An old Chinese proverb states that “when the winds of change blow, some people build walls and others build windmills”. For many retailers, coronavirus is the latest blow - or should we say hurricane - that will make building a wall or a windmill the difference between life and death.
The retail sector is in crisis
It is fair to say that most of the challenges faced today by retailers are not new: high street retailers have been hit with high rents, high rates, as well as a great competition from pure players and comparison websites, not to mention the A-word. In the UK, the Pound collapsed and Brexit is looming.
Then, 2020 arrived fast and furious like an uppercut: the already struggling Retail shops were suddenly hit with the covid-19 pandemic. As a result, we witnessed a rapid shift from retail to internet shopping. Many retailers faced an all-time-low cash flow and some had started their digital transformation but were not ready yet.
Sadly, it is forecasted that some companies will collapse and the likeliness of their survival will vary depending on how generous state aides are. But not all is lost: some companies have been able to resist thanks to their online channels and a sub-group has been especially successful: Direct-to-Consumer (D2C) businesses.
Why are D2C businesses so successful?
Looking at the successful ones, somes names come into mind:
World renown brands: Nike, Lego, Dyson, Unilever
Pure players: Allbirds, Stitch Fix, Dollar Shave Club, Warby Parker, Casper, Simba, Made, Thirdlove… and the list goes on.
But even responsive thinkers in all lines of business like IKEA, Lululemon, Chewy, Credo and Adam & Eve have been able to pivot their business during the epidemic.
Benefiting from a strong leadership (more info on how leadership is important for a long term digital change), these brands also showed the way forward in 3 crucial ways:
1. A unique and mostly frictionless brand and user experience
D2C businesses have streamlined their brand and user experience. When it comes to the brand, they successfully brought value and moved away from being seen as mere convenience. For example, Nike is associated with performance, football and strong progressive political statements. Lego is associated with fun, creativity and a personalised experience. They also tend to offer the best (or frictionless) user experience: free delivery, a world class customer service and terms and conditions, as well as values such as ethics, clarity and transparency. Marie-Bérengère Devulder Salmon, General Manager France at Bloom and Wild, tells us how Bloom and Wildrevolutionised the florist industry with their innovative letterbox flowers using flattened packaging so that they could be delivered directly through everyone’s mailbox.
For brick and mortars wondering how to offer their products or services directly to their customers through online channels, here are a few ideas:
Product, selection & price
Do you want to renew your customer base and address a younger audience more specifically? In this case, digital assets could be specifically created for them.
You could sell products which are not available at your retail / reseller shops (e.g. personalised products such as Nike by you)
You could ask your community to create products they like (Lego Ideas)
You could aim at simplifying the customer journey (e.g. Casper)
You could offer better prices online, for example by offering ends of stocks (e.g. whirlpool outlet)
Service & added value
The main idea is to give a reason for your customers to come and visit you online.
2. A strong investment in data
Data is key and can be used to influence prices, the supply chain, distribution (shipping), promotions, targets, positioning, the infrastructure to manage returns, products and customer services. D2C businesses understood it and used Retailtech to their advantage to collect data on their customers and offer the best experience to all of their audience segments.
While collecting and powering data is important across the board, D2C businesses have heavily invested in particular on these 3 categories:
Definition of proper and reliable KPIs: Yes, most companies still work with Cost-Per-Acquisition (CPA) as their main KPI but this indicator has a major flaw: marketing gets credited for everything. A much more advanced way is using Marginal Cost Per Acquisition (MCPA) as a metric which aims at identifying the marketing cost of an additional customer at the current level of spend. The objective is therefore to make sure that your MCPA is never above your customer’s average lifetime value.
Audience segmentation and prioritisation: Being in touch with their customers brought invaluable information such as which audience engage with the products but do not buy it, what they’d like to change or whether they’d recommend it to their friends and family. This data is vital to any business and enabled D2C not only to create specific messages to these customers but also model their offering specifically to them, thus improving their conversion ratio and lifetime value.
Attribution modelling: retailers use various platforms both online and offline and the apparition of GDPR / CCPA, walled gardens and Intelligence Tracking Prevention as well as Google moving away from third-party cookies make it hard to solely rely on Multi-Touch-Attribution (MTA) and understand how to distribute your budget across all marketing channels. The reason being that some of the data you relied on are no longer accessible. Therefore, D2C businesses spent a significant amount of time working on econometric models (Media Mix Modelling) tested against what they could witness on the ground via Randomised Controlled Tests (RCTs). The combination of MTA, MMM and RCTs are bringing much more advanced results.
Marie-Bérengère Devulder Salmon explains how “data is used throughout the business with three main objectives: customer satisfaction, stock management and service level optimisation.“ She continues: “Sales data and customer satisfaction are analysed in real-time and made available to everyone in the company. When it comes to customer acquisition, this enables us to predict precisely the type of stems to buy each day as well as the volume and sell them the following day to an agreed cost per acquisition.”
3. An efficient physical presence beyond just being available online
Resellers, just like high street retailers, are struggling financially. They first saw D2C businesses as yet another threat coming from the digital world. But D2C businesses soon understood that creating partnerships with existing reseller networks could be a way to expand their business.
The main reason is that pure players always see a large surge in online sales in areas where they have a physical presence. A physical presence also means a smoother customer experience when it comes to handling product returns.
This is where partnering with existing physical stores is extremely important. Steen Rasmussen, Senior Partner and data evangelist at IIH Nordic, believes that partnerships are crucial to the customer journey: “As humans, we spend the majority of our day on autopilot, following routines and just doing what we always do. In order to generate attention and conversions, marketeers have to be part of this customer journey. This is where partnerships are immensely valuable and they tap into an existing path. The interesting thing is that more and more of these paths are going online and for that reason digital becomes more and more relevant.”
2 interesting partnerships are worth mentioning:
American Airlines now uses Casper products in their aircrafts. For Casper, whose main promotion revolves around the high satisfaction rate of their product, it is a way to prove the point that you would sleep better and more comfortably with them.
B8ta created the concept of “Retail as a service” or “Shops in shops” in Macy’s department stores. Pure players can show their products and pay a monthly subscription giving them access to real-time data.
D2C showed the way to the retail sector
D2C companies proved that the retail sector can strive and the combination of a great brand proposition, a good tech and data strategy and the cooperation with resellers can be a winning equation. Our next article will go more in depth on data.
To get the most from this article there are 3 things you should explore at this point.
Explore what the competitions is doing
Data strategy: explore if you can collect data and how you can use it