Price Points by Omnia Retail
10.10.2023
The Shape of D2C in 2023: How Established Brands and DNVBs Are Finding Success in E-Commerce
Is there anything that pairs better than e-commerce and direct-to-consumer (D2C) sales? With e-commerce, companies remove the inconvenience of having to go to a physical store, and products are shipped right to the...
Is there anything that pairs better than e-commerce and direct-to-consumer (D2C) sales? With e-commerce, companies remove the inconvenience of having to go to a physical store, and products are shipped right to the consumer’s doorstep. D2C sales models are the perfect pairing: With all middlemen removed, the seller has total control over the customer experience. In 2023, both established brands and digital native vertical brands (DNVB) are pursuing D2C strategies across a huge range of e-commerce verticals. In this article, we’ll highlight three especially interesting and competitive verticals in e-commerce – Electronics, Sports and Home & Living – and look at the current state of D2C businesses within these categories. Trending Verticals in E-commerce Worldwide e-commerce revenue is projected to reach €3.79 trillion in 2023, with the highest-selling verticals being fashion; electronics; and toys, hobby and DIY. Omnia is especially interested in analysing verticals with multiple retailers selling the same or comparable products that consumers research heavily online. These verticals offer significant dynamic pricing opportunities, since price fluctuations are constant and competition is high. Electronics Consumer electronics continues to be one of the reigning e-commerce champion verticals, with sky-high sales over the last decade and further growth as work from home becomes a more established workplace vision for some professions. It is the second-most popular e-commerce category behind fashion, with expected revenue of €839 billion in 2023, or 22.1% of all online sales. Sports Sporting goods are a fast-growing e-commerce vertical, with 43.7% of sports products being bought online. The sports category is an interesting case because of its high Average First Order Value (AFOV). Businesses with high AFOV need to make a profit on every transaction, because repeat purchases are not as common in other verticals. The AFOV for sports businesses is extremely high, but it has one of the lowest levels of 12-month growth in Customer Lifetime Value (CLV). This is especially stark compared to a category like Pets, which has the highest rate of repeat purchases by far. The sports vertical is continuing to grow in the post-pandemic landscape, with businesses in the US, UK and Europe seeing a boost in revenue and traffic in the first quarter of 2023 compared to the end of 2022: US sports businesses achieved nearly 10% in YoY revenue growth The UK and Europe are both still in negative territory for revenue change; about -20% YoY. However, this is a rebound from Europe being about -35% and the UK being about -30% at the end of 2022. Home & living As displayed above, the home category, like the sports vertical, has a high AFOV and a low rate of repeat purchases, sitting at 1.2 for the average first-purchase value. This puts pressure on businesses to achieve sufficient profit margin on each product. Home goods have faced some post-pandemic challenges, as people spent less time at home and less money on home improvement. This vertical has been slower to bounce back than other categories in terms of year-on-year revenue change, but businesses in the UK and Europe did see an improvement in Q1 2023 compared to the end of 2022. However, “improvement” is a relative term, as the YoY revenue change was still between -15% and -20% for the UK and Europe at the start of Q2 2023. Current State and Outlook of D2C in E-commerce Direct-to-consumer (D2C) brands are continuing to grow worldwide, with nearly two-thirds (64%) of consumers making regular purchases directly from brands in 2022. This D2C wave is present in a wide range of markets: in the US, D2C is forecast to grow to $213 billion USD by 2024; in Germany, D2C revenue was already valued at €880 million at the end of 2021; and in India, total D2C sales was $44.6 billion USD in 2021. There are two types of brands that sell D2C: Digital native vertical brands (DNVB): Companies that were born online and have a strong digital presence. These companies often sell niche products directly to consumers through e-commerce platforms and social media, bypassing traditional retail channels. Established, traditional brands: Companies who have built a long-standing presence, reputation and customer base through various channels, including brick-and-mortar retail, advertising and other marketing efforts. These brands may have a strong online presence as well, but their roots are often in traditional manufacturing and distribution. In the US, 40% of established brands are already implementing a D2C growth strategy. It’s a headline-grabbing topic of conversation, but how significant is the role of D2C in the wider e-commerce landscape? D2C sales would account for one in seven e-commerce dollars in 2022. And while DNVBs are often the brands capturing media attention, since they are generally more social media savvy, established brands are projected to account for 75.6% of D2C e-commerce sales in the US in 2023. In fact, the D2C online sales for established brands have had a higher growth rate than DNVBs since 2021, although both types of D2C brands still show strong growth. Challenges for D2C Brands Every operator in the retail space faces its own unique challenges, but D2C brands are a unique case. They retain more control over their customer relationship, products, pricing and supply chain dynamics, but they also hold responsibility for the entire end-to-end experience and whether their product makes it into the hands of consumers. Challenges for D2C brands in e-commerce include: Customer Acquisition Costs: Competition for digital advertising space is high, and as a result, the cost of advertising on social media platforms, search engines and other channels can be quite expensive. This can be especially challenging for D2C startups and small businesses with limited marketing budgets. Supply Chain Management: D2C brands typically manage their own supply chain, which can be complex and time-consuming. From sourcing raw materials to manufacturing and shipping products, there are many moving parts to manage. Delays or disruptions at any point in the supply chain can impact product availability and customer satisfaction. Competition from Established Brands: As mentioned earlier, established brands with existing customer bases and sizable marketing budgets can be formidable competitors for DNVB brands. These brands often have more resources to invest in marketing and customer acquisition, and they may have stronger brand recognition and customer loyalty. Customer Experience and Service: D2C brands are often held to higher standards when it comes to customer experience and service. Customers expect a seamless, personalised experience when shopping online, and any issues with shipping, returns or customer service can lead to negative reviews and damage the brand's reputation. Scaling Operations: As D2C brands grow, they may struggle to scale their operations while maintaining quality and consistency. This can be especially challenging when it comes to managing inventory, production, and shipping logistics. D2C Maturity in Key E-Commerce Categories: Electronics, Sports and Home Let’s return to the three e-commerce verticals we discussed earlier. Each of these has its own level of maturity, as well as successful D2C brands, both established and DNVB. Electronics The consumer electronics vertical is relatively mature when it comes to e-commerce D2C sales. Over the past decade, there has been a significant shift in the way consumers purchase electronics, with many people choosing to buy products directly from brands online rather than through traditional retail channels. Established brand: Apple Apple has long used D2C retail operations to drive customers into its “walled-garden ecosystem”,and has made clear its plans to continue investing in D2C. It’s clearly working: the company was able to triple its market value to $3 trillion between 2018 and 2022. DNVB: Anker Innovations Anker, a Chinese mobile charging brand, is considered a pioneering DNVB. While they also sell via Amazon and other marketplaces, a majority of their sales still come from D2C. Sports The sports vertical has been growing more mature with D2C sales, as has been evidenced by the number of new DNVB brands such as Gymshark as well as established brands taking major steps to ramp up D2C efforts. Nike, for example, announced in 2021 that they would stop selling sneakers at American shoe store chain DSW, another in a long line of breaks with traditional retail. Reports like this are signals that, with Nike as one driver, the sporting goods and apparel sector is developing and maturing quickly, which are changes that retailers will need to adapt to. Established brand: Nike Nike has an established presence in traditional retail channels, but the company’s D2C operation, NIKE Direct, has been extremely successful in both e-commerce and brick-and-mortar. In 2022, it accounted for approximately 42% of the brand’s total revenue. DNVB: Peloton Peloton is one of the most successful examples of sporting DNVBs, having been born online before growing across different distribution channels, customer segments, geographies and categories. Home & Living The home and living vertical, which includes product lines such as furniture, cookware, bedding and more, is a strong D2C market due to its low barriers to entry and lack of strong retail competition. Established brand: Vitra Swiss company Vitra has been operating as a family business for 80 years. The company designs and manufactures designer furniture for use in offices, homes and public spaces. DNVB: Westwing Westwing was founded to be a “curated shoppable magazine”, where consumers could find beautiful home & living products online. The company is now present in 11 European countries and generated €431 million of revenue in 2022. D2C Brands and Dynamic Pricing Aligning prices with retailers for your entire product assortment is no small feat, which is why dynamic pricing software is so essential for brands who utilise a D2C sales channel. As Roger van Engelen, Principal at A.T. Kearney, told Omnia in a 2018 interview: “In my opinion, brands need to have dynamic pricing before they start selling directly to consumers because it will prevent them from agitating their retail customers. This, in turn, protects brands from triggering a price-markdown war, which helps protect brand price perception.” Keep in mind that most major retailers are already using dynamic pricing software for their e-commerce shops and to ensure products are competitively priced. As a brand, your use of Omnia will help you follow a market price even within strict limits.
