02 February 2022
How can FMCG brands overcome the challenges of moving to a direct-to-consumer model?
Consumer expectations around their purchasing experience with FMCG brands have seen a shift in the face of the Covid pandemic, with eyes turning to digital solutions for items previously bought in-store. In turn, FMCG companies have been faced with the opportunity and challenge of ecommerce and in particular going direct-to-consumer (DTC). This pandemic-provoked shift is set to stay, with FMCG ecommerce being valued at $400 billion this year and accounting for up to 12% of all FMCG sales globally. The Asian market specifically is emerging as one of the biggest growth opportunities for online FMCG commerce over the next five years (Nielsen).
In response to changing consumer habits and a business landscape that remains in flux, many FMCG brands are looking to accelerate their ecommerce operations and offer customers an optimized online shopping experience by launching or expanding their DTC channels. As they explore this new approach, we highlight four key challenges brands need to overcome to thrive in this evolving market.
1. FMCG companies don’t always find their DTC channels to be highly profitable. FMCG brands often don’t have products designed to be sold online unlike their digitally native cousins across the retail space such as fashion or beauty. Instead, they try to sell existing retail products, which have high packaging and shipping costs on their DTC channels, substantially reducing profit margins. To address this challenge, FMCG companies are redesigning their strategies to focus on adding product detail web pages to replace attractive on-shelf packaging and using online consumer reviews to encourage online sales. Brands are also working on re-modelling the planning, sourcing, and manufacturing of products specifically to meet their DTC strategies and lower the cost of materials whilst maintaining standards of sustainability across the supply chain.
2. Customer acquisition and retention. Given that DTC isn’t a channel many consumers would traditionally turn to for FMCG products, attracting new and returning customers to DTC channels can be a particular challenge for FMCG companies. Shopping for goods from categories such as soft drinks, confectionary or cleaning products typically takes place where consumers can expect to find all products under one roof, such as the supermarket. The convenience of such channels are what consumers are familiar and comfortable with, making it a challenge for FMCG brands to break the mold through DTC.
The competition FMCG brands face from both online and offline retailers has fostered innovations in customer experience such as personalization in a bid to differentiate. Coca-Cola's offer of personalized cans available online is just one example of the drive to create some unique to the online FMCG shopping experience. Strategies such as offering special discounts or exclusive subscription services can also be effective not only to stand out among competitors but also to pique the interest of online consumers.
3.Providing superior data-driven offerings. In many instances, FMCG companies have relied on third-party data from retailers. Lacking effective historical data, FMCG companies are finding it difficult to gain holistic insights into consumers’ buying behaviors and preferences. This is encouraging FMCG companies with a DTC presence to increase their efforts to collect and consolidate real-time data by actively communicating with consumers on different channels including social media, email, SMS and websites. They are also implementing innovative technologies such as virtual and augmented reality to boost target audience engagement. By doing this, these brands can collect their own customer data and use it to offer personalized products, recommendations and make predictions on future trends and shopping behaviors to promptly respond to consumers’ needs.
4. Last-mile fulfilment logistics. Today, consumers expect fast and free deliveries, and many FMCG companies are not set up logistically to deliver small product quantities to consumers. Therefore, the “last mile” delivery model integrated with a tracking management system can be a major success in the implementation of DTC channels. For instance, companies are considering micro-fulfilment centers across different geographies closer to consumers to shorten delivery timeframes (EnsembleIQ). Likewise, businesses across industries are increasingly exploring automated warehouse solutions, such as THG Ingenuity’s FIR/ST, and leveraging inventory analytics to help optimize the speed and accuracy of the order fulfilment process to improve the customer experience.
Building and enhancing the DTC journey of FMCG brands is one of our specialties at THG Ingenuity. From digital strategy and channel management to fulfilment and operations, reach out to us today to discover how we can support your DTC success.