As born-digital DTC business continues to disrupt the Consumer-Packaged Goods (CPG) industry, established, traditional brands continue to explore alternative channels in an effort to connect more directly with their consumers and compete. As technology advancements remove entry barriers for many traditional CPG organizations, we see them shift to alternative channels in their pursuit to connect with consumers directly via DTC business. A channel which was originally popular among startups such as Dollar Shave Club, Warby Parker, and Casper is now becoming more accepted by companies of all sizes. Nimble organizations are able to adjust their DTC strategies in an agile way to better align with consumer behavior and can take significant share from less agile companies who are slow to react.
More recently, world events have tested CPG companies’ ability to reach consumers who are confined to their homes for longer than planned periods of time. Some CPG companies proved to be ready to leverage their past DTC investments and experience to maintain their connection with their consumers and elevate their brand power. In response to increasing demand driven by COVID-19, Pepsi leveraged their past e-commerce investments by launching two new direct to consumer websites – PantryShop,com and Snacks.com. Others like a CPG company in Pennsylvania that did not have their online ordering system properly set up and was unable to fulfill orders, failed to deliver against their DTC strategies. Still others were caught off-guard and scrambled through more traditional retail channels to maintain flow of goods and connection with consumers.
As consumers begin shopping again, here are five critical questions every CPG leader should be asking related to their DTC business investments:
1. Do you have a clear DTC business strategy? Many organizations launch into action without a clear destination in mind. Although a bias for action is critical, especially in evolving channels such as DTC, it is crucial to have a vision, supported by a multi-year evolutionary path. Rushing forward without this vision can paralyze the organization, or send it into spinning circles. Likewise, the lack of strategy could focus the organization’s efforts into tactical incremental steps, rather than bold transformational moves. Ask around and see if your leadership team can agree on the stated vision for DTC – if you get inconsistent answers, you need a clear strategy. Ensuring alignment across leadership & key stakeholders sets the foundation for change.
2. Is your Marketing plan aligned with your DTC strategy? Is your brand consistent across marketing mediums? Is consumer loyalty a clear component of it? Having a direct channel to engage with consumers gives you ample opportunity to design and execute all your marketing tactics in a consistent and powerful way. At the same time, there’s no room to hide; if your plans are inconsistent or poorly executed, that will be clearly displayed to your consumers. By having a clear marketing message, you can foster trust in your brand and create a relationship with your consumer which will encourage them to keep coming back.
3. Is your Sales organization optimized for the new realities required by DTC? Organizational performance is critical, especially for sales functions that cover multiple channels. When building your sales organization, you want to also consider the appropriate commercial strategy that allows for optimal business performance and allows your other retail and wholesale channels along with your DTC channels to operate together. The requirements of a high-performance DTC sales team require skills that are somewhat unique and different; adjusting your team’s skills to the realities of the new normal of your consumers and the needs of the DTC channel will be critical to win in this marketplace.
4. Do you have the right demand sensing mechanisms in place? Consumers continue to be extremely difficult to predict; DTC provides a wide array of datapoints across the digital path to purchase of your consumers that, if used well, could feed great predictive analytics and demand sensing mechanisms to anticipate your consumer’s needs.
5. Is your supply chain fit-for-purpose and ready to scale along with your DTC business strategy? Depending on your size, complexity and consumer needs, partnership with logistic providers might be the right answer for you. Deciding when to bring fulfillment operations in-house in a profitable way is a tricky decision; evaluating your supply chain and determining the appropriate inventory and safety stock levels your business needs specifically for DTC becomes extremely critical. Review your supplier contracts to ensure domestic as well as international supply so a backup is in place if we are ever faced with another global supply disruptor. Considering the new realities and adjusting your supply chain is a challenging exercise, however identifying the systems, processes, and capabilities required for this change will make for a smoother transition.
Sometimes it takes unforeseen, extreme events out of our control to make drastic changes in our business approaches and it can take massive forces to push out our pre-existing convictions. Consumer behavior may be permanently impacted and changed because of the coronavirus. For many companies, the quarantine resulting from COVID-19 will be the push needed to create and execute a roadmap for a successful DTC business strategy. No matter their journey, companies must incorporate consistent marketing messages, an optimized sales organization, demand sensing mechanisms and finally an end-to-end supply chain function to achieve success.
Contributions by Aley Morris, Ken Accardi, and Scott Shaw.