How to Consider a Direct-to-Consumer Model for E-Commerce

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How to Consider a Direct-to-Consumer Model for E-Commerce

By Chris Gelbach - 06/19/2018
Kellogg Co.'s Chris Perry

Schaumburg, Ill. — Should your brand build a direct-to-consumer e-commerce model? During a Path to Purchase Summit presentation in March, Kellogg Co.’s Chris Perry gave those in attendance some advice.

Perry, senior director of e-commerce at Kellogg, noted that in his last three CPG roles, as well as in a consulting role he had engaging Fortune 500 CPG companies, the question of direct-to-consumer (D2C) continually came up. “It was often about how do we do it? It was not always why should we do it, or what should we actually do?” he said. “But the why and the what are more important than the how, because that’s ultimately going to determine its success.”

Perry noted that CPG companies have five strategic options for responding to a changing e-commerce environment of extensive sales growth, retail store closings and rampant M&A activity accelerated by Amazon’s acquisition of Whole Foods.

One is to fail to respond to these market dynamics and die. Another is to sell or exit the market.

A third is to join forces by partnering with and selling through existing e-commerce retailers. That option is a viable one, but it requires conformity to others’ models with limited control.

A fourth is to launch your own “me too” D2C model in competition with existing e-commerce retailers. “But I would argue that if you just play the game that’s already been defined for you, you might be a pirate and you’re going rogue, but you’re going to lose an eye,” Perry said.

The fifth option is to change the game by launching a truly differentiated D2C value proposition. “And that’s where I’d say you can be captain of the seven seas if you pivot in the space and differentiate what you offer,” Perry said.

He recommended options three and five as the best strategic responses in this environment.

As part of a successfully differentiated D2C launch, marketers must consider five elements of what Perry called the D2C value equation. “At some point you need table stakes in all of them, but you have to differentiate in a meaningful way in at least one of them,” he said. The five elements are:

  • expertise, embodied by things like online educational content, customer reviews, consultation and customer service.
  • solutions, including elements such as web-only exclusive brands, products, packs and customization.
  • convenience, which is delivered through services like expedited and immediate delivery, subscription services and other easy-order methods.
  • price, including options such as special pricing, deals of the day, free shipping and charitable donations with every purchase made.
  • the x-factor, encompassing other elements such as social community or membership, special rewards or loyalty programs, unique customer service or product guarantees.

To determine whether a D2C approach is right for a brand, Perry recommended putting the idea through what he called a “6S” idea filter by asking these questions:

  • Does it solve an actual consumer problem?
  • Will it be different and better than the status quo?
  • Is it strategic to the business/brand?
  • How will success be measured? What does that look like?
  • Is the approach scalable across our business?
  • Will this be sustainable after the initial launch?

“Get a cross-functional team together [comprising] the appropriate people to come up with a neat idea,” Perry said of companies that are considering D2C. He suggested that the team then come up with five to 10 propositions of things that the company could do that would be theoretically superior to the competition in at least one of the five elements.

“Then you want to take that and pass that through the six filters,” he said. “And you want to be thinking about these questions as you do it. Because there are a lot of cool ideas out there that don’t actually solve problems. Even if you’re not owning the actual launch of the program, be the voice of reason in the room.”