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07/19/2021

Business Model Refresh: 3 Reasons Why CGs Should Consider DTC

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Just five to 10 years ago, the thought of a consumer goods company selling its products directly to consumers sounded like nonsense. That’s what our grocery, convenience and drug stores are for! Today, that “nonsense” is reality.

Fueled by the growing ease of building e-commerce stores, the rise of social media product drops, and even subscription-based offerings, the direct-to-consumer (DTC) movement has skyrocketed in recent years. The COVID-19 pandemic has supercharged this movement, making it imperative for CG companies to adopt this model.

Early DTC startup brands now represent some of the most beloved, meaning potential is proven. It’s time for CG companies to introduce DTC into their business models — according to PwC research, DTC is estimated to capture up to 15% of category e-commerce penetration and is generally taking share from e-retailers versus offline.

[See also: As Freshly Scales Under Nestle’s Wing, Personalization Becomes Paramount]

CG companies must understand the benefits in order to compete in our constantly-changing landscape. So what are they?

Enhancing the Experience

The business model of DTC brands centers on balancing consumer acquisition costs with the lifetime value of that consumer. Being able to build a direct relationship creates loyalty, therefore increasing the lifetime value of a customer. The best way to do that is to create a superior shopping experience.

Without the mitigating influence of a big-box retailer or marketplace, CG brands can fully own the shopping experience: everything from the website to the checkout. If done well, this creates a more intimate experience and leads customers to feel loyal to the brand itself, rather than the retailer or marketplace.

Customers increasingly prefer the personalization that comes with the DTC model, as well as the engaging content and social media output these brands provide. PwC found 63% of consumers are more open to sharing their data (local, age, lifestyle, preferences and purchase history) for a product or service they truly value. For CG companies that already have loyal customers, it can also lead them to better understand who they are and what they crave, which leads me to my next point.

Rapid Learning and Feedback to Drive Sales

Owning the customer relationship means insights. DTC brands can understand shopping habits and buying preferences, and then put those insights into action such as by making improvements to existing products and testing new ones. The DTC model allows brands to move much faster as they don’t need to rely on an ecosystem of partners for feedback.

Think about the potential through a common household favorite: coffee pods. Because there is regular consumption and refills, brands could have constant access to updated data, which can be used to quickly make any changes, including in price or availability. Brands can also identify what times of year consumers are purchasing in high-volume and when they’re not, using new flavors or products during those off-seasons to drive purchases.

Improve Ability to Manage Disruption

Finally, companies gain channel flexibility and the ability to manage disruption. A DTC channel offers direct access to the supply, so when an incident occurs, brands can act quickly without reliance on a partner.

COVID was obviously a huge disruptor, and brands quickly realized they needed to reduce their partner dependency. Many physical retailers had closed altogether or were not able to accommodate new products or pricing. Implementing a DTC offering could help CG companies adapt quickly to these changes.

In the end, it all comes down to engaging with the consumer where they want you to meet them. Going direct allows brands to build that privileged access with the consumer and gain insights into their habits in a new way, something that should not be underappreciated. DTC will not only provide new revenue streams but has the potential to strengthen relationships with customers in ways they’ve never experienced.

Samrat Sharma is U.S. consumer packaged goods leader at PwC.

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