22.06.2023
How do brands become and stay relevant?
Are there any brands you used to love as a kid that are no longer around? What about brands that have lasted from before your childhood until the present day? Looking at the differences between these long-established...
Are there any brands you used to love as a kid that are no longer around? What about brands that have lasted from before your childhood until the present day? Looking at the differences between these long-established brands and the ones that didn’t last can offer valuable insight for today’s brands: How do you become and stay relevant long into the future? What is the difference between Nokia or Blackberry, who were extremely popular in the early 2000s in the mobile telecommunications category but couldn’t evolve to keep up with the market, and Apple or Samsung, who are the current market leaders to this day? In this article, Omnia identifies some key lessons to be learned from established brands that have stayed relevant over time, as well as highlighting some real-world success stories. Lessons from established brands that have managed to stay relevant 1) Be intentional about your pricing and discount strategy Different brands will approach pricing in different ways, as they should – each one is different. Think of a luxury brand selling high-end clothing: Customers go to this brand with high expectations of quality and status. They also know in advance that they will pay a high price for those goods, and likely don’t expect many discounts. With a low-cost brand that targets more price-sensitive consumers, however, price is the main decision factor, and discounts may be expected more often. Both of these strategies are valid; what the most long-lasting brands have in common is that they are intentional about their pricing and discount strategy. Brands have to consider questions such as: If you offer discounts, how will discounting impact our brand image? Will our customers see us as a discount brand? How will this impact our margins? Is it a viable long-term strategy? What else can we do to ensure our perceived value isn’t tarnished, for example, better service or impressive packaging? If you don’t offer discounts, how can we promote our products without discounting? Should we offer loyalty programmes or find another way to capture data? Should we offer special services to differentiate from other brands? There’s no right answer, although it’s worth mentioning that many brands who choose not to discount can stay relevant and offer value to customers through other promotions like BOGO, free shipping, money-back guarantees, bundling and more. Let’s look at two examples of long-lasting, established brands that have managed to hold onto their reputations in the market – even with different discount strategies. Dyson A household appliances company founded in the UK in 1991, Dyson started by making vacuum cleaners and has grown its product assortment to include hair dryers, air purifiers, bladeless fans and more. The company and its founder, Sir James Dyson, are known for their technological innovation of everyday household products. Dyson heavily leverages brand loyalty and the company’s reputation for high-quality products, which enables them to charge higher prices. While the company does offer D2C discounts on its website, the customer base is willing to pay the premium price point upfront because they know the product will last. Dyson vacuum cleaners, for example, can cost over $700, making it the most expensive vacuum on the market. Ortlieb On the other side, German bike wear brand Ortlieb is well-known in the market for never giving discounts. Because this is an intentional strategy, the company has used it to maintain a strong brand image, along with other benefits like a five-year guarantee, waterproof products and German manufacturing. 2) Remember the product life cycle Successful brands have a deep understanding of their own product assortment and where each offering is in its product life cycle, or PLC. When brands strategically align pricing with each stage of the PLC, they avoid endangering revenue from retail partners and instead price alongside the market. A brand’s pricing strategy over the course of the PLC may look like this: Different groups of products can then be priced according to their stage in the cycle. For example, the maximum discounts set by the brand will likely rise over time and be highest during the decline stage, as the brand sells off product to make room for new assortments. The PLC can also guide distribution strategy. Many brands may want to sell older products through retailers and keep the newest collections on their own D2C channels, enabling the brand to focus on those new product lines. 3) Be careful about competition with your retailer network Many successful brands use a combination of D2C sales and retail partnerships, whether they started with traditional retail strategies and added D2C or vice versa. This is an effective strategy to diversify sales and reach new customers, but it’s important to mitigate the risk of competing with your retail network. There are a number of factors to consider here. One way to avoid competition is by differentiating product assortments between D2C channels and retail. Research from McKinsey shows that brands who get their product assortment right achieve higher sales, better margins, more loyal customers and leaner operations. One example of this is speaker company Sonos, which launched a retail partnership with IKEA in 2019. Sonos developed a line of connected speakers just for IKEA that blended into the home environment: One as a lamp and one as a small bookshelf. The product line is only offered at IKEA, and while it maintains some core benefits of Sonos – high-quality sound and the ability to control through an app – it is differentiated from core D2C offerings, lessening the risk of competition. Sonos VP of brand and marketing Pete Pedersen said this about the partnership: “The best partnerships are always those rooted in respect, admiration and complementary skill sets. IKEA has been a terrific partner and we couldn’t be happier with the collaboration. Together we’ve pushed boundaries on form factors, materials, packaging and go to market strategies. IKEA’s massive global presence has also helped bring Sonos into many new territories where we might not have otherwise been.” It’s also crucial to be cautious and avoid competing on price. Successful brands don’t undercut their own distributors and resellers. For example, if a brand drops a price on any of its products in D2C channels, its retailers will probably follow. Instead, brands that stay relevant aim to keep a good balance; staying up to date and matching prices in the market, but also avoiding sending prices “to the moon”. Dynamic pricing software is key to automatically adjust pricing across channels based on predefined pricing strategies and rules. 4) Build a brand image that reaches different generations To stay relevant as a brand, companies have to build a brand image that resonates and lasts. This means not only building up a culture and community around the brand through marketing, but also ensuring that the younger generations, who will become top spenders soon, continue to find the brand interesting. If a brand relies on the first generation of buyers it has, even if it was highly successful with those buyers, then eventually its customer base will age out and there will be no one left to replace those sales. What kinds of marketing tactics can build up a relevant brand identity that reaches younger generations? Let’s look at Gen Z specifically as an example. This set of buyers expects brands first and foremost to act and market based on their values. Nearly half of Gen Zers say that a brand “appearing trustworthy and transparent” motivates whether they engage or not. Language, acronyms and jokes that are relatable in the present moment are also important, although pushing too hard on this can feel inauthentic or even cringe-worthy. Other marketing tactics that work for Gen Z: Influencer marketing, funny or entertaining campaigns and TikTok videos. Fenty Beauty, Rihanna’s beauty brand, is a great example of building a consistent brand image that grows with its customers and reaches younger generations. Fenty ran a campaign to find a model for a 2023 campaign and asked customers to submit their own content using the hashtag #TheNextFentyFace. This turned every customer who posted into a micro-influencer, while also building up Fenty’s own image as a brand for everybody. 