Dusty Dean is a former manufacturing executive and co-founder of BITCADET. He is a member of Forbes Business Council. About Dusty Dean
Let’s face it: Manufacturers’ traditional sales models can hurt both the company and the customer. Because of the pandemic causing havoc on supply chains, selling direct has become a more popular option for many manufacturers.
Looking forward to the 2020s, the old model of selling through a distribution/broker/retailer channel may still be alive, but many company leaders are finding that their customers prefer to buy directly from them. On top of that, restrictive middleman margins can increasingly put a chokehold on manufacturers’ profits.
When Covid-19 hit, people ran to the internet to shop for just about everything. I think manufacturing as an industry reached a tipping point between the pandemic, a global supply chain malfunction where production halted and even stopped for some companies and some online retailers refusing to change policies to adapt to these situations.
These factors led many manufacturers to ramp up and increase their investments in a direct-to-consumer (DTC) strategy, where they have 100% control over pricing, inventory levels and — increasingly — access to critical customer data. As the co-founder of a company that creates digital sales channels for manufacturers, I have some advice for those just getting started with selling directly to consumers.
If you’re thinking about implementing a DTC strategy, your largest consideration should be what your customers want. Start by looking at your own experience working through a third party.
For example, I had a recent experience with a third-party seller when I wanted to buy a replacement air filter. I started by going to the manufacturer’s website because they’re the experts, right? I wanted to be sure that I got the right size and a high-quality filter. I found the filter on their site, but there was no way to buy the product directly from them. This company gave up 15%-plus margin on this order from a repeat customer who wanted to buy directly from them. This is a classic case of an old sales strategy failing the business and the customer.
Here are the top three things manufacturers should consider before starting a DTC sales channel:
1. Do you have the right team in place? Does management buy in to your DTC strategy? Are they willing to make the necessary investments to make it work?
2. Do you have products that would align well with a DTC approach? It may be all or some of your product line.
3. Is there a marketing budget or strong advertising strategy designed to attract new website visitors who are good prospects?
Creating An Effective Strategy
The goal of investing in the technology is not just to increase sales, but to decrease waste, errors and variable costs of the order. Consider how adding a sales channel will impact your staff and customers:
For staff: What information would make their jobs easier, and how can this site bring the information to them to ease their workload? It can be simple — like quick-print labels for the delivery team or calculating the shipping cost and time and automatically communicating with the customer about their delivery.
For customers: You want your site to be your best salesperson. You need to understand the customer sales cycle (How long does it take for the customer to buy?) and the customer lifetime value (What’s the total value of the customer?). This will help you determine how to design your site and what to expect. Your website should provide answers to key questions your customers would ask and be a place that they can come back to for an easy, quick and trusted transaction.
I’ve found the biggest hurdle is “change management” and getting buy-in from all levels. To build buy-in, have employees participate in the design process. This can ultimately make their jobs easier, and it can make the system better, save costs and help people work to promote it. All of this can lead to increased margins and higher sales.
The best way to gain support is to paint a future-state picture for leadership to help them see the path forward. When first implementing the plan, they need to know that e-commerce stores aren’t a “build it and they will come” scenario. In this, they’ll have to invest in a marketing strategy and budget to bring relevant inbound traffic to their site.
Investments in the back-end system are necessary. Make sure your strategy includes all the key players in your operations, from customer service to production to delivery. And remember that change of this scale needs to be embraced by the top. Leadership benefits from hearing successful cases of DTC approaches — most importantly the positive financial impact from lower margins.
Online sales forecasts for the economy in 2021 and beyond look promising. McKinsey and Company reports that over three-quarters of buyers and sellers now prefer remote human engagement over face-to-face interactions, and many plan to continue the self-serve business model post-pandemic.
Third parties have limited information on the customer experience — opinions, needs and feedback. Having a direct link to the customer gives sellers the chance to view their customers’ buying journey, test new/different products and capture invaluable marketing data to help support business planning. This is a significant competitive advantage.
My last word of advice is to remember that this process isn’t immediate. It could take three to six months to get a new e-commerce store launched, accepted and fully understood by staff. Knowing this, you may want to begin the process well before your biggest buying season to make sure you’re ramped up and ready to have the most successful year of your business ahead of you.