‘To’ or ‘For’ Consumers? Shifting Perspectives for Driving Growth

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‘To’ or ‘For’ Consumers? Shifting Perspectives for Driving Growth

By Mark Osborn, SAP - 05/29/2018

Direct-to-consumer has been a consistently hot topic in consumer goods since marketplaces such as Amazon have proved consumer affinity for buying products online. In 2017, worldwide e-commerce sales reached $2.3 trillion, growing 25% year over year, and is forecast to grow to $3.56 trillion by 2021, according to eMarketer.

Industry leaders like Procter & Gamble and Unilever moved early to capitalize on the opportunity. For example, P&G partnered with Amazon beginning in 2013 to place Amazon employees inside P&G’s distribution centers to enable direct-to-consumer fulfillment.

Today, P&G's e-commerce revenue tops $3 billion annually, about 5% of total company revenue and growing at a rate of 40% annually. These are impressive results, and many other CG companies have demonstrated similarly impressive results.

Despite this growth, and particularly with growing opportunities across all product categories including durables, fashion and even fresh food, for most established companies e-commerce remains a small percentage of total revenue. And, at the same time, there hasn’t been a corresponding improvement in overall industry growth.

According to a recent McKinsey study, organic revenue growth from 2010 to 2017 has been only 2.5% — and just 1.5% among companies with greater than $8 billion in annual revenue.

Why hasn’t e-commerce translated into growth for the industry overall? Historically, “direct-to-consumer” has meant “e-commerce,” and vice versa. It’s been viewed primarily as an additional sales channel that increases complexity and conflict as volume from one channel shifts to another. This perspective has done little to change the industry dynamic.

Selling existing products through online marketplaces is effectively the same as selling through traditional retail: both parties act as intermediaries to the consumer, who ends up with the same product regardless of where it was purchased. 

Providing consumers with more choices makes competing on price less viable. Passing rising freight and packaging costs on to consumers in the form of price increases becomes almost impossible. And, in the absence of revenue growth, the primary option to stabilize margins has been to focus on cost-cutting and process efficiency.

Does this mean that direct-to-consumer is not the opportunity we once thought it was? On the contrary, it represents a massive, transformative opportunity for the industry. But a subtle shift in perspective is required. Instead of selling products “to” consumers, the most successful companies are instead orchestrating outcomes “for” consumers.

Consumers today increasingly are looking for help and guidance from companies to answer the question, “What’s the best option for me.” To deliver, successful companies are broadening their definition of value beyond their products to include the consumer journey and outcomes.

For example, Maui Jim recognized higher demand from consumers for fast delivery during specific holidays and events. To satisfy demand for immediate delivery of its sunglasses, the company partnered with the (since-shuttered) UberRush service in select markets to transform the buying experience, enabling direct delivery times averaging 25 to 45 minutes post-purchase.

Elsewhere, Glossier is shaking up the cosmetics category — growing revenue 600% year-over-year since 2014 — with products and a brand position that strongly appeal to millennial buyers. Instead of selling through traditional channels, Glossier leverages social engagement to build community, exclusivity, advocacy, and propensity.

Glossier leverages technologies such as digital color matching to augment the consumer experience and deliver solutions. And, although the company has a showroom in New York, its purpose isn't to get consumers into the store to buy something but to share their visit with the community and their friends on Instagram.

Casper is disrupting the $29 billion mattress industry by pursuing a digital-first strategy designed to attack the existing market dynamic and create a new buying experience.

Instead of offering consumers a multitude of choices at varying price points in the traditional mattress showroom, Casper offers one product that it describes as "most right for the most people,“ available at an affordable price and delivered directly to the home. It arrives in a guaranteed one-hour delivery window in a radically redesigned package that most people can carry to their bedroom and unpack on their own. Casper grew to $100 million in revenue within 24 months of launch.

These are just a few of many examples. Companies like these are finding and creating new growth opportunities by focusing on delivering flexible, simple and personalized solutions for consumers.

And, while they have yet to reach the size and scale of their larger counterparts, they offer compelling examples of how a renewed focus on what a company can do for a consumer may provide the key to unlocking far more potential than simply selling to a consumer can. 

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