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Unlocking Value: Which DTC Model Is Right For You?

Unlocking Value: Which D2C Model Is Right For You?

How CPGs can ensure they develop the right strategy to capture the most value from their D2C investment.

In the first part of this series, we explored the different types of value CPGs can get from establishing D2C within their businesses – from creating new sources of revenue, to indirect factors like building customer relationships through first-party data, quicker time-to-market with new products, and stronger brand share-of-voice.

But how can CPGs ensure they develop the right strategy to capture the most value from their D2C investment?

Establishing a working D2C model requires careful evaluation and assessment of the business to ensure goals, resources and investments align with the value drivers that matter most. Further, CPGs must also ensure they have a set of core technology capabilities in place to support new projects and a scalable D2C model. This process will look different depending on where a CPG company is within their digital transformation journey and what goals are most important to the organization.

Now, we will take a closer look at some of the most common D2C model archetypes, how some of the largest CPG brands are using them today and what CPGs should consider when choosing the right model for their business.

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Data-Driven Consumer Insight: Collecting and leveraging data & analytics to deliver personalized experiences, reduce churn and develop new products or services that better meet consumer needs

Concept Incubation: Testing and developing new products and services with less risk and faster speed-to-market

Brand Building: Using stronger control over how consumers interact with their products, to influence conversion rates, loyalty, and increased organic brand advocacy through word-of-mouth customer reviews and recommendations

Business Agility: Increasing ability to innovate, expand and adapt to shifting trends in a way that relies less on outside retailers that may be exposed to different risks

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Evaluating D2C Model Archetypes

In our experience, we’ve observed five core types of D2C models, described on a scale of growing technological and organizational complexity when it comes to investments in infrastructure, technology and operations. Each of these model archetypes provides a different profile of value potential across customer and business value drivers (both direct and indirect). The type of value each provides should be a key consideration for CPG players as they assess which model is the best fit for their organization.

knowledge hubs

1. Knowledge Hubs

This table-stakes D2C model focuses on engaging consumers though content; building unique, brand-centric engagement that informs, inspires and educates shoppers without e-commerce infrastructure. Knowledge Hubs can be used to collect data on how consumers interact with content, shifts in interest and purchase intent, while providing unique customer experiences.

In Real Life: Patron’s “Cocktail Lab,” a data-driven cocktail recommendation engine that serves up creative cocktail recipes based on personal preferences, educates and inspires shoppers to try new things while keeping Patron top-of-mind.

 

Digital store

2. Digital Store

This D2C model establishes a fully functioning e-commerce website dedicated to direct sale of an assortment of company products, along with immersive content experiences. With e-commerce enabled, this model introduces a new online revenue stream, while providing convenience for shoppers who want to purchase direct.

In Real Life: Nespresso’s branded e-commerce site brings the entire coffee shopping experience under one digital roof. Shoppers can purchase Nespresso’s full range of coffee products, machines and accessories, along with seasonal specials, deals and curated collections. Supplementary content educates consumers on how to care for their Nespresso products and highlights the brand’s continued commitment to sustainability efforts.

subscription

3. Curated Subscription Models

Subscription models have a higher barrier to entry, challenging CPGs to consider acquisition, retention and loyalty over time. However, when executed correctly, subscription models provide CPGs with a direct source of revenue through recurring shipments of product or curated items tailored to consumer need. Subscription models allow CPGs to learn more about items customers want to purchase on a regular basis, delivery preferences, and other items they may be interested in. With this first-party data, CPGs can then create custom offers for consumers, deepening brand loyalty and increasing basket size.

In Real Life: Different subscription models allow CPGs to create a system that works best for their product line. For example, companies like DollarShaveClub and Daily Harvest leverage the replenishment model, which ships consumers the customized products they love on a regular basis – ensuring they get what they need on a dependable schedule.

personalized dtc

4. Personalized D2C

Adding a layer of personalization to D2C models establishes a one-to-one relationship with the customer. While barrier to entry requires implementation of backend technology and e-commerce capability equipped for personalized D2C programs, this model helps drive deeper consumer engagement and sales insights, while providing uniquely customized and convenient experiences.

In Real Life: Purina’s “Just Right Pet Food” is a completely personalized shopping experience for dog lovers. Customers are asked to create a profile of their pet, listing health needs, age and taste preferences. Purina then gives owners recommendations based on their profile, along with nutrition guidelines. The customized food and feeding plan is then delivered directly to the shopper’s doorstep – creating a true one-to-one brand experience.

touchpoint commerce

5. Touchpoint Commerce

As the most robust model, this D2C approach creates new paths to purchase by embedding D2C commerce in non-commerce digital touchpoints (social, games, IoT, etc.) This model sets the business up for ongoing and future innovation, allowing CPGs to embrace new methods of connecting with consumers as they evolve over time.

In Real Life: Cereal brand Mymuseli gives consumers an opportunity to create their own blends of hot and cold cereals to order. With QR codes printed on the back of their packaging, customers can save mixes they’ve enjoyed – with reordering as simple as scanning a code on their mobile device.

 

Business and Market Readiness

It’s important to note that while all these D2C models offer opportunities for CPGs, not all models are the same when it comes to risk and outcomes. For example, while a Knowledge Hub offers new consumer experiences, engagement data and is easier to implement, it does not offer direct revenue. Conversely, subscription models, for example, provide high business and consumer value, but requires more time and investment to activate.

Each model has a distinct value profile that translates into a different mix of revenue, profit type and scalability depending on the specific category, product and market that is being considered for D2C. To understand what model works best, CPGs need to evaluate their own business as well as market potential. This way, CPGs can identify the best opportunities and prioritize projects over time.

  • Market Readiness: Evaluation of factors like rate of consumer adoption of digital channels, e-commerce sales, and D2C market penetration.
  • Company Potential: How a CPG stands within the market, economic position (both globally and regionally), operational readiness, and e-commerce profitability.
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Building the D2C Capability

Along with understanding market readiness, CPGs must ensure they have capabilities in place to launch a D2C model and scale it efficiently. There are three core enablers required for capturing direct and indirect value from D2C opportunities:

A global D2C technology platform: A D2C technology platform is a three-tiered system that provides a foundation for scaling D2C programs. A set of global capabilities exists at its core, with the ability to layer on brand and geographic-specific extensions, giving flexibility to build based on market needs and opportunity. A platform approach reduces time-to-market and lowers technology costs by uniting the organization under one system.

An agile operating model: Along with strategy, getting the right governance model out across global, brand and geographic extensions is critical as the model scales. To plan effectively, CPGs should consider factors like resource allocation, budget, project approval, and overall strategy to determine appropriate stakeholders and prioritize implementation.

D2C data capture: Unlocking the full value of D2C requires companies have core capabilities to collect, analyze and understand consumer and marketing data and turn these into relevant, consistent and personalized insights and interactions. Having clear first-party D2C data capture standards and a strong integration with a global first-party data ecosystem is key to capture full indirect value.

Choosing the Right D2C Model

There are many opportunities for CPG firms to capitalize on the direct and indirect value that D2C has to offer, with some of the biggest companies leveraging different tactics to create new experiences unique to their brands today. For CPGs looking to get started, assessing business capability, market readiness, and digital maturity can uncover areas ripe for innovation. Supported by agile technology solutions, CPGs can then pave a path to implementation, establishing a longstanding D2C model that’s built to scale.

Sabrina McPherson
Sabrina McPherson
Managing Director, Management Consulting

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