Traditionally, brands sell direct to big retailers and use distributors to reach small and independent shops. It’s a model that’s worked for decades. But in a digital world, this balance is disrupted.
Brands that don’t have strong direct-to-consumer channels are at a fundamental disadvantage compared with those that do and are missing out on additional revenue. Smart brands use their online stores as a means of introducing new customers to their products.
Here are four reasons why selling direct to your customers is essential in today’s retail landscape and 12 strategies to help you get started:
1. To Receive A Fair Share Of The Demand You’ve Created
There are two kinds of customers who buy your product from a retailer: those who went to the retailer looking for your type of product and then saw your brand, and those who went to a retailer specifically to purchase your brand’s product.
In the first case, the retailer introduces the customer to your product. In the second, your brand introduced the customer to the retailer.
Let’s take Nike as an example, a brand with quite a bit of consumer pull. Is it possible that a customer walks into Foot Locker and decides to buy a pair of Jordan shoes? Absolutely. In that case, it was extremely beneficial for Nike to have Foot Locker as a retail partner.
Now let’s assume a customer searches for “Jordans” online. Nike has created that brand demand. It’s produced a product that is specifically sought after — to the tune of close to 700,000 times per month:
As you can see below, Nike is running a paid search ad on Jordans and has earned the top organic search result, as well. If it created the demand for the shoe, why does it need a retailer to finish the job?
In a case like this, it’s certainly fair for Nike to capitalize on the demand it’s responsible for creating by selling directly to consumers.
Recommendation:
Run paid search ads on your own brand and product terms.
Run a Google Shopping campaign to dynamically capture brand and product demand. (I say Google Shopping, but this applies to other comparison-shopping engines, as well.)
Optimize your store pages to appear for brand and product terms. Nike had a brand page specifically built for Jordan to best satisfy that search query; your brand should do the same.
2. To Generate More Demand And Brand Recognition
How well are your co-op marketing dollars really working? In the best-case scenario, brands can attribute a loose correlation between the money they throw at retailers for co-op marketing and an increase in sales. The bigger the brand, the harder it is to tell.
I’ve been on both sides of the co-op money train, and I can assure you that a lot of it is poorly used. But it’s the only marketing outlet many brands have for direct response advertising.
Now let’s assume a customer isn’t specifically looking for Jordan, but he or she is in the market for a good pair of basketball shoes. Isn’t this a great time to introduce him or her to Nike?
To be fair, it may be because I just visited Nike’s online store, and I’m now part of its retargeting pool, but a search for “basketball shoes” puts Nike front and center.
If Nike were relying entirely on retailers, it’s likely that even if Jordan appeared in search results, the landing page would be cluttered with products from Adidas and Reebok, too.
Retailers have little to no incentive to push your product over another. They’re going to prioritize what sells.
If the customer isn’t sure about a pair of Nikes, but they can close the deal on Reebok, its over. They’ll sell the Reebok shoes, and they won’t think twice. They may even buy less stock from you the next time they place a wholesale order.
Co-op marketing dollars can be very effective, but remember that whenever you control the shopping experience, your focus is on pushing your brand. When a retailer controls it, the focus is increasing sales.
Recommendation:
Run non-brand paid search ads. If you’re having trouble getting a good return on investment, see if you’re making any of these common PPC mistakes and consider using Google’s “target and bid” option on remarketing lists for search ads.
Optimize your site to rank well on search engines for non-brand terms.
Use PR to build buzz (and links) that point directly to your online store.
Run giveaways, contests and sweepstakes to collect emails on social media.
3. To Gain Leverage With Retail Partners
There’s a delicate balance of power that needs to be maintained between retailers and brands. When the relationship becomes too one-sided, someone is going home with poor margins.
Having this leverage means two things: You’re developing varied distribution channels to ensure you’re not dependent on any single revenue stream, and you’re creating so much brand recognition that a retailer wants (or ideally needs) to carry your product to satisfy consumer demand.
A competitive, direct-to-consumer e-commerce channel can support both.
It’s hard to illustrate this point with screenshot examples, but imagine if Foot Locker went out of business. Nike might feel a pinch, but it’s not scrambling. Likewise, can you imagine Foot Locker not carrying Nike products?
Recommendation: Price your products and shipping costs so that your store is a viable option for shoppers. While it’s true price isn’t the only factor in consumer e-commerce decisions, brands with a huge discrepancy between their MSRP and MAP are pricing themselves out of the direct-to-consumer game.
4. To Establish A Direct Line Of Communication With Customers
There are huge benefits to being able to communicate directly with your customers; here are my top three, with examples from Nike’s own email program.
Education. Very often, products require a little education so customers understand their features and benefits. If you have a direct line of communication with your customers, you can ensure they know enough about the item to appreciate its value.
Marketing. New items, upsells, seasonal promotions, you name it. Ask any direct response marketer what’s easier, customer acquisition or customer retention, and they’ll tell you it’s retention every time.
Feedback. A lot of the feedback a brand depends on comes through retail partners. But consciously or not, a retail partner is always going to prioritize what’s best for his or her bottom line. Open that line of communication directly with your customers to get their unfiltered feedback.
Recommendation:
Aggressively build an email database and use it for more than just selling.
Pursue in-depth product reviews. Use this data for merchandising and product development decisions.
Educate customers on the products they bought to ensure they get the full value out of their purchase. The happier they are, the more likely they are to recommend your products and buy from you again.
Let shoppers know about new products and related merchandise.
Enough Talk: Show Me The Money
It’s no secret that skipping over the middleman and selling direct to the consumer is going to result in better margins. But let’s run some sample numbers to demonstrate how much difference that really makes.
Company A
This is a traditional brand; they typically only have an educational site up and running. They probably have a “find a store” widget on their site and exclusively do business with retailers.
Sales: $20 million
Margin: 50 percent
Marketing & Sales: 10 percent
Operations: 20 percent
Gross profit: $4 million
In this example, Company A has a marketing budget of $2 million. They use this for co-op marketing and a little advertising aimed at increasing brand awareness.
Company B
Company B has a relatively strong e-commerce presence; they’ve had a store up and running for a few years. The majority of business is still through retail, but their online store focuses on capturing existing brand demand and retaining customers.
Sales: $20 million
Wholesale sales: $16 million (80 percent of total)
Direct-to-consumer (DTC) sales: $4 million (20 percent of total)
Wholesale margin: 50 percent
DTC margin: 75 percent
Marketing & Sales: 10 percent
Operations: 25 percent
Gross profit: $4.5 million
To be fair, I increased operating expenses because fulfilling and servicing direct-to-consumer sales requires more effort than exclusively selling wholesale.
In this rudimentary example, Company B has another $500,000 they can use to fuel future growth or simply pocket as a more profitable company. If they do use it to increase growth, they’d take their marketing budget from $2 million to $2.5 million. That’s a 25% increase without even increasing sales.
In fact, since the retail price is higher than the wholesale price of product, they needed to sell fewer units to get $20 million in sales. And it’s not a huge leap to assume that the steps above could increase the number of units sold.
Obviously, these are simplified numbers. But they quickly demonstrate how much difference direct-to-consumer sales can make in a company’s bottom line. What would your brand do with 25 percent more in your marketing budget? It could be time to find out.
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