For items that we receive from HQ, availability planning is more difficult, as many countries access the warehouse. But that is not the norm.”
– Prisca Collins, Country Manager Switzerland, Garmin Switzerland
Integration of a branch network
Companies that have their own branch network have to overcome unique challenges. Traditional retail stores perceive a new online shop as potential competition. First, sales could be cannibalized. In addition, resources are redistributed within the company. Therefore, it is important to win over the stores (or partners, if it is a franchise model) to the idea.
The branch network must absolutely support the digital channel. This is especially important if omnichannel concepts are to be implemented. The objective is to ensure that the online shop is perceived as an asset and an opportunity, particularly by the employees in the stores. Incentives for this could be that the stores participate in online transactions, or to fairly compensate services that are provided within the context of click & collect or returns.
Potential of a wide-ranging system environment
Depending on the level of maturity of a company’s D2C strategy, different systems become relevant (see chapter 9).
If D2C is more or less a secondary operation, businesses need one or two channels for direct customer access. For instance, this can be traditional retail via its own chain of stores and an online shop. This usually requires its own ERP, shop software, and possibly also a CRM system.
If the company is already one step ahead and is approaching D2C strategically, additional systems come into consideration. These include marketing automation, data-driven CRM, or tools for customization.
The third maturity level involves having made it to the top of your segment or at least wanting to get there. Tools for the continuous optimization of the customer experience are the focus here. Some companies also choose the path of reselling data, which usually requires integration with third-party systems.
Between utility and causing headaches: interface management and data quality
Interfaces play an increasingly important role when it comes to digitization and multiple systems.
It is still part of many businesses’ daily routines that users have to manage data such as product information, orders, offers, and other information in various systems. This saves neither time nor money and is not very efficient.
In theory, dozens of possible solutions can be identified – but in practice, unexpected interface conflicts occur from time to time, which can slow down the entire project.
How can this be avoided?
Interfaces can be used to implement connections to solutions for data management or to provide additional services. A monolithic system that offers everything at a glance will, in fact, never take a company as far as an API-based approach. Only APIs pave the road for any conceivable integration of additional systems or connection of further touchpoints, such as mobile apps, voice commerce, or third-party marketplaces.
When it comes to interface management, many companies do not plan sufficiently. In many cases, an interface is not developed as part of an overall strategy but is implemented as a “quick fix” to connect applications. Little attention is paid to the fact that today it may just be about two applications, but perhaps more will be added tomorrow.
One of the most important aspects of seamlessly integrated interfaces is data quality. This point is well known – yet data and its synchronization are often neglected. The biggest challenge in practice rarely is the connection of the interface. Much more demanding is the operation of the interface and the results you get from it at the end of the day.
However, manual modifications to data sets should be avoided at all costs. Only fully automated processes can produce valid results and reliably help to control D2C activities.
“The chances of generating meaningful customer data and then using it for networked, crosschannel marketing have increased. In the past, you had a customer address and sent the catalog to them – and waited to see what was ordered. Today, you have a whole host of information and are trying to segment, personalize and network the data much more. In the ideal case, we can even access measurement data from our customers‘ bikes or shoes. This enables us to offer a highly personalized and much more relevant shopping experience.”
– Thorsten Heckrath-Rose, Managing Director, ROSE Bikes
New fields of expertise
Many companies still lack hands-on experience in managing digitization projects. Or perhaps they only have experience with infrastructure projects, such as updating an ERP system. In many cases, essential basics for digitization, such as an agile project approach, the use of customer personas, or design thinking, are not yet established and have to be implemented first. These skills will become even more important in the future. E-commerce projects can be a good training ground for such skills since they cover many important aspects. Here are a few examples:
End customer orientation
The uncompromising focus on the end customer is important in the implementation of a D2C solution. This can be a challenge for companies that have traditionally only sold to wholesalers. Smaller businesses often only have a few employees who are marketing oriented. In many cases, this also applies to the management, especially if it has mainly been active in the B2B business up to this point. Therefore, it is necessary to first create such a focus.
There are a few useful tools that can help achieve better customer orientation and keep them in mind. Some of these tools will be briefly introduced in chapter 10. The idea here is not to use all the tools, but to select the most suitable ones and use them consistently.
