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Developing a Profitable (Low Conflict) Direct-to-Consumer Strategy

Reorienting to the Reality of the Market.
For today’s consumer electronics manufacturers, it’s no longer a question of whether or not to have a direct-to-consumer (D2C) online sales channel. The reality of modern business has already settled that issue — it’s a necessity for the long-term survival of their brands as well as their ability to be a strong, vibrant partner well into the future. Rather, the question CE manufacturers should be asking is how to develop a D2C sales strategy that is efficient, profitable and free of as much real or perceived channel conflict as possible.Properly deployed, a D2C strategy can even be a positive step for all concerned. According to a recent Jupiter Research study, 90 percent of consumer product OEMs that adopted a D2C online sales strategy reported their companies benefited overall. In fact, 43 percent of respondents said D2C has been highly beneficial for their business.

Perhaps even more interesting was the reported response from channel partners. Most CE manufacturers found their dealer networks had actually increased their orders and product floor space as well as the prominence of that floor space.

While a majority of CE manufacturers currently engage in online marketing at some level, what may now be seen as a seemingly minor sideline can become a significant generator of both incremental revenue and profit. To accomplish this, however, OEMs must re-orient their thinking to the realities and opportunities D2C presents.

For example, it has been suggested the graduating class of 2011 will be the first generation of consumers that has never had to wait for anything; Google, smartphones, digital media — nearly every need is satisfied with a click, including shopping and buying. Many retailers have a hard time adjusting to this new paradigm because their business models are still built on the idea of consumers walking into a store to make purchases.

CE manufacturers can service this new generation of e-shopper, and the millions of others who turn first to the Internet, by cultivating an online brand experience. Today, 62 percent of all retail foot traffic starts with an online search — and typically, that search includes a visit to the brand website. CE brands need to build their online presence accordingly.

D2C Building Blocks
Instituting a solid D2C function, however, goes far beyond creating an effective online storefront. It requires five key infrastructural elements, which the manufacturer has to implement itself or through partners:

• Order Fulfillment. Factories are accustomed to shipping containers and pallets of goods, not necessarily single orders. A properly designed fulfillment capability will ensure inventory is cost effectively available and ready for shipment wherever, and in whatever quantities consumer orders dictate.
• Order Support. Service before, during and after the sale must be a top priority. To deliver a satisfying buying experience for consumers, CE manufacturers need to provide shipping status alerts, returns management, customer service and technical support. Additionally, multi-language capabilities are essential for brands looking to have a global presence.
• End-Consumer Marketing. It’s not enough to merely offer a D2C option — OEMs must promote it to achieve sales volume expectations. Initiatives like email campaigns, search engine optimization (SEO), affiliate programs and social media outreach are all effective and increasingly inexpensive ways to attract buyers.
• Accounting and Administration. Direct-to-consumer attracts a wide range of shoppers, from an even broader geographic base. To maximize sales, CE manufacturers need to support the payment types and currencies buyers want to use, which often means foreign credit cards and currencies. The compliant and culturally sensitive support of sales and value-added tax, along with regulatory fee collection and remittance is essential to creating a satisfying buying experience for consumers. It’s also important to have processes and systems in place to manage fraud.
• Compliance. Even if volumes are modest, OEMs, as online merchants, must comply with PCI (Payment Card Industry) mandates to minimize risk of credit card data theft. Consumer privacy issues, export compliance and federal mandates, such as Sarbanes-Oxley in the U.S., must be dealt with effectively and efficiently.
A Low Conflict Plan that Works
To begin building their D2C strategies and ultimately driving incremental revenue and profits, CE manufacturers should focus their efforts on areas that complement their dealer, distributor and retail networks. When deciding what goods to offer online, it is wise, for instance, for CE manufacturers to concentrate their marketing on areas where their channel networks do not have a presence — and more specifically on products generally not available to consumers through retail partners. This may take the form of targeting underserved geographies, overlooked segments of their product lines or complementary offerings not sold by their channel partners.

For example, a D2C strategy offers CE manufacturers a great way to move products that do not sell as well in a retail channel, or that retailers or dealers may not be equipped to train on or won’t carry due to limited shelf space and other restrictions. These types of products often include service parts, accessories, niche products, end-of-life products, early adopter or feature-test goods and open-box items.

Typically, channel partners limit their investment of CE brands to certain product segments. Those are critical investments to be sure, but does not best position the CE manufacturers’ product offering or meet customer demand. To satisfy sales goals and the needs of consumers, OEMs must establish a direct relationship with those consumers who are not completely served by the channel network.

A Strong Growth Proposition
A well-planned D2C strategy can accelerate market success and diversify CE manufacturers’ income base amid a constantly changing retail environment. A solid D2C strategy can lead to higher margins and faster time to revenue. It also offers OEMs access to immediate consumer feedback, an unequalled opportunity for brand building as well as invaluable customer analytics that retailers typically do not share.

Implemented wisely, a D2C strategy can benefit the channel, too. By developing an online presence in anticipation of further growth, OEMs uncover an excellent way to gather valuable intelligence for channel partners interested in investing in new markets with them in the future.

Remember, a well-thought-out multichannel strategy operates on high efficiency and effectiveness and low conflict — it is designed to accomplish many goals of CE manufacturers, including fostering (not inhibiting) a robust channel network of partners. A strong D2C channel will help ensure the OEM can continue to be a solid, innovative provider of quality product offerings for its channel partners well into the future.

John Sekevitch is the consumer electronics VP for Digital River, a leading provider of global e-commerce solutions.