The future relationship between brands and retailers

What ensures that customers are willing to buy directly from brands (even if it means paying extra for the product)?

         Vasco Verdes BOLD


Article by Vasco Verdes
Business Consulting Manager

What does Direct-to-Consumer mean?

In the retail world, developing a channel strategy for selling directly to the end customer is nothing new.

In 1996 (way before 5G) DELL pioneered the launch of its online store and created what was - at the time - the first standard for electronic commerce for computer products.

The following year, Apple launched its online store and set a new standard when it comes to linking production, logistics operations and the shopping experience of its products. This store was already launched with features such as product suggestions, Build to Order (with the possibility of customization and linking customer orders to factory production), free shipping and credit card payments. This was just a first step in its global sales strategy and, since then, the focus has been on expanding its physical stores around the world to provide a specialized sales and support service to its customers.

In the middle of the last decade, bold moves by TESLA began to cut intermediaries in the sale of its electric cars. In addition to cost optimization, the brand believes that traditional dealerships do not have the experience, nor the incentive, to educate customers about the features and benefits of their product.

Now, the pandemic has accelerated the brands' investment in a strategy for digital channels that could redefine the role - and even the existence - of intermediate actors (retailers).

Giants like NIKE, Adidas and PepsiCo (among many others) are taking advantage of their notoriety, size and influence to redefine the value chain model and sell their products directly online to the end customer.

Investing on a Direct-to-Consumer sales strategy raises some questions: isn't it a bad business to compete against retailers? What ensures that customers are willing to buy directly from brands (even if it means paying extra for the product)?

Before looking at these questions, some factors increasingly consolidate the bet and focus on online sales: smartphones and digital channels make brands able to communicate easily (and at low cost) with their customers; advances in the distribution sector allow for ever-faster home deliveries; and platforms such as Shopify, Magento and WooCommerce allow you to quickly create digital channels to sell online - without having to find a retailer to broker the sale of the brands' products.

Thus, Direct-to-Consumer sales are almost a natural focus (and, in many cases, inevitable) where the brand's relationship becomes direct with its customers - betting on increasing conversion rates and loyalty.

In perspective, when compared to the more traditional scheme model (where the product distribution process goes through retailers), Direct-to-Consumer sales bring several advantages and benefits for brands:

     1. Develop the brand's relationship with the end customer: Direct-to-Consumer sales allow brands to have full control over the brand's presentation strategy and interaction with its customers - whether via the website or through a physical store -, the brand's value proposition, the structure and the content strategy on the distinctive characteristics of the products (whether in physical or digital environments). This exclusivity will create opportunities to strengthen the relationship with customers.

     2. More quality in data: direct channels allow for more specific analysis and circumvent the need to acquire data from third parties (where in many cases the information provided is generic and is not relevant for, for example, a correct segmentation of customers). Through analysis of user clicks, companies can, for example, detect patterns and trends in the interaction with the website, such as consumption patterns and customer behavioural analyses. On the other hand, through social media analysis, brands can obtain indirect information about their customers to guide initiatives: whether for the development of new products or new business partnerships (from direct feedback from customers), to improve the processes and quality of service and customer service, to customize promotions and special offers for different audiences, or even to gain insights and explore new approaches to developing marketing and advertising campaigns.

     3. Greater control over pricing strategy: Direct-to-Consumer sales improve margins on product sales, as brands do not have to negotiate prices with retailers or argue for better positions and promotions in relation to their direct competitors.

 

What will happen to the relationship between brands and retailers?

For both established and newer brands, going for a Direct-to-Consumer strategy bet entails some risks. Brands have to assume all the responsibilities that are typically the responsibility of retailers. This often means a higher initial investment cost that allows rethinking the entire strategy for the value chain to the final customer (operation and technology), as well as greater investment in marketing and distribution channels.

This perspective raises yet another question: what will happen to the business relationship between brands and retailers?

In this topic, the theme will not be so much for established brands with market notoriety, but for lesser-known brands with a smaller customer base - where the focus is still on gaining their position and market share.

In this new reality, retailers can then serve as a platform to provide and drive more traffic to brands' websites, creating a launchpad to develop a presence in the digital ecosystem, increase their product portfolio and create opportunities to generate sales and knowledge products through cross-promotion.

On the other hand, brands that develop a Direct-to-Consumer approach become more experienced and solid in their industry, with more knowledge about the business, more customers and better sales, and can become even more attractive to retailers. Additionally, brands can also serve retailers by providing retail store locators on their websites, space for campaigns on exclusive promotions, or even promoting in-store events.

It is through this interdependence and mutual help that the future of the relationship between brand and retailer can assume a symbiotic nature, where the sharing of data and information allows the development of the consumption experience and better serve, at the end of the day, the end customer.
 

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