Benefits of agile project implementation
Iterative implementation of projects offers many advantages. An important factor for success is a fast go-to-market strategy, which makes speed more important than perfection. Manufacturing companies often find it particularly challenging to adjust to this attitude and must first learn to get accustomed to it.
Rules and advantages of an agile approach must first be understood and internalized. In many companies, employees are often not used to handling larger projects. Relevant agile tools for planning, backlog, and task management are often not well established. Everyone involved also has to get used to these tools.
Management must also learn to actively support the project. They must be prepared to participate in project management and to make decisions that cannot be made in the project team in a very short time.
Continuous business model development
For many years, a large number of companies have been based on more or less stable business models that have changed very little over time. As a result, companies are hardly used to developing new models or fundamentally questioning existing ones. This is another skill that is often developed in e-commerce projects.
Advantages and disadvantages of marketplaces
In recent years, more and more businesses have decided to sell on marketplaces to increase their sales opportunities. Price transparency and the resulting comparability of products on offer make marketplaces attractive to customers. This is accompanied by a wide variety of different products. Customers can, therefore, find all products in one single location.
But what advantages do marketplaces offer to retailers exactly? Why should they consider this distribution channel?
There are many reasons for using a marketplace. An important motivation is generating turnover and supporting the core business. But this does not always have to come first. Marketplaces also help to enter new markets abroad and can help drive the internationalization of products. A presence in a marketplace can also generate additional reach and enable companies to address new target groups. The possibility of reaching customers who want to inform themselves via a marketplace is most often named a vital driver by the companies in the survey.
Amazon as a partner
There are two models available to businesses that decide to enter Amazon. Entry is possible via the seller program. This allows companies to sell their own products on the Amazon marketplace. Listing and pricing of products are their own responsibility. Additionally, Amazon also offers the option of handling shipping. This includes storage, packaging, and shipping (Fulfillment by Amazon = FBA). Moreover, the retailer can always decide on presentation, pricing, and advertising measures. The benefits of the seller program include higher margins and direct contact with the end customer.
The second program is Amazon Vendor. Companies are invited by Amazon to participate in this program. Amazon Vendors generally are larger companies or well-known brand manufacturers. Vendors no longer sell their products directly to the consumer but instead deliver their goods to Amazon in large quantities. From the moment of delivery, Amazon takes over ownership of the goods and decides on the products’ pricing and sale.
“First of all, it is important for us to be wherever our customers are. Nowadays there is no longer just one single customer journey, but an infinite number of them. That’s why we look at each channel on its own: So we will operate on Amazon as long as the business there is successful and profitable for us. Some customers only inform themselves through Amazon and whom we would otherwise never be able to reach, who then come into contact with our brand.”
– Till Hess, Head of Digital Product & Tech, Fond Of
The advantage lies in the fact that companies can hope for higher volumes of sales, as Amazon takes measures to ensure successful sales. Logistical processes and returns management do not burden the company. However, this business model creates a higher level of dependency, and contact with the end customer is lost.
Amazon is an important sales channel because many product searches start there. However, many of the advantages of a D2C strategy, such as brand experience, cannot be utilized in this context.
Below you will find a brief overview of the advantages and disadvantages of a presence in local and larger marketplaces:
Digital commerce is needed urgently
Online trade has recently grown by eight percent in Switzerland and 11 percent in Germany, while retail trade as a whole is roughly stagnating.1 This will further accelerate in 2020 due to the effects of COVID-19. Even traditional manufacturers are now rethinking their strategy after stores had been closed for weeks, and the number of customers in stores has been limited.
Digital concepts and further developments of online solutions have sprung up like mushrooms in recent months. For example, supermarket chain Aldi has launched a click-and-collect service within a few weeks in April 2020. This service allows customers to conveniently pick up their weekly groceries at the time of their choice and meets the increased demand for ordering food online. This example clearly illustrates that direct-to-consumer strategies reduce dependencies and create the possibility of continually redefining customer access – primarily via digital channels and customeroriented features.
The study results, including 15 companies, show that the majority of participants want to generate even more sales via D2C in the future. The remaining companies are aiming for at least the same turnover through direct sales.
What to do?
