PODCAST: Direct to Consumer E-Commerce
In this episode of Just Clarity, the Digital Clarity Group podcast, Connie Moore and Jill Finger Gibson explore the topic of Direct to Consumer E-Commerce and how it’s changing as a result of the rapidly evolving field of Customer Experience Management.
Transcript: Direct to Consumer E-Commerce
Connie Moore (CM): Hello, you’re listening podcasts from Digital Clarity Group. I’m Connie Moore. I’m our Senior Vice President of Research within DCG and we have a series of podcasts that are relevant to all aspects of customer experience management. My guest today is Jill Finger Gibson who is an authority on Commerce and E-Commerce. Jill is a principal analyst and we appreciate her journey.
Jill Finger Gibson (JFG): Thanks Connie, glad to be here.
CM: Alright, well super, let’s get down to it. Today’s topic is intriguing. It’s something that I think really has the ability to change the nature of retail significantly as it begins to take hold and expand. So it’s Direct to Consumer E-Commerce and now that I’ve said what the acronym stands for, what does it really mean when we say we’re going to talk about D to C.
JFG: D to C refers to a level of change where for an extremely long time, the lines between manufacturers and retailers were pretty clear. So manufacturers who make stuff, be it food, consumer products, electronics, etc, would sell them to the retailers and the retailers in turn sold those at their brick and mortar stores or as E-commerce started to grow through via online and now that linear model is breaking down and partially it’s because one of the factors within customer experience management, where consumers have access to all kinds of information at the touch of a button about pricing and products and so forth, and they can buy from multiple channels and so they have higher expectations of brands and the retailers that sell to those brands and finding out about what those customers want and what they think is becoming more important to the companies making the products. So they no longer want to be as dependent on the retailers to find out what the customer wants. They want to be able to go directly to consumers and sell directly to consumers and not necessarily use the retailer as a middle man.
CM: Does it leave the retailers out in the cold or is there still a place for them?
JFG: There is definitely still a place for them and part of the reason why this is happening is the move from retailers who are increasingly, particularly in the United States, they’re closing some of their physical stores because they’re not getting the traffic that they need for them to be profitable. So closing the physical stores means that there’s less shelf space to sell products. So that’s squeezing out brand manufacture inventory, but it doesn’t necessarily leave them out because there are options for retailers to sell different types of product bundles for example or to carry the most popular versions of a single item whereas a brand manufacturer might instead sell those sort of longer tail of less popular, but equally intriguing items that just might not be a top seller in a big box store. So there’s room for both.
CM: You know it’s interesting. In some ways, this feels like it is the inevitable shift that started when Amazon started to sell directly to consumers. They were not the actual book publishers, but they were more of an aggregator that disintermediated the retail book stores and it seems like that was the beginning of the end, but the beginning happened quite a long time ago-
CM: At least in terms of IT time. Would you say that this is kind of the culmination of that or would you say there’s something else driving the growth and the interest that’s going on now? What is it that’s really behind this shift?
JFG: Yeah, well I think they could probably look at, there’s couple of things. For one I think it’s, you’re absolutely right that Amazon was the first to disintermediate in that way between the brands and the retailers, but I think there’s a couple things happening. For one it’s never been easier to setup an online store. The barriers to entry are so much lower because of cloud computing software and open sourced software and you can basically get a store up and running in about a day. So that’s one thing, there’s more information and I think probably another thing is the usage of the growth of mobile for information and that although commerce sales in at least developed markets are still predominantly over desktop than over mobile, mobile is growing more quickly and I think that changes perhaps the expectation of consumers of where they want to buy and what they want to buy because they want a more immediate experience and so that’s I think another factor.
CM: Yeah, you know last year I had a chance to interview a number of companies about their customer experience management strategy and there were a couple that had some very interesting things to say because in essence, their consumer behavior hitting some tipping point that shifted behavior almost overnight. Sort have been building, building, building, building, but then all of a sudden that magic number was hit and it radically changed and it was a shocking change.
So I’ll give you couple of examples just so that you know what I’m thinking about. One was a retailer of consumer goods that could be electronics, could be you know a general thing that consumers would buy for their households and they were doing pretty well, working on their customer experience and all of a sudden their customers overnight stopped coming to their stores and at the same their customers immediately shifted over to the left which left them flat-footed because their website was not set up to really sell in any kind of volume. This was more informational and you know advertising, marketing, advertorial, but they were not set up to replace to the retail organization. So then it became a mass scramble to customer experience, not just in the store, but more importantly in the web.
Then the next week and that was a European company and the next week I interviewed a European manufacturer of consumer electronics and their corporate headquarters was in Asia and they had this same kind of thing although they were the manufacturer right? People would go to the stores and they would buy consumer electronics and you know, take a look at things, pick things up and try them and see how they liked the they way it felt and how much they weighed or whatever it is the person valued, and then all of a sudden the buyers stopped going to the store and wanted to go the manufacturers website, but the manufacturer wasn’t set up to sell at all because they were selling to stores. So they had a mad scramble of how to build up their website, how to have a really good customer experience on the website and it caught them flat footed.
So I’m just giving examples. One behavior which is: consumers stop going to stores, start going to websites and it threw the retailer into a spin and it threw the manufacturer into a spin. So this is really leaving a pretty big impact on both kinds of industries, right?