5) Use the right technology Of course, to remain relevant, brands must keep up with current technology and evolve the customer experience over time. Some older brands have a hard time adapting to changing times and technologies, but those are typically the ones that don’t last. Established, relevant brands use technology to build best-in-class online and omnichannel experiences: Personalisation: Utilise technology to gather customer data and preferences, enabling personalised shopping experiences. Implement recommendation engines that suggest relevant products based on customer behaviour, purchase history and demographic information. Mobile optimisation: With the increasing use of mobile devices for online shopping, it's crucial for e-commerce brands to have a mobile-friendly website and dedicated mobile apps. Optimise the user experience for mobile devices to ensure seamless navigation, quick loading times, and easy checkout. Artificial Intelligence (AI): This is especially top of mind in 2023 with the rise of ChatGTP and other large language models. Brands can leverage AI to automate and enhance various aspects of the e-commerce business. Use chatbots or virtual assistants to provide instant customer support, automate customer service inquiries and offer personalised recommendations. AI can also be used for inventory management, demand forecasting and dynamic pricing. Social Commerce: Leverage social media platforms to drive sales and engage with customers. Use technology to enable social shopping features, such as "buy" buttons or in-app checkout options, allowing customers to make purchases directly from social media platforms. Data Analytics: Brands that stay relevant capitalise on all customer data available to them, gaining insights into shopping patterns, preferences and trends. Use advanced analytics tools to optimise marketing campaigns, personalise offers and identify new opportunities for growth. It’s crucial to stay updated on the latest technological advancements, industry trends and available tools. Any brand not paying attention to these may find itself quickly irrelevant. Maintaining customer trust = maintaining relevance as a brand At its core, brand relevance is about winning and maintaining the trust and loyalty of customers over time. To do this, a company must build up its brand reputation and network of retail partners, intentionally choose its pricing and assortment strategies, utilise the right technology and continue to offer clear value to the customer. Do all of this while staying true to your mission, values and who you are as a brand, and you might just be the established brand we’re all using as a success story 10 years from now.
21.03.2023
Differentiation in product assortment: Why brands should curate their offerings
The direct-to-consumer (D2C) wave continues to sweep across the world of e-commerce, but unlike early examples of D2C brands who started out that way, we are seeing more companies add DTC sales to existing retail...
The direct-to-consumer (D2C) wave continues to sweep across the world of e-commerce, but unlike early examples of D2C brands who started out that way, we are seeing more companies add DTC sales to existing retail strategies. This can be an exciting way to diversify sales channels, reach new potential customers, and boost revenue. It also creates the challenge of brands “competing” with their own retailers, which may be detrimental to the brand-retailer relationship, as well as their product’s overall pricing and competitiveness in the market. To mitigate this risk, brands can differentiate product assortments between their DTC and retail sales channels. According to McKinsey, those who get the product assortment right “enjoy more sales, higher gross margins, leaner operations, and most importantly, more loyal customers.” To help brands understand the importance of assortment differentiation, Omnia explores the various types, their benefits, and how price fits into the strategy. Benefits of product assortment differentiation When brands move toward D2C, they need to differentiate the product assortment to avoid competing with the retailers that sell their products. Why would a D2C brand differentiate their assortments? Manage brand experience – There is more potential to improve the brand experience and build stronger relationships with customers when differentiating product offerings across channels. Increased sales – Brands can see a bump in sales because they are increasing the amount of options available. Decreased cannibalisation – Differentiating products between D2C and retailers can help mitigate the risk of direct competition or cannibalising sales. Data access – Brands often don’t get access to any sales data from retailers, but selling D2C provides more data on what customers are and aren’t buying. Thereafter, assortments can be adjusted as needed. Meet customer needs – Strategically differentiating assortments for different selling environments gives brands the chance to better address customer desires. As reported by McKinsey, a more customer-centric product portfolio could create an additional 2-4% increase in sales. Additional benefits for retailer partners – Access to more data enables brands to improve products, not only for their DTC efforts but also for the products being sold through the retailers. It’s a win-win. Types of product assortment differentiation Mass personalisation 66% of customers expect companies, including brands and retailers, to understand their needs and expectations, and one type of product assortment goes all the way down to the consumer level with mass personalisation. Nike By You is a shining example of this strategy, where consumers can even make and design their own Nike products on a user-friendly website. They also have the manufacturing process in place for those personalised items to be created quickly, so customers could, for example, get shoes in their chosen colours and style in two weeks. The prices are higher than a typical mass-produced product, but for the customers who want to customise items, there’s a lot of margin to capture. Unique SKUs Another type of differentiation is when brands make unique SKUs for specific retailers, where one feature is added or the colour is a bit different. This gives the retailer a unique EAN code and non-matching products, helping to increase their sales and boost the brand’s relationship with the retailer. The assortment is not personalised at a consumer level, as with Nike, but is differentiated for key retailers. German manufacturer Miele is one example of this. Service offerings A third type of assortment differentiation is around the services offered. Some brands sell monthly subscriptions, offer monthly payments instead of one big expense, or provide unique customer service or brand experiences. US Razor brand Gillette launched its own “Shave Club” in 2015 to compete with D2C brands like Dollar Shave Club and Harry’s, and differentiates from its retailers by enrolling members in product giveaways, providing chances to win entertainment and sporting event tickets, and offering a money-back guarantee for unsatisfied customers. Availability of assortment Beyond differences in the products themselves, the chosen assortments and amount of products can also be differentiated across retailers and DTC. For example, ABC Shoe Company sends 60% of its running equipment assortment to e-commerce Retailer X, while Retailer Y receives 70% of the assortment since they also offer a wider assortment of hiking gear. A portion of ABC’s assortment is offered exclusively in its own online shop. In other words, the brand experiments with the breadth of their assortment; the products they make available to different retail partners. An example of this would be Adidas: the company’s product assortment can be purchased to varying degrees across a wide range of retailers and marketplaces, but some product lines – such as the partnership with Stella McCartney – can only be bought directly from Adidas. Categories where assortment differentiation is not the right strategy Some product categories are not built for assortment differentiation; for example, products that can be easily substituted. Think about a FMCG item like razor blades: They are fast-selling and there aren’t as many features where brands can differentiate: people might not care as much about the colour, for instance. Brands just need to create the best razor blade possible for their target audience, because other brands will step in and take those