- Apr 04, 2019
Vendors have been the silent partner behind the scenes that drove production in many retail sectors. For decades the arrangement was a good one for both the vendors and their partners — they handled the production and manufacturing processes and worked with distribution partners to place and sell products in retail stores. This allowed both the vendor and their distribution partners to specialize in very specific aspects of their business, facilitating growth.
However, we’ve seen a disruption in recent years — a seismic shift that stands poised to change the retail industry. Driven by the adoption of internet shopping and eCommerce, more vendors are looking to cut out the middleman (their distribution partners) and go direct-to-consumer by opening their own eCommerce offerings.
Even customers are expecting to deal more often with D2C companies in the next five years:
Legacy manufacturers are dealing with slowing growth across in-store retail channels, declining product loyalty, and rising competition from startups. To avoid building a digital presence would only make these issues more apparent as time went on. eCommerce is responsible for an inordinate amount of growth within the industry based on their market share:
Vendors making the switch to direct-to-consumer offerings understand that they must adopt a new way of viewing the customer experience. With the rise of eCommerce, customer expectations have dramatically shifted from where they had been in the retail industry.
Some of the reasons why more vendors are making the switch include:
Direct to Consumer eCommerce Offers More Brand Control
Many vendors are making the switch to D2C because of the increase in control over their brand that it presents. For most vendors, the only exposure that customers have to their brand are those that are incidental or directly facilitated by their distribution partner. This leaves the vendor wholly reliant on their partners for the growth in awareness of their own brand. With customers having more options at their fingertips than ever before, it’s difficult for vendors to foster the same brand loyalty they once did years ago. Without the ability to genuinely connect and converse with their buyers en masse, fostering brand loyalty can be a difficult task.
A move to direct-to-consumer gives them more control over their product, packaging, brand message, and digital advertising practices. Under agreements with distribution partners, vendors typically have little control over these aspects of their brand. Contracts often require that products look a certain way, and changes can lead to a whole new round of negotiations that could result in less favorable terms for the vendor. With these changes posing a big risk to their business, most vendors opted not to rock the boat.
Ability to Evaluate and Improve the Customer Experience
The problem that many vendors were having was that they were so far removed from the actual experiences that customers had with their products that making changes required a lot of input from their distribution partners. If a vendor had contracts with multiple distributors for the same product, the feedback that they received from each partner was often inconsistent. That made it difficult for them to not only evaluate their relationships with customers but took a lot of their interactions with customers out of their own hands.
Going direct-to-consumer represents a change in both the way they see the customer experience and the importance that they place on it. Direct access to customers means more access to data. That data comes through daily interactions with customers through support channels, as well as data that they gather on the buyer’s journey through customer attribution.
Expansion of Channels a Trend Among Vendors
As the effect that digital channels can have on their business has become increasingly clear, more vendors have made the move to direct to consumer eCommerce in an effort to take advantage of digital channels and more broadly expand the channels that they use to advertise their products and brands. Relying on distribution partners as a go-between for customers through digital channels meant that vendors were reliant on their partners to make the most of these channels.
Vendors are dealing with declining in-store sales across most industries as more customers turn toward digital channels to research and ultimately buy their products. Just take a look at the changes in in-store retail sales year-over-year by store type:
The gradual shift toward online distribution means that vendors are not only more interested in cultivating a strong brand for themselves, but they are also more protective of the ways in which their own brand is used. As customer preferences have shifted toward a more informed, research-heavy approach to buying even the most basic of products, vendors saw themselves missing out on furthering their brand within those important parts of the buying equation. A study found that 81% of shoppers conduct online research before buying a product. Without having a foot in the door in those aspects of the customer experience, vendors found that growth had slowed and their ability to negotiate favorable deals with distribution partners was dwindling.
Staying with the Times
Another reason why many vendors have started to make the move toward embracing digital channels and a D2C approach is simply to stay with the times. They see the rapid growth of eCommerce and many of their competitors making the switch and know that the writing is on the wall.
eCommerce’s share of total retail sales in the U.S. is growing with each passing year and is expected to continue its growth into the 2020s. By 2021, eCommerce is expected to fall just short of 14% of all retail sales in the U.S.
To put off an emergence in digital channels would be to delay the inevitable. As digital channels and eCommerce become an even bigger part of people’s shopping habits, vendors see that they must make the transition and begin to build their brand with customers in order to see consistent and reliable growth.
The rise of direct to consumer eCommerce brands is one of the most surprising events in the eCommerce industry in recent memory. As companies that have been building their brand for years struggle to facilitate growth, we are seeing a group of former-vendors make the switch and capture impressive market share from incumbents. Their streamlined production processes are able to give them a competitive advantage on price, while the availability of tools and resources make the adoption of digital channels simpler than it would have been just a few years ago.
Avoid Messy Negotiations
One often overlooked benefit of vendors going D2C is the fact that by taking the reigns of their digital sales operations, they can avoid messy negotiations with distribution partners. It is rare that vendors are able to secure the same (or similar) deal with multiple partners. This can make the management of all of the different relationships nearly as difficult as serving the customers themselves, reducing the benefits of having chosen to be a vendor to other companies in the first place.
By going D2C, vendors can avoid the delays, interruptions, and margin reductions that consistently come with negotiating and renegotiating contracts. While not all vendors that have chosen to go the D2C route completely end their relationships with distribution partners, many are seeing the benefit of reducing their reliance on these partnerships and taking the future of their brand more firmly into their own hands.
Maintaining an eCommerce Presence Provides More Data & Feedback
We are living in the data-driven era. Collecting and utilizing data gives companies the ammo that they need to identify issues in their production, marketing, and operations, and optimize their processes for better performance. Through embracing digital channels and utilizing multi-touch attribution to better understand the experiences of their customers, they put themselves in a position to better cater to those customers.
As a vendor with distribution partners, they often wouldn’t have access to that data. If they were provided with data, it would only be through the lens of that specific distribution partner and not the broad look that vendors really needed to justify operational changes. That made it difficult to draw definitive conclusions that they could use to inform their own strategies.
Now, with their own eCommerce channels, vendors have access to purchasing behavior data that helps them both operationally and in the marketing of their products. Insight into product page views, cart additions and removals, carts abandoned, and return purchasing data —the same vendors that have worked with distribution partners for years are gaining deeper insight into the market that they have been serving.
Being less reliant on their distribution partners makes these companies more agile, more connected to their market, and improves their ability to make data-based decisions that cultivate reliable growth.
More Profit, Less Headache in D2C
With the trends leaning heavily toward D2C, more vendors and legacy manufacturers are embracing D2C business models and growing a digital presence from their brand. Direct to consumer eCommerce models position these companies to capitalize on future trends, make them less reliant on distribution partners, and help them to capture and utilize more data in their decision making processes.