The explosive growth of e-commerce over the last five to ten years has confirmed its role as a critical asset for companies as they adapt to an increasingly online world. COVID-19 amplified this: e-commerce was instrumental in surviving the challenges of the pandemic, and will remain pivotal in the “new normal”. Given the limitations on in-store shopping, many consumer segments that were hesitant to shop online were forced to try it in 2020, and haven’t looked back.
Direct-to-consumer capabilities are primed to take advantage of this trend—but for many companies, there are substantial obstacles to making the move to D2C.
Direct to consumer e-commerce: making the breakthrough
Direct-to-consumer (D2C) e-commerce currently presents the best opportunity for innovative brands to build direct relationships with their customers. D2C refers to the practice of selling a product directly to the consumer via a company’s own web store, thus bypassing third-party retailers or wholesalers. For companies, building D2C e-commerce capabilities allows to directly interact with end-consumers, which helps steer brand strategy and innovation based on real-time consumer insights. These insights can help a company answer consumer needs directly, thereby maximizing both consumers’ commitment to the brand and their lifetime value. In the competitive landscape, D2C can act as a defensive measure in the long term, but also allows for immediate share gain: it means the company is less reliant on e-giants like Amazon and Rakuten, and creates an opportunity to capture a larger part of the growing online market.
Many companies are attempting to build out D2C businesses, with varying degrees of success. Leaders in this area have been able to make D2C not only their primary growth platform but a core part of their business. Others, although they have captured some growth in this new channel, are finding it hard to shift priorities to D2C, given the large proportion of sales that come from traditional, indirect sales.
Building a D2C business may be easier for some, as companies differ in terms of their history in direct selling, as well as the attractiveness of their brand and category for direct sales. However, companies of all kinds and sizes have been able to make use of D2C e-commerce by scaling their capabilities, or by accessing capabilities such as marketplaces, ready-to-use platforms, and software as a service (SaaS) that facilitate access to the online channel.
This article focuses on the management shifts required for any company trying to move from existing D2C to “breakthrough” D2C—by which we mean moving away from consistent double-digit growth on a small base to 2–3x the growth, or from say $100 million to over $1 billion revenue.
In order to do so, it is vital to understand why some companies are able to implement and grow D2C e-commerce to become an integral part of their operations, while others see limited growth. We explore the factors that may prevent success, as well as actions certain brands have taken to break through these barriers. These include well-known leaders in D2C e-commerce such as Nike, but also consumer-electronics companies …….