sales if they don’t. Even with products like these, however, differentiation can still be done outside of the assortment with your branding or the services offered in D2C versus retailer sales. Can price be a product differentiator for brands? Price is an important piece of the differentiation topic, partially because it is always relative. Products are highly comparable these days thanks to marketplaces and comparison shopping engines, with the exception of some unique items, and highly transparent in the retail market, enabling consumers to shop around for the best price or compare products with substitutes. There are two main strategies brands use to manage this balance: Comparing to retailers: Samsung compares or sets a D2C price in relation to MediaMarkt Comparing to other brands: Samsung compares or sets a D2C price in relation to LG What’s important to keep in mind is that for brands who sell through both retail partners and D2C, retailers are clients and a competitor at the same time, so it needs to be managed correctly. Price shouldn’t be a differentiator with retailers, but something that should be thought about cautiously and strategically. A fair price relative to your retailers is key to avoid triggering widespread pricing changes across all sellers of your products. Price can be a differentiator with other brands. The price-to-value ratio of the product should be in line with the products of other brands on the market, meaning that if your product is the same quality and a higher price, you haven’t differentiated and the pricing strategy doesn’t make sense. Managing the product portfolio with dynamic pricing Dynamic pricing is a tool that enables brands to automate the management of prices and price perception based on large quantities of data. The system can take in data from both retailers and brands, using the strategy you set to automatically make decisions and manage price. Brands can use this to avoid market collisions; for example, they can quickly pick up on whether an action of theirs caused a price to decrease across the market, and can remedy the situation right away. In a world where brands are frequently selling through a number of channels, especially with the combination of D2C and retail, dynamic pricing can play a key role in boosting sales without ruining relationships with retailers or customers. Interested in seeing how dynamic pricing could impact your product assortment? Schedule a demo of Omnia here.
02.03.2022
Is this the end for e-commerce merchants as brands take the lead?
“Are retailers and brands like Decathlon, Nike and others changing the current narrative to better suit the needs of customers and their profit margins, blurring the lines between brand and retailer?” As we enter the...
“Are retailers and brands like Decathlon, Nike and others changing the current narrative to better suit the needs of customers and their profit margins, blurring the lines between brand and retailer?” As we enter the third year of the pandemic, many brands and retailers around the world have been making the move to sell direct-to-consumer in an effort to not only stay in business but to possibly enter new markets. Simultaneously, because of the rise in direct-to-consumer sales for brands, we have seen the rise of private labels within retailers. The waters between brands like Nike and retailers like Decathlon are potentially blending. In the last six months, these two global sporting goods companies have contended well with a fast-changing industry and many may look to follow. As global industries continue to try to keep up with the growth of e-commerce, consumer demands and behaviour, technological advancements, and more recently the pandemic, we have taken a look at how these companies and others are adjusting and performing. A tested relationship In the fight to catch the consumer’s attention, retailers and brands are climbing to new heights to not only increase profits, but to stand out in the minds of consumers enough to earn their loyalty over the long term. Traditionally, an online retailer would stock a brand’s items which would then be sold to a customer who visited their store. However, the rise of e-commerce and direct-to-consumer shopping channels is making the relationship between the two, at times, a tense one. Not only is the relationship becoming fraught, consumers are starting to see brands and retailers as one in the same. This is because both of them are going the distance to offer a unique shopping experience, and both of them are offering similar - if not identical - shopping methods. If a consumer shops on ASOS.com and buys a River Island jersey, it is safe to say the customer likes and trusts both the retailer (ASOS) and the brand (River Island). But, what happens when River Island opens up their own online store? The customer can now go directly to them. In reverse, what if the customer is already aware of River Island’s online store but prefers the shopping experience on ASOS.com? Perhaps they have faster shipping or nicer packaging. At its essence, this all comes down to one question: Who owns the consumer? Now more than ever, it is easier for brands to sell directly to consumers and, although they see the value of large retailers selling their products, most brands would ideally prefer to have the attention of the customer to themselves. Theoretically, if a brand truly wanted to start selling online overnight, they could launch a Shopify or Magento site paired with an Instagram shop and a couple of Google ads for marketing. But, like we said, this is theoretical and brands should not rush to launch a direct-to-consumer online channel without a clear retail strategy. The shift towards D2C Approximately 5 months ago, DSW, one of the largest shoe retailers in the US, received their last-ever shoe shipment from Nike. This is because Nike is shifting its focus and its products away from third-party retailers to their own online website, mobile app, and their brand concept stores. If you want to wear Nike, you’re going to have to shop from Nike, and this is by no accident: The sporting goods giant has been implementing this strategy since 2017 and, bit by bit, their shoes and apparel are getting harder to find in external sporting retailers around the world. So far, Nike’s Head of Finance Matthew Friend says that they have “exited 50%” of their retail partners. Aside from wanting to increase profits and connect with markets via e-commerce, Nike’s then-president Trevor Edwards stated that is about removing themselves from “mediocre retail”. From 30,000 retail partners, Nike’s plan has been to cut down those partnerships to an exclusive 40. By doing this, Nike is able to control the shopper experience, gain new customers, cut out the costs and admin associated with the traditional B2B chain of custody, and position themselves as an exclusive brand. As a retailer, Decathlon is developing an omnichannel purchasing experience for consumers as they focus on online sales across both direct-to-consumer and via third party online channels. In China in March 2021, they joined JD.com with their own flagship store, an e-commerce giant, which was a smart move considering online sales for all retail in China surpassed brick-and-mortar sales, accounting for 52.1% - a world first. In Switzerland, Decathlon is strategically planning to benefit from a shop-in-shop concept without the costs associated with their own department store as they shift more focus to online sales through a partnership with the Manor Group, a retail conglomerate that generates a revenue of €1.6 billion. The benefits of the shop-in-shop concept are obvious, but more importantly will retain some brand awareness and exposure. Despite the line between retailers and brands becoming thinner and weaker, retailers are not going down without a fight. To contend with brands becoming more autonomous, retailers are launching their own in-house private label products, essentially becoming a brand in itself. From clothing to sporting goods; from shoes to electronics; retailers are creating high-quality private labels which is increasing customer loyalty. According to a McKinsey & Company study, during the Covid-19 crisis, 38% of consumers tried a new private label brand and the most common reasons were affordability and availability. In addition, 40% of the same tested group said they’d continue with a private label after the pandemic subdues for the same reasons. In 2017, Decathlon began making plans to have their entire product range owned and manufactured by them by 