Online sales of fast-moving consumer goods rose 75% from 2016 to 2018; but, as e-tailers’ sales grow, so does competition on their shelves. Private labels present a serious threat, especially in commoditized categories where consumers are less brand-conscious. Lack of consumer data is also an imminent challenge, as e-tailers are tight-fisted about their relationship with shoppers and increasingly leverage this information to build their own portfolio of brands. For marketing leaders managing CPG brands, going DTC may seem like an attractive way of circumventing these concerns.
As the battle for digital shelf space intensifies, CPG brands are fighting back by developing direct-to-consumer (DTC) capabilities of their own. The share of brands with the capabilities in Gartner L2’sDigital IQ Index: Personal Care jumped from 19% in 2018 to 22% in 2019, and inHome Care, from 16% to 20% in 2019. But despite its allure (e.g. more customer data and higher margins), going DTC also presents significant risks.
Going DTC requires extensive infrastructure and expertise in supply chain, as well as frameworks for owning shipping orders and consumer data. Developing solutions to these challenges may draw resources away from a brand’s core competencies, and, further, may damage established relationships with e-tailers.
Offering DTC means competing with the convenience and cost-efficiency of large e-tailer platforms, and, as such, requires a superior product and a seamless, personalized purchase experience. Other harbingers of success are a differentiated value proposition and an exclusive offering, product bundling, auto-replenishment services, and extensive educational content onsite. Before taking the plunge, brands should make sure they check the right boxes.
This shouldn’t be an easy exercise to complete. The truth is, many CPG brands offer relatively homogenous products within highly commoditized categories, and for these brands, there are smarter ways of mitigating e-tailer challenges than going DTC. To acquire consumer data, marketing leaders should consider first building loyalty or promotional programs or working with second- and third-party sources. To increase margins, focus on optimizing existing e-tailer sales channels. Investing in paid placements, refining keyword strategies, personalizing brand pages to promote basket building, and increasing trade spend to boost second order search visibility are all proven methods of meeting sales goals without going DTC.