3 Key Considerations Before Moving to a Direct-to-Consumer Model

3 Key Considerations Before Moving to a Direct-to-Consumer Model

The rise of e-commerce has prompted many large brands to completely bypass wholesalers in favor of a direct-to-consumer (DTC) model – a process known as “supplier disintermediation.”

By removing the intermediary, brands can increase their profit margins and gain direct access to consumers and their data. For these reasons, leading brands such as Nike and other large retailers are aggressively shifting to DTC.

However, many overlook three critical factors. Inadequate planning for these critical factors can result in supply chain and business-to-business integration issues, as well as revenue leakage.

Indeed, 88 percent of businesses admit to losing orders last year, and more than half anticipate losing more orders in 2020 than in 2019. Additionally, one-quarter admit that they are unaware of the number of orders they are missing.

The following are three critical considerations for business leaders to address before deciding to transition from a wholesale distribution model to a direct-to-consumer model.

1. Is the right technology infrastructure in place to support DTC?

Technology is inadequate. The integration of modern apps and disparate legacy technologies is causing retailers to lose more orders than anyone imagined. While lost orders do have an effect on revenue, this is only the tip of the iceberg.

A missed order results in product inventory remaining on the shelf at a warehouse or retail location, which can be costly. Additionally, if the goods are perishable, a missed order can result in expired inventory, which has a direct impact on margins.

These missed orders can also create larger problems for ecosystem entities such as customers and trading partners. Once these relationships have been harmed, they can be extremely difficult to mend.

By providing the necessary visibility to track product, resolve errors, and provide proactive status updates, modern integration software helps eliminate lost orders. As a result, customer-facing teams gain access to data that enables them to communicate with customers and trading partners quickly in the event of an issue.

In addition, businesses require application programming interfaces (APIs) in order to transition to DTC or enable omnichannel fulfillment. APIs facilitate digital transformation by enabling end-to-end visibility into the integrations that comprise mission-critical business processes such as order-to-cash, procure-to-pay, or load-tender-to-invoice.

To achieve better results and generate revenue, it is critical to have this breadth of visibility and control over business processes. E-commerce is not a front-end process; it must be a holistic solution that affects all back-end business processes as well as the broader, extended ecosystem.

2. Will the consumers’ customer experience (CX) be impacted negatively or positively?

To compete with digital-first direct-to-consumer marketplaces such as eBay and Amazon, all retailers and their leaders must prioritize digital transformation.

To compete in today’s digital market, brands must take a strategic, ecosystem-driven approach to integration that expands market opportunity, gives their distribution model a competitive edge, and improves the consumer experience.

Modern hybrid cloud and on-premises integration enables retailers transitioning to a DTC model to reduce complexity without sacrificing control. This enables them to broaden their market reach and facilitate the development of more efficient, cohesive e-commerce and digital marketplace channels.

Once the B2B apps are integrated successfully, DTC retailers can offer a personalized and flexible CX online without relying on a wholesale distributor. The brand then has a greater degree of control over the shopping experience and customer service.

Success may very well be determined by how well a business manages the customer experience and meets customer expectations.

3. Does the logistics team have the resources to handle DTC? If not, what adjustments to the business should be made for the DTC model to work efficiently?

DTC requires the internal team to manage all sales, shipping, and manufacturing, which can be quite a burden for a small workforce. As a result, it is critical to ensure that the business has the resources necessary to handle the additional labor required to transition to a DTC model. The organization’s entire business model may need to be altered in order to implement a DTC strategy at scale.

Certain tasks can be automated, freeing up employees’ time to work on more complex projects. A sufficient workforce equipped with the appropriate tools simplifies any task. Similarly, the appropriate integration technology enables the ecosystem to function optimally both now and in the long run.

With e-commerce integration, data accuracy is never a guessing game. Whereas with manual data entry, human error is always a possibility. Inventory synchronization, real-time track updates, and pricing all contribute to the acceleration and accuracy of data exchange.

Prior to deciding to go DTC, it’s critical to consider all of the changes that will need to be made across the business model in order to meet customer demands and avoid employees becoming overwhelmed by a new, increased workload. Without the need for additional resources, an e-commerce integration platform can enable businesses to handle increased demand.

Use Technology to Build a Solid Foundation for DTC

As evidenced by global brands such as Nike, retail and consumer products companies are increasingly adopting direct-to-consumer (DTC) models in order to compete directly with the wholesale distribution model.

While switching to DTC offers significant financial benefits, it can introduce significant complications if done without first considering the organization’s technology infrastructure, customer demand, and available bandwidth to fulfill DTC orders.

Prior to taking the next step toward a DTC model, brands must ensure that their B2B integrations are functioning flawlessly.

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