2020, however, with the surprise of the Covid-19 crisis, this plan has slowed. Former spokeswoman for Decathlon Germany Genevieve Mulack said that “we will develop all our products ourselves in the future.” Today, Decathlon owns close to 70 brands stocked in their stores, ranging from cricket to mountaineering to basketball to yoga and everything in between. How would this move affect their pricing and overall performance? It may be too soon to tell, however if we look at Decathlon’s sales in China from 2013 - 2020, a period in which a direct-to-consumer online presence certainly increased for many global brands, we may be able to make a fair prediction that Decathlon’s sales should not be affected as long as distribution and manufacturing can keep up with global demand. In 2013, Decathlon in China made €7.4 billion, which rose to €12.4 billion at the end of 2019 (2020 saw Chinese sales drop to €11.4 billion because of the pandemic). As for Nike, after they started opening Nike-owned retail stores and their own online store, direct-to-consumer sales and revenue have consistently increased from €2.2 billion in 2010 to €12.8 billion in 2021. As a part of their direct-to-consumer push, Nike also aimed to have 30% digital penetration by 2023, meaning that 30% of their total direct-to-consumer sales would be from e-commerce, however, they’ve already flown past that goal. By the end of 2022, digital penetration was at 39%. With Decathlon and Nike owning and controlling their brand, this eliminates some of the competitive antics involved in pricing strategies with product resellers, allowing them to control their retail prices more competitively. The current market conditions are possibly accelerating the direct-to-consumer “D2C” move By the end of 2020, global e-commerce spend increased from 4 to 18% since 2010, totalling €3.7 trillion. Moreover, if we take a look at the last decade of retail, we can see a number of advances that have caused a ripple effect over the years: Online shopping stores became more user-friendly with advancements in UX and UI; transactions became safer and more trustworthy while more payment options also became available. The ability to shop on your mobile phone via an app developed by the retailer increased. By the end of 2021, 47% of all leading web shops in Europe had an app version for mobile shoppers. As of October 2021, 80% of smartphone owners in the US bought something from their phone in the last 6 months. Online marketing through social media platforms like Instagram and Facebook further developed. With 1.4 billion users on Instagram alone and with Europeans spending an average of 1 hour and 15 minutes on the app every day, there has never been a more direct way to reach consumers. Shipping became faster and more reliable, with Amazon setting an establishment for two-day delivery. Soon after, next-day and same-day delivery became industry-standard. Omnichannel selling became more of a necessity, instead of relying on the physical presence of a department store. Tracking customers by location, organic searches and their previous online purchasing history was developed and has largely become standard practice. Retargeting existing customers via email and social media marketing were also developed. Dynamic pricing; a focus on seasonality, price elasticity and high runner strategies are now at the forefront of pricing methodologies, let alone the adoption of newly developed machine learning algorithms and automation. E-commerce became essential as of 2020 due to the pandemic. Consumers became more price sensitive as the economy slowed. An ever-changing landscape In an ever-changing industry, an omnichannel or direct-to-consumer business model for brands is proving to be a good move. Other than the above-listed reasons, why else should brands consider moving to a direct digital channel? Another reason for developing one's own e-commerce platform or app is to become more pricing-focused, thus increasing your profit. Another reason is creating a brand narrative which can be done more effectively than ever before - and that is just the start. In 2021, the global consumer electronics industry generated €655 million in revenue, which is expected to grow to €839 million by 2025, depending on the supply-and-demand on semiconductors. That’s an annual growth rate of 7.2%. In India, the rise of D2C consumer electronics brands in the face of global giants like Apple, Samsung and Xiaomi has not whimpered. Brands like BoAt, Portronics, LoopAudio and Noise manufacturer, market and sell their products, which include headphones, Bluetooth earphones, smartphone covers, portable speakers, travel chargers and more. Similarly to Decathlon and Nike, BoAt has a hybrid D2C/B2B business model with shopping experiences available through their own web store, brick-and-mortar retail brand stores, Amazon and Flipkart. Out of all the above-mentioned sales made in the consumer electronics segment in 2021, 43% were completed online, which is up from 37% in 2019. US bike manufacturer Specialized recently made strategic changes to its business model. From February 2022, shoppers can order their pre-assembled bike on their website and have it delivered directly to their homes. Up until now, however, local bike dealers played the middleman by assembling the bike for the customer and delivering it to their home or, if the customer lived close by, they would collect it. By offering this service to Specialized, these bike dealers received a cut of the profit from each sale. Now that customers have the option of ordering pre-assembled bikes for home delivery, local bike shops will be receiving up to 50% less of their usual margin, and in some cases, not at all if customers continue to choose the pre-assembled home delivery option. Before officially announcing this change, founder Mike Sinyard said in April 2020 already that changes to Specialized’s business model were going to drastically change due to evolving consumer buying habits: “There is no escaping the reality that these changes will be disruptive for a while.” However, this was not Sinyard’s original sentiment roughly a decade ago when he boldly stated at a bike dealer event that Specialized would never sell bikes over the internet, in a bid to show loyalty to the bike retailer community the company has built since its 1974 inception. Fast forward back to April 2020, Sinyard said “Click-and-collect is a game-changer now. We see that as the best model working forward with our retailers.” This just shows the mental and physical shift companies have had to make in just a matter of years. In addition, now that Specialized has a stronger D2C element, they are reserving 15% of their stock just for D2C sales, thus making themselves a direct competitor to the very bike retailers they’ve been working with for years. What is the future for retailers and brands? Whether businesses like it or not, e-commerce is changing the retail landscape. In fact, the 2021 report by E-Commerce Europe stated that 73% of all citizens living in the EU-27 group shopped online in 2021 - that’s three-quarters of an entire continent. In addition, this number was up from 68% in 2019, showing a growing trend in shopping online. When online stores for brands were first emerging a decade or so ago, it was primarily used as a supportive entity to the primary department store, typically in a mall. Now, online stores and social media stores are built, managed, marketed and treated as individualistic, important parts of the selling machine - as they should be. With online sales being made more of a priority for companies, there are many opportunities to see businesses flourish and to connect with consumers in a more authentic way. Barclay’s estimates that the UK could make an additional €15.9 billion in revenue over a 5-year period using more direct-to-consumer strategies, and this could result in over 31,000 new jobs being created. Omnia certainly expects a trend in the coming years where more and more originally-focused B2B and online-oriented brands will enter the direct-to-consumer arena with some introducing flagship, shop-in-shop, concept brick-and-mortar stores or brand-owned online stores. We know that establishing a presence online seems on the outset to be an easy task at first glance, and it certainly has become more accessible to do so, but we also understand how competitive the market is in terms of advertising, dynamic pricing and logistics. Ultimately, this is where technology will eventually decide who remains on top and who flounders.
