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Written By Andrew Penny
It’s no secret that traditional supply chains are changing dramatically.D2C is quickly becoming the default way for manufacturers to enter new markets.
A typical sales channel includes the manufacturer, a distributer / a master reseller and resellers who interact with the end customer. These multistep channels have outlived their utility.
What is happening instead is an approach called D2C, or Direct to Customer. New companies are usually ‘born digital’. WarbyParker sells eyewear products D2C around the world. The poster child, and perhaps best known D2C , is Tesla who sells cars at prices over $100,000 on line (and a new Roadster model will sell at close to $200,000).
But it’s not only the new companies embracing D2C. Westinghouse now lets you buy washing machines and other appliances directly from their website. PepsiCo launched PantryShop.com and Snacks.com to sell Gatorade, Tropicana, Frito-Lay and other products online. Nike.com lists a full range of Nike branded products anyone can buy.
One of our manufacturing clients is launching in North America. They have no market presence and no dealers and are competing against extremely mature manufacturers with thousands of dealers across the continent. How can they compete?
D2C was impossible as recently as 10 years ago but conditions supporting D2C were steadily improving. The pandemic changed all that and now everything is in place. The only thing lacking is manufacturers’ lack of bravery.
So what’s new?
Technology has made it effortless to get all the information about almost anything you might want to know in a matter of seconds.
After 18 months of working from home, we have figured out the technology. We buy food, computers, furniture, vacations, cars – just about anything. And this comfort level translates into our work lives. Companies are also embracing online purchasing.
One-click buying is all very well but what about payments? Payment systems move money quickly and securely resulting in extremely high customer confidence. Delivery? All those logistics companies have also been investing in technology and refined processes to get what you want from there to here cheaply, safely and quickly.
Installing, training, servicing – have you been on YouTube recently? And that's just the start – add in two-way video and the factory technician can be on-site anywhere in the world in seconds. Provide augmented reality and you may not even need the technician.
Marketers talk about the 4 Ps of marketing (Product, Price, Place, Promotion). The sales channel used to add value by holding stock (Place) and creating awareness and closing deals (Promotion). The sales channel is a very expensive way to do these things. It is becoming harder and harder for traditional sales channels to add value.
So why isn’t everyone going D2C? Some products and services are most economically reached through a value-added reseller network (possibly a sales and installation network – although the sales part is probably not that efficient). Some companies are not bold enough. The biggest problem, however, is for companies that have what I call Asset Baggage. They have cash and brand equity integrated into their sales and distribution networks.
Back to our client from South America expanding into North America. How do they compete against a giant, established company? Ask Elon Musk how he managed to compete against GM, Toyota or Honda.
This is the first in our series on D2C and how to do it. If you’d like to see the rest of them, be sure to subscribe below.
If you are planning on ramping up your export activity you might want to read this first.