So where is the key to increasing sales? There are a number of factors, depending on the maturity level of the company’s D2C strategy. Many of the surveyed companies have defined growth objectives for their own online shop. However, these are generally rather moderate and do not necessarily follow strategic guidelines. One thing is certain: customer data and knowledge about the customer are crucial for the targeted management of a D2C strategy. Only those who know what customers want can scale this exactly and at the same time avoid the things that just don’t work.
Another trend is also clearly evident: sales structures are being disrupted. Wholesale trade is becoming less important and companies are increasingly taking distribution into their own hands. At the same time, multiple touchpoints and channels are playing an important role. Third-party marketplaces support the company’s own D2C channels in building reach and by enabling costefficient customer acquisition.
From a customer’s point of view, other touchpoints are becoming increasingly relevant. Therefore, they should not be underestimated by companies: Social commerce, that is selling via social media such as Instagram, or voice commerce, shopping via dialogue with Alexa & co. The customer is everywhere, and this opens up completely new possibilities for customer experience.
The brand must be noticeable in all touchpoints
The term unified commerce accurately sums up what this means: seamlessly integrated touchpoints and systems that provide a unified customer experience. No matter where or how customers purchase, they should be able to find, buy, and return everything anywhere.
Swiss home improvement store chain Jumbo leads the way: Customers get advice on DIY construction projects in the store or are inspired online at jumbo.ch. In both cases, they are directed to the necessary products. In the next step, customers are faced with a choice: they can order the products digitally or alternatively reserve them in the store of their choice and buy them on the site.
Just a few years ago, manufacturers were satisfied to have done their part by selling their products. Although after-sales service was available for car sales, manufacturers were denied access to product wear and customer behavior data. Nowadays, for example, manufacturers benefit from a better understanding through the integrated software in connected cars. This applies to manufacturers across all industries: Insights about their own customers provide conclusions about buying patterns and show specific profit potentials.
Companies with a D2C strategy are no longer content with handing over full data ownership to platforms. In a world overflowing with product choices, direct customer relationships offer a way to stand out. They allow them to get to know customers with all their characteristics and behavior, offering them customized services and keeping them loyal. A brand like Amazon, whose focus is on price differentiation, can never achieve this.
D2C allows higher turnover, faster, customer-oriented activity, and a customer relationship that goes deep and has a lasting effect. It is time to literally take the customer by the hand.
This section offers managers and entrepreneurs who are about to decide on a D2C strategy some tools to help them get started. These include a maturity model that shows where the businesses stand today and what possible development steps lie ahead to further expand the D2C segment.
Additionally, some tools useful for the efficient implementation of projects in digital commerce are also mentioned. This list is by no means exhaustive. There are many other exciting tools and methods that are not mentioned here, as this would go beyond the scope of this list.
D2C maturity model
From market analyses and discussions with various companies, it has been possible to develop a maturity model of D2C businesses. This results in three clusters of companies, which differ in the turnover share of their D2C channel and in technological and organizational developments.
Cluster 1: Followers
The largest group runs its own shop with rather low energy. In many cases, there are no ambitious KPIs or clear strategies for further development. The shop is more of a sideline operation in these companies. They often generate less than five percent of their total turnover via D2C. In some cases, the mere sales value is almost negligible. Most of the time, the online shop‘s marketing and operation are carried out more or less part-time from the existing organization.
Cluster 2: Strategists
The second group of businesses considers D2C to be a strategic focus. As a rule, they generate up to 25 percent of their sales through their own shop. Often, they also have significantly more ambitious targets for their D2C channel. The focus often lies in strengthening their own brand, as the customer experience can be well managed. For them, the online shop is also a decisive tool for opening up new markets. These companies usually have dedicated teams for their online shop.
Cluster 3: D2C industry leaders
The last group almost always started with a purely digital sales model. There are now several good examples of such companies that have also found their way into traditional retail. In most cases, the brand and its experience are more crucial than the products themselves. The brands are usually offered almost exclusively in the D2C market.
Evolution of the companies
What features can be identified in the further development of D2C? As a result, it can be concluded that most companies are professionalizing, along with various technical, organizational, and strategic developments. Which stages this involves and the order in which they will be carried out depend on multiple factors. This is where companies differ from one another. In this context, it was possible to identify the elements that define development.
