CPG Companies Increasingly Focusing on DTC
Rob HolthauseJanuary 14, 2019
A shift has been quietly happening in eCommerce, and it’s poised to be the next big trend: Consumer Packaged Goods (CPG) companies that have historically sold through retailers are increasingly looking to sell direct-to-consumer (DTC.) While this can represent a challenge in terms of supply chain and logistics for companies that are used to fulfilling massive orders to retailers, it also comes with some significant upside. There’s a number of reasons that a company may look to offer products directly to consumers.
Valuable Data on Consumers
The better you know your customer, the better you can serve them. Selling through a retailer limits a CPG company’s access to important customer data. What are a customer’s preferences? How often are they reordering? Companies need this information to make important decisions about products and ensure that they’re delighting consumers. Digitally Native Vertical Brands (DNVB’s) are inherently able to analyze such data and make agile business decisions, but CPG manufacturers are unlikely to get this insight from their retailers. Going DTC is one way for companies to be able to better understand their customers.
Personalized Interaction Directly With Customers
Customers are increasingly expecting more tailored and unique experiences with the brands they love, and companies are unable to offer such experiences without directly engaging with their fans. DNVB’s are able to interact directly with the purchasing public on social media and use influencers to drive sales, but again, larger and more traditional CPG’s are at a disadvantage here. More importantly, direct interaction with customers allows brands to take ownership of customer service interactions, which keeps customers from souring on a brand simply because of a poor experience with a retailer.
Launching & Testing New Products
The success of digital-only brands has shown more traditional companies the value of being agile and “fast to fail.” DNVB’s can test and launch products significantly faster than their slower counterparts, in part because they’re able to cycle so quickly through their product offerings until they find one with popularity and staying power. Those items that are widely successful can then be pushed through retailers as well.
The Stability of Selling Your Own Brand
Relationships with retailers can sometimes be rocky. CPG’s are increasingly feeling margin pressure from their retailers. Selling directly to customers gives companies a way to adjust to and deal with any potential disagreements with their retailers, and a bargaining tool to use in negotiations. The more control a company has over its own brand and how that brand gets to customers, the less that company is beholden to its retailers.
Maintaining A Competitive Edge
According to a survey by Shopper Marketing, 75% of non-CPG manufacturers are now selling directly, as opposed to just 18% of CPG’s. The space is ripe for innovation, and a thoughtful and well-executed DTC program that engages customers and offers a clear value proposition will give any company a significant edge. Even better if that program includes things to keep customers engaged- a loyalty program, auto-ship or some other type of subscriptions, programs that drive customers to stores, etc.
What does the future hold? For the time being it seems likely that we will continue to see more and more CPG’s testing the waters of DTC. Even the largest, oldest, and most well-established brands know that they can benefit from engaging their customers directly. The logistics of distribution are tricky, though, so don’t expect any brands to abandon retail altogether. In fact, it’s important for CPG manufacturers to not compete with their retail partners. Instead, expect to see DTC offerings that supplement a brand’s presence in retail.