23.02.2021
Understanding and Using Market Penetration Strategies
Did you start a brand to see it lose momentum or market share to competitors? It’s a silly question to ask owners yet a number of brands make mistakes within their chosen market. At times, it’s not a matter of what...
Did you start a brand to see it lose momentum or market share to competitors? It’s a silly question to ask owners yet a number of brands make mistakes within their chosen market. At times, it’s not a matter of what you’re doing but what a brand is not doing that impedes opportunity for growth. That’s where market penetration strategies come to play. What’s a common characteristic of powerful brands? They increase market share and continue to seize opportunity. But, realizing business success requires a continual growth strategy. In this guide, you’ll learn how to: Gain a better understanding of market penetration strategies Read market penetration examples Get tips regarding the best marketing penetration strategies What Is Market Penetration? Market Penetration Definition The term market penetration adopts a theoretical and literal meaning. On one hand, a brand calculates market penetration to gain a sense of the size of a market and what percentage of consumers buy its products and services within. In the literal sense, market penetration is the actions taken to overtake competitors and gain a larger share of the market. Market penetration is the percentage of products/services sold in relation to the estimated total market. Theoretically, a brand wants to eliminate all competition, completely owning all the market share for a given product or service. Calculating the entire market size and estimating how much of the pie you own is incredibly useful for new and established brands. Market Penetration Rate A simple equation related to market penetration: (Number of customers/Size of market) x 100 = Market Penetration Rate For example, assume 500 million people live in a country, and 100 million of them own an iPhone. 100/500 x 100 = 20% penetration rate So, the market penetration for iPhones would be 20%. Theoretically, 400 million people or the remaining 80% of the population remains for the taking. An above average market penetration rate for consumer goods is estimated to be between 2% and 6%. A good penetration rate for business products is between 10% and 40%. Some brands calculate market penetration every quarter while others find it useful to do so after each ad and marketing campaign. High Market Penetration As you can imagine, most brands aspire to an above average or good rate market penetration rate. Having a high penetration rate reaps immediate monetary benefits. In 2018, Amazon’s share of the US ecommerce market was 49% - more than its top three competitors combined! To put it another way, Amazon accounts for 5% of all retail dollars spent throughout the entire United States. In the same year, iPhones captured an estimated 15% to 20% market penetration rate. Apple sold 77.3 million iPhones, finishing the December quarter with a 19.2% share. A brand with high market penetration enjoys immediate riches as well as an ongoing reputation it can continue to leverage. However, the real advantage is enjoying the forward and upward momentum built. Another benefit is that you’re able to set the prices that your competitors follow, rather than you having to follow others. Market Penetration vs Market Share Market penetration is a percentage of a given target market that buys a brand’s products/services. It is distinguishable from market share, which is the portion of total value of a market captured by a brand. Market Penetration Examples Market penetration begins with strategy, yet when applied, leads to actionable steps that achieve stable market dominance. Apple reached a market share of more than 50% of the world market with its smartphones by 2017. Since the inception of the iPhone, Apple consistently released upgrades, enhancements, and accessories. As a result of this market penetration, Apple feasts on a larger market share than all its competitors combined. Dunkin’ started in the 1940s in Massachusetts. Today, the brand formerly known as Dunkin’ Donuts is found in 46 countries. However, its most loyal following remain in New England, for one-third of all Dunkin’ stores reside there. The Coca-Cola brand established itself as a beverage associated with snacks, enjoying the benefits of the refreshment market until tastes began changing in preference of healthier choices. Coke offered Diet Coke to gain a larger share of the beverage market, capturing those more health minded. When market research revealed more women than men preferred Diet Coke, the brand initiated Coke Zero as a ‘catchall’ solution. Best Market Penetration Strategies The actionable part of a market penetration definition relates to actual strategies. Market penetration strategies allow a brand to take its existing product or service to an already thriving market with high demand and begin drawing-in a larger share of the entire market, eventually draining competitors of opportunity and money. Market penetration (as a set of actions) is taken from Igor Ansoff, creator of the Ansoff Matrix. The grid features four growth strategies related to entering a new or existing market with new or established products/services. 1 - Use Dynamic Pricing Many online retailers engage in price wars in an attempt to persuade customers to buy products and services at the best price. The market penetration strategy grows more intense and complicated given online prices rise and drop throughout any given day. Dynamic pricing allows for pricing automation, so regardless of the size or complexity of given products/services, the associated software researches the market and sets prices to deliver actionable intelligence. Further Reading: Why Price Is the Most Important P in the Marketing Mix 2 - Add Distribution Channels Adding distribution channels is another market penetration strategy focused on growth. For example, if a brand solely leverages retail outlets, it may benefit from considering adding other ones such as email marketing, online marketing, and telemarketing. 3 - Target Specific Locations Some products and services are seasonal while others have a greater demand depending on location (A sunscreen brand targeting sunny Los Angeles versus rainy Seattle). Targeting the location in need would lead to a surge in use and increase in sales in that region. 4 - Improve Products If a brand can trace market share to a particular product or service then it would make sense to consider improving upon what the public already likes. Understanding what consumers like (or even better, dislike) about a product presents an opportunity to make it even more loved and preferred depending on technology related to materials, newly developed accessories, etc. 5 - Enter New Geographical Markets The ever-growing spending within the Latin American market has intrigued many brands to expand offerings to Mexican and other Latin American locales. Making the opportunity for growth more a reality, many brands hire Spanish translation services to ensure brand offerings are in Spanish, but also effectively resonate with the Latin American peoples and their culture. A great example of this is when CNET entered the Hispanic market with zeal by partnering with Latin World Entertainment in addition to recruiting well-recognized superstar Sophia Vergara. 6 - Create a Barrier to Entry Wise brands create barriers to entry for competitors by utilizing existing resources or seeking those that would either make a product or service superior or allow to offer such at an unbeatable cost. For example, a food supplier dependent on several farms for production may cut overall costs by investing in its own farm versus buying needed goods from a third party. Amazon continuously reinvests in its customer service, features, and ability to penetrate the market, making it nearly impossible for another online platform to compete. Further Reading: The Complete Guide to Selling on Amazon 7 - Change a Design Water is essential to human life, but only in the last century that it has been offered in plastic bottles. Wine is another example of a beverage that has been around for centuries, yet offering it in a box versus a bottle is a very contemporary market penetration strategy. 8 - Make It Easier to Buy How seamless is your online checkout process? Do you have an online checkout process? Making it easier to find and buy your goods and services is a surefire way to penetrate a greater share of a targeted market. 