Note: Today’s post is part of our “Editor’s Choice” series where we highlight recent posts published by our sponsors that provide supply chain insights and advice. This article is written by Atakan Kantar & Doğa Kurt from Solvoyo, and examines the ongoing trend CPG companies going direct-to-consumer (D2C).
The trend of CPG companies going direct-to-consumer (D2C) is on the rise. Compared to the traditional CPG model, CPG+D2C may provide several benefits:
Brand recognition and loyalty: At this age of ratings, “stars,” and comments, the perception of a CPG brand impacts company value directly. D2C, supported by targeted promotions, enables stronger brand loyalty. Of course, the CPG company should also support its D2C initiative with better customer experience, omnichannel shopping alternatives, ease of use for commercial websites, frictionless returns, etc.
Better and faster feedback on your short life-cycle products: In this “build anywhere, sell everywhere” world, CPG product life cycles continue to get shorter. Direct access to customer data through D2C enables product improvement, innovation, and transition opportunities.
New revenue stream: D2C for a CPG company has the potential to improve revenue and margins by cutting out the middlemen. However, CPG companies need to be careful about competing with their existing retail/wholesale/distributor customers/channels. This is where optimal product and channel segmentation becomes critically important, as the wrong portfolio in your D2C efforts may result in soured relationships with your existing channels and a net loss of profits.
A responsive supply chain: D2C requires a specialized supply chain due to low volume/high-frequency shipments using primarily parcel or LTL shipment modes. Quicker response times, pick efficiency as well as packaging requirements are very different from what CPG operations are accustomed to. Neglecting the necessary considerations of the supply chain can lead to problems for D2C, including complaints from unsatisfied consumers, the C in D2C.
Consumer-Oriented Demand Planning
The D2C approach begins with understanding consumer habits and prioritizing opportunities accordingly. Most CPG companies sell through multiple channels with differing practices across countries and geographical regions. Most commonly, the primary channels for CPG companies comprise retail, wholesale, distributors, government contracts, and e-commerce.
The opportunity for better demand planning at retail, wholesale, and distributor/franchise channels comes from the availability of data representing consumer sales as well as external data such as weather, sector benchmarks, and price monitoring applications. Innovative CPG companies use this data (commonly called point-of-sale or POS data) to plan their demand with a better view of the consumer preferences for their products, in addition to the historical data representing channel sales.
Segmenting Stores and Products
Another way of selling direct to consumers is maintaining points of sale, such as brick-and-mortar stores, pop-up stores, and seasonal stores. Not all points of sales are created equal, nor do all consumers have the same propensity to buy a product. Therefore, store-based product assortments contribute to higher profitability by optimizing the margin contribution of your inventory investment.
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