To keep up with the changing landscape, consumer packaged goods (CPG) companies are adding direct-to-customer (DTC) strategies to their traditional retail channels. DTC offers CPG companies the chance to build one-on-one relationships with customers, engender trust, and perhaps most importantly, leverage first-party data to create better customer experiences and streamline marketing campaigns. These strategies are game changers in a competitive, ever-evolving CPG market.
What is a Direct to Consumer (DTC) Strategy?
Direct to Consumer (DTC) is a strategy selling products directly to consumers rather than through a third party like a retail chain. D2C is nomenclature used to describe DTC e-commerce – selling products from a web store. This can be considered a subset of DTC, since it is possible to implement a DTC strategy that isn’t based on e-commerce. As a crude example, selling wares at a flea market is technically a DTC model. D2C, however, is where the modern DTC revolution really lives.
What are Consumer Packaged Goods (CPG) Brands?
CPG brands are companies that sell products that are used and replaced regularly. This includes a wide range of consumables from food and beverages to cleaning products to cosmetics to apparel. CPG remains one of the largest markets in North America, with an estimated value of around $2 trillion. Companies like Coca-Cola, Proctor & Gamble, PepsiCo, Anheuser-Busch, and L’Oreal are but a few of the large, perennial leaders in CPG.
CPG is a competitive arena, and consumer loyalty can be hard to come by. So, CPG strategy is largely about convincing customers to pick your brand over others. Successful CPG brands need to stay top of mind and find innovative ways to stand out.
Examples of D2C Brands
Both traditional brands and new companies are leveraging D2C to great effect. Some notable examples include:
- Nestlé launched an innovative D2C strategy called the KitKat Chocolatory, offering made-to-order chocolate bars which are distinct from KitKats in stores, carving out a new niche.
- Dollar Shave Club disrupted men’s grooming with its customizable shaving supplies subscription, prompting Gillette to follow suit with its own D2C shave club.
- Chewy became a household name with its D2C pet supplies offering, despite facing abundant obstacles, doing what Pets.com could not just 10 years earlier.
- PepsiCo launched two D2C offerings in 2020. PantryShop.com and Snacks.com both let consumers purchase their favorite PepsiCo brands such as Lay’s or Doritos online.
The Rise of DTC Marketing Strategies in the CPG Industry
This marketing strategy has grown in popularity along with rapid improvements in the technology that enables it. This includes secure, encrypted transaction capability, the rise of the smartphone, faster and more abundant internet access, and of social media.
Selling directly to consumers offers a few advantages over traditional CPG strategies. First, it allows companies to eliminate middlemen, which increases profit margin. These savings can then be invested in customer experiences and products.
For consumers, selling directly to them is popular for its convenience and pricing and the CPG industry has been especially disrupted by D2C post-COVID. In 2022, around 64% of consumers worldwide purchased directly from companies regularly. D2C was already on the rise, but when lockdowns happened around the world, many consumers saw the value and haven’t gone back.
This can be seen as a problem for traditional CPG brands, but many see it as an opportunity. After all, adding DTC strategy to existing portfolios is relatively low-risk with high potential reward.
Why is D2C the Next Step for CPGs?
While large corporations are unlikely to cease retail operations, they are adding D2C – partially to compete with intrepid D2C startups. For established companies, adding D2C can help make up for losses seen as consumers shop in stores less. For startups, D2C can level the playing field. Plus, D2C provides a game-changing advantage when it comes to data.
D2C allows companies to leverage technology in a way that traditional CPG marketing doesn’t by giving access to first-party data that isn’t available from retail sales. This data on purchase habits and the consumers behind them allows companies to understand customers, personalize targeting, and build stronger relationships.
Finally, as privacy concerns shift how technology like cookies works, D2C will become more crucial for learning about customers.
Challenges of CPG DTC Strategies
DTC may be exciting, but it does come with challenges. For one, successful DTC implementation requires robust and efficient fulfillment with shipping, tracking, payment processing, returns, automated communications, and support. This infrastructure isn’t necessary for a strictly retail operation, and it can be more complicated to ship to scores of individuals as opposed to simply delivering full pallets to stores.
Plus, customer expectations can be high, especially when it comes to sustainability. Customers expect packaging to be reasonable and modern, and there are challenges to ensuring packaging is environmentally responsible and effective.
Finally, customer acquisition and retention are different in the DTC space. Although there’s immense opportunity to use data to create more efficient campaigns, companies need to proper digital marketing. For traditional CPG companies, this may mean a whole new department of digital marketing experts (not just a lone social media manager).
For startups, trust is the number one barrier to customer acquisition. Care needs to be taken to build trust via solid practices including managing reviews and other consumer-generated content, responsiveness, social media presence, and even good design of sites. All those factors and more influence trust for wary consumers.
How To Launch Your Own DTC CPG Ecommerce Strategy
To start, there are three major points to get right that will help drive success with your DTC strategy:
- E-Commerce Platform – Web-based sales require robust technology that you can count on to work every time while looking sharp to help engender trust in consumers. Picking your e-commerce platform is step one. Your options are to implement a third-party system or to build it in-house. For startups, in-house dev of an e-commerce platform may be unwise, but they need to consider the ongoing cost and scalability of potential solutions.
- Logistics and Fulfillment – You can choose to build an in-house fulfillment department or outsource it but choosing the right fulfillment strategy for you is crucial to success.
- Customer Data – Perhaps the biggest advantage of D2C over retail is access to data, but not if you neglect to keep the right information. Investing in a robust customer data platform means you can leverage this advantage.
Make Your DTC Strategy the Best it Can Be
Online products don’t sell themselves. A solid digital marketing strategy coupled with robust infrastructure from the three pillars above is the key to DTC success. If you want to increase ROI, MNI can help determine where opportunities lie and craft a successful ecommerce strategy. This process not only increases revenue but creates a fully integrated experience that helps you understand your customers, build loyalty and brand recognition, feeding long-term success. To learn how MNI can help, contact us today to talk about your project.