JFG: Yeah, absolutely and in fact that’s one I think that, you know the research that I did went into this, the report on the topic is that, you know manufacturers don’t realize exactly what you said that people go to their sites, not just for information, but for an intent to purchase and so I heard many cases of where the retailers didn’t realize that they needed more than just web content and good web content to be able to take care of those transactions and have it go through their, you know, their backend to the supply chain and manage inventory and so forth. So this is all a huge learning curve for them to learn to do what the retailer’s second nature is and at the same time the retailers are trying to adapt to these rapid consumer behavior changes in how they want to shop so yeah it’s a big change on both sides.
CM: So if you were either a forward thinking retailer or manufacturer or the opposite, if you were a retailer-manufacturer pretty happy with the way things have been going and you weren’t really anticipating a big change, but low and behold there’s a big change in the buyer behavior, what is the key building blocks that you need in order to make this happen? Either if you do it intentionally, strategically or if you do it hurry up, hurry up, I can hardly wait as your frame of reference.
JFG: Yeah well one of the things that I’ve learned that’s really important is for the manufacture to get a hold of its understanding of its product inventory and really have a good handle on what its product inventory is and how many SKU’s, how many different types of unique inventory that they’ll need to keep track of because one of the key things about making this work is understanding the processes that will have to go into making E-Commerce work and so inventory management is a key thing. Another one is understanding pricing and there’s, you know a whole issue of that manufacturers, they want to be able to sell at a certain price point so it doesn’t chew into their margins, but a lot of retailers are afraid of selling too close to the bone because they don’t want to be cannibalized by Amazon and other third party resellers. So what some E-Commerce executives who have worked on these issues have recommended is to not worry about so much defending the price because the folks are coming to a manufacturer’s website are not necessarily the most price sensitive, so instead to price for value and not to be as concerned about what a product is selling for on Amazon and so forth. It’s more to offer a wide range of product assortment and also with some engaging content that describes the products as well.
So those are some of the key things, but very much you need operation E-commerce, experts who have built these systems to put them in place.
CM: And you know from when we started our conversation today, you mentioned the growing importance of mobility. You read and hear more and more about how millennial, but not just millennial, people who are just technology adept, cause they don’t want to go to any website, they want a mobile app to do it all and so mobility could either be an important building block now or maybe in the future?
JFG: Absolutely and in fact in some of the countries where mobile commerce is a much bigger chunk of the total such as China, is a great example of I think a forward, you know then in some ways they’re a bit more ahead in that they are already in-app purchasing as a major driver of commerce. So they have a major messaging app of who’s name escapes me for a moment, but you can buy within the app and make purchases within the app and I just saw something earlier today that I know that Snapchat is looking at providing commerce services Sephora the cosmetics company has just built a trial site with Snapchat to try and offer, you know Snapchat users a lot of whom are sort of that 18-24,25 group, the ability to buy directly within the app so yeah I think that’s definitely becoming more important.
CM: I think that was a very hot technology, just knowing the uptake of Snapchat right now, I think that would be a sure fire winner. So before we wrap up today, I wanted to see if you had examples of, let me see if I can say it right. D to C, that’s it, D to C. Since we’re called DCG, it’s a little tricky to say D to C. Are there any examples?
JFG: Yeah so one of the examples, I wrote about this in the report is Fitbit, the company that provides the fitness tracker devices, they have sales directly from their website as well as they sell on the main resellers sites you of course you can get them on Amazon and Ebay and so forth and one of things that they’ve done is they offer on their website ways to augment whatever the exercise is, that you know information on the types of exercise you can do and they offer a Fitbit in multiple range of colours that you wouldn’t be able to necessarily get on a retail store on the most popular sites or they offer a way to, you know they have several different models that suit different types of users and people who either want to spend a certain amount of money or want to do a certain amount of activity, they explain in detail and provide rich content like video and images to show these are ways that you can use the device and you know, provide suggestions.
So these are all things that content you can’t get necessarily. You might it in a retail store from a salesperson who knows a lot, but it is definitely a way for a manufacturer to drive traffic directly and they’re having quite a bit of success with it, So they’re one example. There’s also, just to note this actually isn’t so much of a new trend in online, there are multiple brands like in the sportswear industry that have been doing this for awhile and started in brick and mortar like Nike is the best example. The earliest they opened their own brand stores in the early 90’s with their Nike Towns which were just supposed to be an experience, they would also carry Nikes, but also they would also be a visual like an entertainment complex to go to, a destination rather than a store and so that trend had started a lot earlier and they now make, I think they have their head of commerce has a target of making something like a billion in D to C now overall between their physical stores and online stores because they’ve managed mastered that connection.
So there’s definitely, it’s started in more advanced consumer electronics, apparel and so forth, but were seeing it more and more coming down to things like food products, consumer good packaged goods, etc. So it is definitely not going away.
CM: Those are two very relevant and easy to understand how the patterns would work examples and I’m sure there are many more, in fact having edited your report that has just gone live from this subject, I noticed you have many examples in that. So I’d like to point our listeners today to take a look at the report if you haven’t already and then last, I would like to say thank you for this informative discussion. If any of the listeners have questions I’m sure you’d be happy to talk with them phone or email. So I will let you do the sign off however you would like.
JFG: Okay great. Well thank you for listening and thanks Connie for the good questions and yes please get in touch with us, info at digitalclaritygroup.com and we look forward to keeping you up to date with more topics in the future.
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