Overview of trends in D2C
Whether it is for adjusting their own strategic orientation or decision-making, these trends, among 15 surveyed companies, reveal some critical D2C factors. It was relatively clear why D2C was initiated, what the main challenges are – and whether the focus on D2C will be further expanded in the future.
D2C Business Model Canvas
The D2C Business Model Canvas is a specialized version of the well-known Business Model Canvas published by Osterwalder and Pigneur. It raises questions that should be addressed and answered in the context of developing a D2C strategy. Although there is no fixed threshold above which a D2C model can be considered viable, managers can get a sense of whether a D2C business model is coherent and reasonable.
One of the keys to success in the D2C business is the ability to offer customer-oriented services unconditionally. To achieve this, companies must thoroughly consider individuals, their motives, wishes, and relationships and understand their decision-making processes. This enables us to better understand customer needs and behavior and design activities even more efficiently. This is the only way to ensure the customer experience can be shaped successfully in the long run.
To identify and understand the needs of customers, an in-depth analysis of individuals and their wishes and relationships is necessary.
The needs and goals of the customer are central to personas. It is all about designing products and services specifically for the focused personas.
Easier understanding of the target group
Personas can help to empathize with the customers’ situation. Customer groups become more human, easier to grasp, and to perceive.
A common language
Personas also simplify communication within the project teams (for example, if a product manager speaks of “Manuel,” everyone involved knows who is meant by this).
How to find the right personas
When selecting and creating personas, there are generally only a few well-defined rules. It is important to focus on personas that are relevant to the business‘s success and belong to the core target group. In general, it is less worthwhile to represent “special cases” as personas. Importantly, the personas must actually be used. Once personas have been created, there is a high risk they will quickly disappear in the cabinet and no longer be utilized. Therefore, it is better to limit the number of personas to a few, which are actually being used and can be further developed over time.
Personas should not become abstract representations of a target group, but rather very understandable individuals. That is why it is important to attribute the appropriate characteristics to them.
Often a distinction is made between three types of personas:
This quote will cause some to be amazed and others to shake their heads. However, it is certain that an agile setup is not just a trend but an important factor for success in a dynamic economy.
After all, today‘s sales volume does not necessarily say much about its future viability. A retailer who just five years ago achieved record sales may already have lost massively to a versatile startup today. Think of mail-order brands that have been quickly overtaken by agile companies such as Amazon or Zalando.
Therefore, businesses should not classify agility as a “difficult operation” or contrary to the old culture. Agility determines corporate success today and in the future.
This is the only way to react flexibly to changes in the markets and scale when it pays off.
But where should companies become agile?
In general, we recommend two main areas:
1. Agility in architecture
- Monolithic systems hardly help – an architecture must remain streamlined and flexible
- Modular technologies enable building kits for concepts that can be quickly expanded and changed
- API-based systems help with the flexible integration of third-party providers connections to touchpoints, such as mobile apps or voice commerce
2. Agility as process thinking
- Fewer hierarchies, more role-based teams with decision-making powers
- Shorter project durations to be able to measure (partial) success more quickly
- Constant focus on enhancing efficiency and optimization
On the one hand, agility in the context of D2C means better adaptability and brand distinction. On the other hand, it comes with a more flexible adaptation to suitable channels and, of course, to constantly changing customer needs.
Customer journey map and user stories
The customer journey is designed to describe the entire customer experience – from the first perception of a product to its purchase and use.
It evaluates the different stages that customers go through, particularly, points of frustration or uncertainty that must first be identified. Therefore, the customer journey determines how the customer feels during every step. This makes it easier to recognize the potential for optimization.
When is it used?
- At the beginning of an analysis to determine initial hypotheses about customer pain points (hypothetical)
- After the analysis to validate the hypothetical customer journey with actual empirical data (ACTUAL STATUS)
- When developing ideas to identify and prioritize optimization options and to formulate a target scenario (TARGET)
- Time-independent as an effective way to present the customer experience to stakeholders in the form of a compelling story
The customer journey allows a deep insight into the behavior, needs, and emotions of the customer and what is offered “how,” “where,” and “when.”
