It’s no secret that the pandemic accelerated many trends that were already underway, such as the rush to buy everything from purses and watches to mattresses and groceries online. Over the past couple of years, more consumer products manufacturers are leveraging buyers’ desire to go online to add a direct-to-consumer (DTC) sales channel.
A direct-to-consumer sales channel removes the middleman, such as a wholesaler or retailer, as the brand goes directly to the end-user. In addition to ecommerce, direct to consumer can come in the form of outlet or factory stores, pop-ups, or through a brand’s marquee stores.
Even service providers have expanded their offerings, an example of a hybrid business. Think of cell phone companies with retail locations. A fast-growing segment of DTC is lifestyle, including apparel, beauty products and home furnishings.
Advantages of Selling Direct to the Consumers
Brands like Nike grew DTC ecommerce sales by 82% in the first quarter of 2020. But selling directly to the consumer holds many benefits beyond just a sales bump for manufacturers, including:
- Ownership of customer relationships
- Direct access to customer data, including buying and browsing trends to better understand customer decisions
- Opportunities for direct engagement with customers
- More control over how products are marketed, priced and delivered
- Opportunity to price segment the market
- No third-party channel coordination, delays or interruptions
Direct-to-Consumer Challenges for Manufacturers
In addition to the clear benefits that DTC can provide, there are also many potential pitfalls that companies should be aware of.
- Order volume
Selling directly with customers means managing far more individual orders to thousands of different addresses, instead of the traditional method of shipping a few very large orders to distributors or retailers. This operational shift can cause problems for manufacturers, such as keeping up with demand and knowing what’s in stock, where.
A lack of visibility into inventory, in addition to an influx of orders, can lead to delayed shipping, incorrect orders, lost orders and dissatisfied customers.
- Inventory management
Manufacturers also must balance their own DTC inventory with what’s available for distributors, retail locations and ecommerce. If you put an item in a marquee store, ready for walk-in customers, you can’t also have that item available in a distribution center ready for an ecommerce customer or third-party retailer.
- Partner relationships
If managed properly, adding a DTC sales channel won’t hurt your relationships with your other channel partners, but it does place you in direct competition with them. Navigating that conversation with your distributors and retailers can be challenging, especially if a clearly defined agreement is not in place that covers a DTC situation.
- Operating internationally
If your company sells internationally, complexity deepens. Your existing systems may not support certain geographies, currencies or languages without customization.
- Heightened cyber exposure
You’ll have to properly manage sensitive customer data, including private information and financial data. Security breaches were up 17% in 2021, according to the Identity Theft Research Center. A cybercrime not only harms and disrupts your business (not to mention increases costs), but it could also tarnish your reputation in the eyes of your customers, particularly if their credit card information is exposed.
Returns require sometimes complex reverse logistics and exceptional customer service, especially when you’re dealing with an angry customer who received a wrong or a damaged product. Returned items also take up space in warehouses, and if they come back damaged, they’re lost revenue.
Amazon and other online giants have made it the norm for free, no-hassle returns. But many small and medium-sized companies often can’t afford to provide the same luxury, or if they do, it’s a costly service.
The common path for companies adding DTC sales is to integrate add-on software to their existing solutions to manage the new channel. However, these add-ons are expensive to maintain. Managing those integrations can consume upwards of 70% of a company’s IT budget.
Using multiple systems also introduces risks beyond the price tag. A channel could simply stop working, which means you can’t take or fulfill orders, frustrating customers and shutting off cash flow. Managing your DTC channels requires complex and sometimes brittle integrations that need continuous testing and manpower to maintain.
The most significant challenge of all, the one that underscores this list of hurdles, is the customer experience. Nowadays, with the ease of online shopping, brand loyalty isn’t as strong because it doesn’t take much for a customer to get the same or similar item elsewhere. When a consumer is trying to make a buying decision, and encounters any degree of friction, such as having to reenter information or item descriptions not matching, you risk a lost sale.
How Microsoft Tools Support the Direct-to-Consumer Sales Experience
Operating a DTC sales channel without the right technology will inevitably make the effort more difficult.
With a distributed order management system (or DOM), manufacturers gain leverage of their inventory across all of their sales channels whether it is warehouse, physical store or fulfillment center to better manage product speed and cost to the customer or retailer. DOMs can also identify the best, most cost-effective place to fulfill orders from, whether that’s your warehouse in Georgia or a storefront in Massachusetts. Using a DOM, your entire network of stores becomes mini warehouses for online order fulfillment.
Using Microsoft Dynamics 365 Commerce, all of the add-ons that companies integrate to their existing solutions come built in. Most tools that you need to operate a DTC sales channel in addition to traditional channels can be easily managed from this single solution. You get the advantage of viewing all of your inventory and channel information in one place – a single source of truth about your entire operation. This solution will also address your supply chain, financial and wholesale aspects of the business. Dynamics 365 Commerce also tackles the international challenges presented above due to their scope and reach. It’s just one example of benefiting from the reach and team at Microsoft.
Consumers can interact with your brand without friction from any of your channels, and you get the insights because Dynamics 365 removes the data silos that traditionally exist in a multichannel sales strategy. Work with a trusted partner, like Columbus Global, to transition your business to Microsoft Dynamics 365 solutions.