The business model for fast-moving consumer goods (FMCG) companies has traditionally been B2B, with businesses nurturing relationships with retailers and wholesalers to sell their products, while developing products and brands that customers will love. However, times are changing. Many businesses now include a direct-to-consumer (DTC) channel within their sales offering.
We explore why your business should consider DTC and its impact on your operating model.
Why open a DTC channel?
Access to customer data
In the traditional B2B model, FMCG companies rely on retail partnerships to access customer data, often through a company owned by the retailer, such as Nectar or dunnhumby. A DTC channel provides direct access to customer data – instead of through a third party. Access to first-party data can help to enrich customer experience through relevant product development, personalised advertising and targeting, which in turn builds brand loyalty.
Innovative start-ups are already operating in the DTC space, with access to customer data enabling personalisation. To compete, FMCGs need to move swiftly to build a DTC channel to better understand their customers.
New routes to customers
A DTC channel offers an additional route to customers. As well as selling products through traditional channels, such as retailers (in-store and online), distributors or online marketplaces like Amazon, FMCGs can create their own channels. This can be done physically through pop-ups or stores, as Magnum did with the ‘London Pleasure Store’. More often FMCG businesses sell through their own online channel, for example, Pantry Shop by PepsiCo.
DTC complements traditional channels and enables FMCGs to create an omni-channel presence with a greater offering, in line with how consumers behave.
COVID-19 has been a test of resilience for all industries. Consumers are at home and shopping online rather than on the high street – a trend that was on the rise even before the pandemic and which could prove challenging for FMCGs. Companies such as Dollar Shave Club, a start-up now owned by Unilever, are adept at creating engaging platforms to attract and sell directly to customers. To retain market share, FMCGs will need to constantly adapt their product offering to keep up with changing consumer preferences. Agility is key for resilience. Through DTC, businesses can launch new products quickly then test, learn and iterate.
What does this mean for the operating model?
To fully realise the benefits of DTC, the operating model must evolve to incorporate and accommodate this new channel alongside existing retail channels. Businesses need to consider all dimensions of their operating model when designing and implementing transformation. We will explore impacts across three of these areas: capabilities and skills, people and culture, and customers and channels.
Our operating model framework
Capabilities and skills
New capabilities will be required to harness the benefits from a DTC channel. 34% of companies believe they will need more staff to support a DTC channel and 36% say they will need to upskill their existing workforce.1
- Customer analytics: To benefit from the increased customer data, FMCGs will need to acquire or enhance their current customer analytics capability. In-house analytics platforms can draw out rich insights which can then be used to attract and retain customers. These insights can also be shared across the business with other teams, such as research and development (R&D) and marketing.
- Innovation methodologies: DTC provides the opportunity to experiment and launch new products to customers. The existing R&D capabilities need to work side by side with the DTC channel to trial new products. To do this at pace and scale, a test-and-learn approach will be needed. Staff will need to be trained in innovation methodologies such as design thinking and lean start-up.
People and culture
Culture change is critical to ensuring long-term gain from DTC. You may already have the customer at the heart of your mission, but to have a truly customer-centric culture the workforce must embrace new habits2, as shown in the diagram below. With most FMCGs traditionally focusing on B2B, the shift to being customer-centric will require culture transformation.
Diagram adapted from Gartner²
One of the most important habits of a customer-centric culture is listening to customer feedback. Teams need to learn to start with the customer first, using a customer data-led approach and empathy when innovating. This can be achieved by adopting methodologies such as design thinking.
Customers and channels
The new direct relationship will require some significant changes to the way FMCGs interact with customers.
- Customer services support: Your current customer services team will need to be trained and expanded to support an increase in customer enquiries through current channels and social media channels. These enquiries were traditionally covered by retailers, including order tracking and promotions, as well as questions on how to use the DTC channel.
- Customer analytics and profiling: The DTC channel will have the closest interaction with customers, so will need an effective way to analyse customer data and share insights with product and marketing teams across the business.
- Existing relationships: Launching a DTC channel can have an impact on existing channels and relationships with distributors, as there is a risk of direct competition. DTC should be additive – the traditional channels of retail, distributors and online marketplaces are still important for sales. The maintenance of these existing channels will be critical to maintaining an omni-channel presence and retaining multiple revenue streams.
Launching a DTC channel will reap numerous benefits for your business. Having direct access to customer data, new routes to your customer and overall business resilience will enable your business to thrive against competitors. However, to truly realise and sustain these benefits, it is essential to adapt your operating model.
These are just some of the factors that you will need to consider before launching a DTC channel. We can help you understand the full picture and review your operating model to successfully integrate a DTC channel within your business.
We support retailers to ensure your business model focuses on the customers that will deliver the most value and provide you with the best opportunities for growth.