Every crisis has its lessons, which, summed up, serve as guideposts for businesses going forward … tulips are just plants that bring cheer in the early spring and not a way to finance the expansion of your castle, don’t borrow money to buy stocks, and “too big to fail” are just a few of our collective past lessons.
The COVID-19 crisis is no exception. To hear pundits tell it, the pandemic is proof-positive that every brand and manufacturer needs to launch a direct-to-consumer (DTC) channel ASAP. This past May, PepsiCo made waves by spinning up not one but two DTC sites -- Snacks.com and PantryShop.com -- in 30 days. Brands are warned to follow their lead or perish in the (apparently ever-coming) retail apocalypse.
But as is the case with Dutch Tulip Mania, the Great Depression, and the Great Recession, the lessons and solutions are way more nuanced than the catch phrases suggest.
Don’t get me wrong: all brands should launch a DTC channel (they don’t need me to tell them that). Every brand has DTC ambitions right now, and for many good reasons. It’s often the best way to establish a deeper connection between your brand with its consumers, enable a 1:1 conversation with them, and get insight into their evolving tastes and preferences. Not to mention all that juicy first-party data that can be used in myriad ways to continue to grow your consumer base. But as a complete strategy for mass-market scalability? That’s a taller order.
3 Reasons DTC is Not a Magic Bullet: Discovery, Margin, and Defaults
The first is that no DTC site, no matter how “cool” or optimized, can offer the kind of scale brands need without eventually expanding into strategic retailer partnerships. Even the most perfect and admired of DTC darlings will eventually look to a retailer to continue on their growth trajectory (I’m looking at you, Glossier). Even Gibu Thomas, PepsiCo’s global head of e-commerce said that its DTC channel won’t amount to much more than a tiny part of its eCommerce strategy.
Second, the dream of DTC success is not as simple (or margin-friendly) as we are led to believe. In addition to choosing and investing in an eCommerce platform and system integrator to work with, these brands need to build up their branding and messaging game by about 5000%, as eCom is the new flagship. This also means investing in a well-experienced digital marketing team or agency, and then getting into the now very competitive (read: expensive) world of vying for clicks and share of voice on the internet - unreasonable customer acquisition cost (CAC) is the ultimate DTC ceiling. And while eCommerce Twitter bawks at retail slotting fees, they’re happy to spend $35 to acquire a single customer. I’m not sure I follow this logic.
Lastly, investments in the warehousing and logistics for shipping direct to consumers, ERP and order management systems to support omnichannel capabilities, as well as customer support needed to maintain the personal touch that DTC consumers are now accustomed to are all requirements of starting a DTC channel. This takes time-- the main resource COVID-19 has robbed from many brands. Not to mention money; all this adds up fast.
Lockdown orders and fear of crowds have radically changed consumer shopping patterns. People who’ve never considered shopping online grew dependent on eCommerce in a matter of weeks, delivering online retailers a $107 billion boost in revenue since March. This past April, for the first time ever, Instacart turned a profit.
Those habits are unlikely to be changed so easily - even in the new normal. Especially now that every brand and retailer is properly investing in digital, pinning your survival on DTC is like playing the stock market without diversifying.
Major Retailers to the Rescue
Mass-market retailers, like Target, Walmart, and Amazon, who want to sell your products to their customer base, have been working diligently over the past six months to help brands succeed, particularly online as consumers have shifted channels. It’s a win-win for both of you since they benefit from offering a wide range of products to their loyal consumers, and you want access to those sites and in-store visits without the hassle of paying per click.
Over the last five years, many retail sites have become marketplaces unto themselves, even supporting third-party resellers, a la Amazon. Their efforts have been richly rewarded. Recently Walmart reported that its eCommerce business in the US grew 97% in its second quarter of 2020. Target.com’s Q2 sales are up 195% over the same period last year. Instacart is the fastest-growing marketplace for CPG brands seeking to get their products in front of consumers, and now covers 85% of all US households (and accounts for 71% of the online grocery market).
These growth rates aren’t accidental. They’re a direct result of a deliberate strategy by forward-thinking retailers like Target to invest in digital transformation to continue serving their loyal customers. Brands are now a secondary beneficiary of those efforts and can utilize newly optimized tools like improved search results, featured product recommendations, coupons, sponsored product features, and more.
Innovative SaaS companies like Pacvue, originally an Amazon-only advertising platform, now offer services like search optimization on Walmart.com and are integrated with Instacart. Influential retailers like Walmart and Costco implemented Criteo, enabling brands to launch onsite SEM initiatives, as well as target customers with personalized recommendations and display network ads. It’s Google all over again, but this time on the retailer’s site.
And, unlike the early days of Google when marketers were just beginning to learn how to leverage Adwords and such, brands and their agencies have a wealth of digital experience within their ranks, a cadre of experts who can help them thrive in the post-COVID world.
Rather than fret about their inability to launch a DTC channel in under five weeks, brands should take stock of the talent within their walls, and maybe introduce them to one another.
Don’t Ignore Existing Strength
The traditional sales teams at every brand have just as many skills as DTC hotshots, only they’re focused on offline sales. For instance, they know how to form solid relationships with buyers at retailers large and small. They’re skilled negotiators and provide value in exchange for shelf space and prominence within stores. And they understand what consumers want, sometimes down to the ZIP code level. These skill sets will never be obsolete. (Full disclosure: I’m a millennial, DTC native, and digital marketer for pretty much my entire - over a decade-long - career. It is my wholeheartedly honest opinion that good “traditional” sales teams will never be replaced by a DTC hotshot, even with the channel-shifting consumer behavior.) Point is - we need each other. We are stronger and more impactful when we combine our complementary skill sets to win in this new world.
All these years, the digital side of the house within brands have been busy launching every kind of PPC, SEO, and another digital marketing acronym you're now sick of hearing. They’ve studied which keywords and topics pique consumer interest, and use that insight to build out content-marketing initiatives, like Crest’s Q&A on tooth decay, the Surprising Uses for Clorox, and Nuun Hydration’s Nuuniversity sites. They’ve promoted customer testimonials, created unique promotional cadences, and partners with social media influencers to raise brand awareness and drive foot traffic to stores and clicks to their eCommerce sites. All of these hard-learned skills gained in Googleland now apply to the Target.coms of the world, and are vital to a brand’s longevity. Hell, they even know how to monetize TikTok.
So while I passionately believe that all brands and manufacturers should build out a DTC channel as the pundits advise, I don’t think a DTC channel should be a brand’s sole response to COVID-19 or the “new normal” of eCommerce domination. The immediate -- and arguably larger -- opportunity lies in the emerging online marketplaces. To seize them and win, the traditional sales teams within the brands need to work closely, and not in competition with their digital counterparts. Retail is at its best when it is a team sport.