9 - Create and Recruit Established Advocates Word-of-mouth remains a stellar way to spread word and garner more advocates. Many brands offer membership and/or referral programs. Advocates create support by actively recruiting friends and family, helping the brand penetrate a larger share of the market and make more money. Amazon creates its own internal “club” via Amazon Prime subscription. 26 Amazon Prime Day stats reveals 100 million US shoppers have an Amazon Prime subscription (62% of Amazon’s customer base in the United States)! 10 - Educate the Market For a newer brand entering an established market, the challenge is not creating a want, for it’s already established. The real hurdle is educating the market about a new choice or selection and drawing attention away from brands that already exist. Cabot, makers of cheese, use Pinterest and a variety of social media tools to educate the market on grilled cheese recipes, farms and farmers in their ‘family’ of production, New England ski spots, and healthy options for those who are lactose intolerant. Final Thoughts Ecommerce retailers don’t need to reinvent the wheel regarding the marketing channel. In 2021, it’s more than well established that the opportunity to offer products and services online is there. However, how can e-tailers compete with large competitors such as Amazon? The answer is better understanding market penetration and developing the best marketing penetration strategies to gain a larger share of a targeted market. Curious to learn about some other pricing strategies? Check out some of our other articles below. What is Value Based Pricing?: A full overview of how price and consumer perception work together. What is Charm Pricing?: A short introduction to a fun pricing method What is Penetration Pricing?: A guide on how to get noticed when first entering a new market What is Odd Even Pricing?: An explanation of the psychology behind different numbers in a price. What is Bundle Pricing?: Learn more about the benefits of a bundle pricing strategy What is Cost Plus Pricing?: In this article, we’ll cover cost-plus pricing and show you when it makes sense to use this strategy. What is Map Pricing?: Review our educational tool giving you a broad understanding of MAPs. Here’s What You Need to Know About Psychological Pricing (Plus 3 Strategies to Help You Succeed): Modern day pricing is so much more than a numbers game. When thought about correctly, it’s a powerful way to build your brand and drive more profits. How to Build a Pricing Strategy: A complete guide on how to build a pricing strategy from Omnia partner Johan Maessen, owner of Commercieel Verbeteren.
13.10.2020
Price Points Podcast EP 2: Why Should Brands Differentiate Their Assortments
How important is a brand's assortment to its D2C strategy? In this interview with Hidde Roeloffs Valk from Omnia Retail, we dive into assortments and uncover how they are an essential tool in a modern e-commerce...
How important is a brand's assortment to its D2C strategy? In this interview with Hidde Roeloffs Valk from Omnia Retail, we dive into assortments and uncover how they are an essential tool in a modern e-commerce strategy. [00:00:10.580] - Grace Hello and welcome to price points by Omnia Retail. I'm your host Grace Baldwin. And today we're continuing our conversation about brands in the direct to consumer, also known as D2C, channel. More and more brands are making the move DTC in order to gather more data, build better relationships with consumers, and ultimately earn more sales. But this move presents an issue to brands' relationships with their biggest customers: retailers. By moving direct-to-consumer brands can quickly become direct competitors to the retailers who also buy and sell their products. So how do brands avoid this channel conflict.? In an interview with our partner A.T. Kearney a few weeks ago, which I'll link in the show notes, Jean-Paul and Roger told us that a differentiated assortment was one of the key things for brands to successfully move direct consumer. But what does that mean, and how do brands actually go about doing that? To answer that, I asked Hidde-Roeloffs Valk, one of our consultants here at Omnia. Hidde has been with Omnia for two and a half years. But before he worked as a consultant at the leading pricing consultancy Simon Kucher and Partners and has a master's degree in finance from the University of Amsterdam. Hidde loves pricing and knows everything there is to know about it and would happily talk for hours about any aspect of the practice. It's because of him that I started on this whole journey about brands in the direct to consumer market. So without further ado let's dive in how brands can differentiate their assortments as a way to voice halacha. Please welcome Hidde Roeloffs Valk. [00:00:10.580] - Grace So I think to start would you mind introducing yourself a little bit and your background. [00:01:39.660] - Hidde Yeah I'm Hidde a Solution Consultant for already two and a half years now here at Omnia. Before it is I was at Simon Kucher, a strategy consultancy with expertise and pricing where I did projects for the German brand Miele for instance the paint manufacturer AkzoNobel. So I took a particular interest in consumer goods and retail so which is why I also joined Omnia where I help retailers and brands improving our pricing and marketing with our software. [00:02:08.730] - Grace So this month we're talking about brands and how they're starting to move to direct to consumer and more specifically we wanted to talk about why their assortments and should brands differentiate their assortments and why they should. So why should brands differentiate their direct to consumer assortments if they're going to make this move is they're going to reason why they should make that difference. [00:02:27.510] - Hidde There's a few reasons and most of times they would like to improve the brand experience. They can manage more of the brand experience by differentiating their assortment across these channels. Of course sales is always important and they can get increased to sales obviously because they're increasing the amount of ask you use. They're eventually selling. Another thing that's really important for basically all companies nowadays of course is get data to the retailers they often do not get any or some sales data. But selling directly consumer they can get way more data they can see on their website which products are people interested in maybe not buying or are buying. They just have way more information they can manage on and maybe improved our products even more. Not only for themselves but also for their retailer. So it's also beneficial for the retailers in the end by improving that. [00:03:19.920] - Grace So it's less about sales and more about experience in product innovation not always about sales. [00:03:26.310] - Hidde It's always about sales. So yeah but it's a way to to capture more sales. [00:03:32.310] - Grace And so what are some examples of companies that are already differentiating their assortments? [00:03:36.780] - Hidde The biggest one I would say nowadays is Nike. It's a huge example of mass personalization where consumers can in fact make their own product. True easy to use website. And they have some great manufacturing process for that to easily make those it only takes two weeks to get shoes in your colors and your style. It's pretty cool. The prices are a bit higher of course but there's just a lot of margin to capture there. There are these these water bottles you see every day in the office which can can personalize. So it makes it easier to recognize for people so there's a lot of there's a feature benefit for people there. Otherwise everyone has the same color and you just be confusing drinking other people's water bottles so those are two two examples. But there's also another example where brands make unique SKUs. That's one thing I saw at Miele. They may make for specific retailers or maybe for one large retailer they make a special product special SKU where maybe one feature is added or the color is a bit different that people might like so that this retailer has a unique EAN code and the product is less matchable and it can increase their sales and their relationship with these retailers. So that's what we call a different kind of differentiation strategy. So on the one hand with Nike mass personalization which is really the consumer level and on all the side you have the uniqueSKUs for a specific channel or specific retailer which is not present personalized but different in some way. Yeah. [00:05:17.550] - Grace So yeah. What is the benefit actually from creating a differentiated assortment if you're going direct to consumer? Is it like how does it affect the relationship with the retailers. I'm thinking about the shoes for example. Why would Nike want to have to have something