Christmas gift for a friend
surprise to a friend
Clicks the 1st ad
Checks online again and go to the 1st original result
Confused about how to choose
Annoyed at the
Happy with the
informative shopping website
Not sure about how to
find the best price
Allow to hide
Clear and innovative website design
page to check
product page to
reviews from other
Pleased with usage and designs
Sad to see out of stock products
for a preferred
service for help
the Paypal payment
Satisfied with bank card payment
Feels unhappy to wait for a bit of a long time
Nicholas HännyCo-founder at NIKIN
In addition to companies that have grown into the direct-toconsumer market, the survey also included companies whose business model has been based on this strategy right from the start.
NIKIN was launched in 2018 as a small project to sell sustainable, stylish clothing while doing something good for the environment. For every product sold, NIKIN plants a tree – now there are over half a million. NIKIN has grown rapidly and now employs over 20 people.
Nicholas Hänny, co-founder of NIKIN, answered a few questions about their view on direct sales.
You have been building NIKIN as a D2C brand from the very beginning. Have you always known you wanted to be a direct seller?
No, it was not that obvious. We have grown into it in a certain way. We started NIKIN more as a hobby. So, we couldn’t invest too much. Also, as a no-name brand, it is almost impossible to be listed in exciting stores.
We were able to grow continuously online. I also brought important know-how in online marketing. This enabled us to keep costs under control. This was also due to the fact that there is more margin left in direct sales, which can be reinvested. This way we could work profitably almost from the very start.
What are the main advantages for you today that you see as a D2C brand?
There are different aspects. We rely heavily on our brand. Therefore, we have to make it an experience. The easiest way to do that is to have the whole customer experience under control.
The digital channel is also very measurable. We know immediately whether a measure is effective or not. This way, we can minimize our waste. The margin is, of course, still exciting.
Have you considered other distribution channels?
Why is that interesting to you?
First, we want to further strengthen our brand. Our products are relatively interchangeable. Therefore, the value lies in the brand. We want to make it an experience and use it for other suitable products.
In addition, we do not reach a certain customer group online at all. That is a pity. We also think that certain products would work better offline. Especially our more expensive articles, like a hoodie. Here, the experience of quality is more important.
How do you rate marketplaces?
Spryker helps businesses to develop leading commerce solutions. The innovative on-premises and platform-as-a-service solutions with more than 800 API-based modules are attractive for both businesses and developers due to their flexibility.
Spryker’s solutions have enabled over 150 companies to build commerce models in over 200 countries worldwide. Learn more at www.spryker.com.
About die Post, the Swiss Post
Swiss Post’s Competence Center Digital Commerce advises customers on all aspects of digital commerce – objectively, competently, and efficiently. It offers security in taking the right steps on the road to digitalization.
With digital commerce consulting, we help our customers to develop a meaningful target image and accompany them in implementing these measures.
More information at: www.post.ch/digital-commerce
- CATRADE AG
- Dyson SA
- FOND OF GmbH
- Foodist GmbH
- Garmin SwitzerlandDistribution GmbH
- Kambly SA
- Kärcher Schweiz
- Kuhn Rikon AG
- Nikin AG
- On AG
- ROSE Bikes GmbH
- Rotho Kunststoff AG
- SIGG Switzerland Bottles AG
- Sponser Sport Food AG
- Zweifel Pomy-Chips AG
Spryker is the leading composable commerce platform for enterprises with sophisticated business models to enable growth, innovation, and differentiation. Designed specifically for sophisticated transactional business, Spryker’s easy-to-use, headless, API-first model offers a best-of-breed approach that provides businesses the flexibility to adapt, scale, and quickly go to market while facilitating faster time-to-value throughout their digital transformation journey. As a global platform leader for B2B and B2C Enterprise Marketplaces, Thing Commerce, and Unified Commerce, Spryker has empowered 150+ global enterprise customers worldwide and is trusted by brands such as ALDI, Siemens, Hilti, and Ricoh. Spryker was recognized by Gartner® as a Visionary in the 2023 Magic Quadrant™ for Digital Commerce and was also ranked as a Strong Performer in The Forrester Wave™: B2B Commerce Solutions, Q2 2022. Spryker is a privately held technology company headquartered in Berlin and New York. Find out more at spryker.com