June 22, 2023
The rise of D2C channels presents an interesting conundrum for manufacturers. The challenge lies in finding a strategy that allows both D2C and retail channels to coexist and flourish.
Many brands want to launch their own D2C channel. On one hand, they offer opportunities to capture more margin, gain consumer insights, and build brand loyalty. On the other hand, a poorly executed D2C strategy could alienate retailers, leading to a loss of valuable partnerships. A study published in the Journal of Marketing Research in 2021 highlighted this conflict, finding that when manufacturers implemented a D2C strategy, it often led to tensions with retailers due to perceived competition. However, when the best practices are in place, many of the challenges can be avoided or at least mitigated.
Effective communication is the cornerstone of any successful relationship. When expanding into D2C, it is vital to maintain open and honest communication with retail partners. Keep them informed about your D2C initiatives, the reasons behind the move, and the benefits it can bring to both parties. Transparency is key to maintaining trust and avoiding any potential surprises or misunderstandings.
Create exclusive products or experiences for your retail partners to incentivise their continued support. This can involve offering limited editions, unique packaging, or collaborative product lines that are exclusively available through retail partners. By providing differentiated offerings, you demonstrate your commitment to maintaining the value of the retail channel and reinforce the notion that retail partners play a vital role in your business.
Maintaining price consistency across all channels is another crucial strategy in managing D2C alongside retail partnerships. A significant driver of conflict between manufacturers and retailers arises when a product is priced lower on a manufacturer's D2C channel than at a retailer. This scenario can lead to an unfair competitive environment, where the manufacturer is essentially undercutting its own retail partners.
The importance of this practice is emphasised by commerce expert and consultant, Caroline Ohrn: "Inconsistent pricing is one of the quickest ways to destabilise a relationship with a retail partner. It communicates a lack of respect for the partnership and the retailer's role in it."
To manage this, manufacturers can use price monitoring and optimisation tools. These tools use AI and machine learning to analyse a myriad of pricing data from various sources, helping businesses set competitive yet profitable prices that align across all channels. Price Optimisation can effectively mitigate potential conflicts with retail partners by ensuring parity and maintaining a fair market. Moreover, manufacturers can respond quickly to market changes (for example, when some of their sellers go out-of-stock), adjusting prices on their D2C channels to leverage small but meaningful opportunities to gain more from every item they sell.
Using such tools allows manufacturers to uphold a harmonious relationship with retailers, while also being responsive and adaptable in their D2C strategy.
Collaborate with your retail partners on marketing initiatives to drive customer traffic and boost brand visibility. This can involve joint promotional campaigns, co-branded advertising, or cross-channel marketing efforts. By working together, you can leverage the strengths of both channels and maximise the impact of your marketing activities.
Nike is a prime example of a company that has successfully balanced D2C and retail partnerships. In 2017, Nike announced its "Consumer Direct Offense", a business strategy aimed at increasing D2C sales. Rather than alienating retailers, Nike worked with them to provide differentiated, brand-enhancing experiences.
LEGO has also effectively navigated the D2C and retail balance. The company maintains close collaboration with its retailers while offering exclusive products and experiences through its D2C channel, thus segmenting its market and ensuring no direct competition with retailers.
A company used to be a successful manufacturer. But in 2008 facing the economic crisis, they decided to launch their own D2C channel. The experiment was so successful that in several years Grainer became one of the leading tools and DIY retailers in the US. Read the full story on how they managed to do it.
Balancing D2C and retail partnerships requires careful strategy and execution. If you’re not certain about the outcomes consider carefully if launching this channel would be beneficial for your manufacturing business. Truth be told, D2C is not for everyone.
1. You're Seeking Greater Customer Insight: D2C channels offer manufacturers a direct line to consumers, allowing them to gather valuable insights into consumer behaviour, preferences, and feedback. This information can be instrumental in driving product development and marketing strategies.
2. Your Product Requires a Specialised Selling Approach: For products that require a unique selling proposition or a high degree of customization, D2C channels can provide the perfect platform. By controlling the sales process directly, manufacturers can ensure that consumers understand the value proposition and customisation options available.
3. Your Traditional Distribution Channels Stopped Working: In the times of turmoil retailers become more cautious with the order sizes or go out of business altogether. To mitigate risks of manufacturing business being fully dependent on retail it makes sense to launch a D2C channel and enjoy a higher margin it promises.
However, you have to realise that building a D2C channel requires substantial investment in ecommerce-related infrastructure. Which today doesn’t only imply the website but also pricing solutions, data analysis solutions, marketing personalisation solutions and more.
As Alistair Mitchell, a retail strategist, states, "Like any strategy, D2C isn't universally applicable. It's crucial for manufacturers to carefully assess their individual circumstances before deciding to go down this path. Missteps can not only be costly but also jeopardise relationships that have been built over years with retail partners.
With years of experience in sales and revenue management, Alec makes significant contributions to Aimondo's Knowledge Hub. He covers topics related to competitive strategies, competitive pricing, and strategic approaches to revenue growth
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