Why DTC Is The Next Step For CPG Brands
The consumer packaged goods (CPG) industry is a behemoth, representing nearly 10% of the national GDP. Yet as consumer habits evolve quickly and ecommerce continues to gain market share, CPG companies are facing three serious challenges:
- Expenses: They spend 24% of their revenue on marketing, by far the largest allocation by industry and 13% more than the average.
- Insufficient Data: They have little to no first-party customer data because they sell to consumers through retailers and marketplaces, not directly. This gap is accentuated by an increase in privacy regulations, like GDPR and CCPA, and a move toward a cookieless digital world.
- Competitors: They have growing competition from direct-to-consumer (DTC) startups and private labels from established retailers.
CPG brands have reached a critical decision point. They must expand their traditional B2B2C business model and invest in DTC models to remain relevant and competitive in a changing landscape. The pandemic has accelerated ecommerce expansion; it is projected to grow 18% in 2020, up from a 14.9% increase in 2019.
By creating new products for DTC brands, categories, segments, and themes—especially in emerging markets—CPG companies can become more cost-effective, data-driven, and agile. Instead of spending a quarter of their revenue on marketing, they can allocate some of that budget toward lower spend channels. They can build direct relationships with customers, cultivating trust, collecting first-party data, and personalizing customer experiences across different brand channels.
Some legacy CPG companies—like PepsiCo, Clorox and our client, AB InBev—are already rolling out their own DTC brands. This is a smart, low-risk way to experiment with new products and markets, without having to transform a large company overnight. If DTC efforts are successful, they can coexist with traditional channels and contribute to company-wide goals.
Three Ingredients for a Successful DTC Launch
A DTC launch doesn’t have to be an expensive or laborious undertaking. If your company is considering branching out into DTC sales with your products, you can be ready to go to market in approximately a quarter. Here are the three main elements you need to create an effective DTC technology stack:
1. Ecommerce Platform
Ecommerce platforms like Shopify, Wix, and Squarespace make it simple to promote new products and manage sales and fulfillment without a large upfront investment. Since your company sells directly to customers, you own the relationship you build with them. You can expect your marketing execution to improve with your ability to gather first-party data, as you learn more about your customers’ preferences, behaviors, and buying habits. Most importantly, you have permission to use their customer data across your brand, giving you opportunities to offer one-to-one personalization, research new product ideas, and enhance overall customer experience.
2. Logistics Provider
The logistics of a DTC model are straightforward: your customer orders a product, and you ship it to their doorstep. Reliability, flexibility, and cost-effectiveness are key when selecting a logistics partner. You need to know that you can rely on them to deliver orders on time and provide real-time updates about delays or other problems. Ecommerce platforms integrate with APIs from traditional shipping companies like FedEx and UPS, as well as newcomer delivery services like DoorDash and Uber.
3. Customer Data Platform
Customer data is only useful if you can organize and analyze it strategically. A customer data platform (CDP) is a centralized database that connects information from disparate data sources, such as social media, email marketing, and ad campaigns. When you have a unified view of all your customer data, across multiple channels and brands, you can optimize your marketing strategy and deliver a more personalized customer experience. You also avoid costly or time-consuming mistakes, such as unwittingly violating data protection regulations or targeting duplicate customer profiles.
As consumers spend more of their money and time online, DTC brands are ideally positioned to grow and thrive. CPG companies have the chance to explore new opportunities in the DTC business model—or risk getting left behind.
Editor’s note: The above article first appeared on Forbes.com as part of the Forbes Communications Council series, which you can view here.