different that you can buy directly for Nike versus something you can buy at every at any given retailer that also carries Nike? [00:05:41.190] - Hidde So in terms of Nike it would mostly be building a relationship with consumers which they didn't previously have. Let's say Nike used to sell a the retailers they had no way to build a relationship with these consumers by now having a unique product. They got all this data they can send them emails they can manage their brand experience more and pull them directly to their website and also the margin is of course way higher if they sell directly to these consumers. So that kind of change is also with the unique SKUs. It's mostly about bettering their relationship with the retailer as that unique SKU is sold nowhere. So they have some benefit and they can incentivize certain consumers to get to that retailer so the retaile'rs happy also and they probably won't sell that unique SKU directly. So that's a channel conflict you might have. So you need to manage that correctly and that's where a lot of consultants coming also. [00:06:44.150] - Grace So are there any categories where differentiation won't be a good strategy? [00:06:48.620] - Hidde Well products where it's hard to differentiate as they're substitute products basically. So there's just no way to make it more unique. Shoes of course. It's very personal with laundry machines. You can easily cut down on features and that kind of stuff with razor blades. Yeah you can. You just need to give the best razor blade as otherwise. And other brands will pick up your slack. So you just need to give the best one. Also they're fast selling. So yeah use it one time twice and throw it away so people don't really care about color and anything so so there's there's not a lot of features where you can differentiate basically. So that would be mostly hardware and FMCG, but food for instance in FMCG you can differentiate and do it like the laundry machine. We're talking about you can have specific flavors of Coca-Cola for instance for a specific retailer where you can do as a brand by giving a unique flavor to a retailer from a certain product you have is really give a token of appreciation you have a good relationship with then you can improve it more and more by giving these unique products so that consumers will go towards that retailer because they have this particular flavor. So with food it's more easily doable give them some special test some new flavor with them as the first ones and maybe role that out afterwards towards other retailers or maybe you have a unique contract with them for this flavor. So that's what you see sometimes with Coca-Cola for instance. [00:08:21.860] - Grace So going back to the razors example again the differentiation there wouldn't necessarily be in your assortment it would be more in your branding and your kind of or your service so the differentiation would be in your service not necessarily the product. [00:08:35.780] - Hidde Yeah like the Dollar Shave Club. Yeah. For instance. Yeah. That would be a direct to consumer service. Philips have also done it with basically leasing a electronic razor for women which was a was a great success. So these ranges were high in costs to buy a lot of women one to buy them it was really premium razor so they figured out if we do it on a monthly basis like software as a service we just use a product as a service as they asked I don't know something like 10 euros a month and they could just replace it if it break down and whatever and after a certain amount of time it was just yours. So it is enabled a lot of people that were not willing to pay it but were willing to buy it or very interested to buy this product finally and it increased the sales for this product more enormously of course and they made much more profit because they skipped the retailer in the end. But at the same time retailers were happy but because there were not cutting into their group of consumers because they were hitting a different target group which had less money to spend but we're willing to buy it and they wouldn't normally buy through to retailers. So both types were happy. [00:09:45.770] - Grace So what are some of the different ways brands can differentiate their assortment across different channels? [00:09:52.580] - Hidde So as we talked about this mass personalization that's that's one way of selling directly to consumers. I think that's one. Second was the unique products. And third one is maybe a different service offering so selling on a monthly basis instead of one huge thing and having some unique customer service or unique brand experience where people can maybe have additional features over the air maybe some software updates which they can pay for. Those are different ways that brands can differentiate across these different channels and sometimes in collaboration with with the retailer of course. So in-store personalization or special customer experience through the store a new product release where sort of retailer stocked with the product and other retailers get the product later for instance is maybe a time-based unique SKU. There's all different ways to manage relationships with both the retailers and the consumers at the same time [00:10:54.070] - Grace Can price be a differentiator for brands? [00:10:57.410] - Hidde So price really important topic here at the same time the brand should should set a price from the recommended retail price towards their own selling price which might be the same might not be the same. And at the same time the retailer needs to set a price for their in their stores online. They might differ might not differ. So there needs to be some way for brands to manage that and price is always relative, products are highly comparable nowadays some unique products might not be but always in some way comparable. And price is always transparent in the retail market nowadays so consumers will always look up the best price or mostly look for the best price and will always compare products versus other products or substitutes. TV for instance. Yeah that might differ with a few features and it's important to know which feature is valued by certain consumer. Anyways the price can be viewed in two ways. Either you will compare it with a retailer as a brand, so I'm Samsung and I might compare my prices of my direct to consumer channel with MediaMarkt for instance. Or I'm Samsung and I'm comparing my price or setting my price towards or in relation with another brand such as LG. So I might say Oh I'm always 10 percent under L.G. and I would differentiate on that in the end. It's a way to increase your sales. It's not the only way but it can definitely help. Let's say if you're selling directly to consumers your retailers are also your competitors but also your clients so need to manage that very well obviously. And yeah for now it can harm your price perception but it can also benefit your pride perception if managed correctly and it also has a lot of things to do obviously with your supplier conditions which is not a topic I will dive into this month. [00:12:57.800] - Grace So it's really more about using price but using it and like thinking about it very cautiously and using it strategically rather than just trying to price yourself will be the lowest price in the market? [00:13:10.670] - Hidde I would say it's it's not a differentiator but it's a it should be a fair price. It shouldn't make you different compared to the retailers but it can make you different compared to other brands. It's more about having a fair price to relative to these to these retailers like it's um it's a checkbox for consumers. [00:13:34.830] - Grace So it's like an anchor point. [00:13:36.650] - Hidde It's definitely an anchor point for the whole retail market. So what can happen is your prices say I'm lowing my prices as a brand, might be that triggers a price decrease over the whole market. So it's definitely an anchor point. It's sometimes always the highest price in the market that that's available and as a retailer if you're above the brand then you won't sell anything off easily. And compared to these other brands it can be a differentiator. Definitely. If your TV is of a higher quality and all also a better price and it's a huge differentiator. But if your TV is for instance same quality and a higher price then you haven't differentiated and doesn't make sense. That's where the comparing towards other brands really is really important. You need to always have this sanity check. Like is my value of the product in line with the price towards other products of other brands on the market on the market. Yes. [00:14:39.770] - Grace So that's a good that's a good transition into dynamic pricing. [00:14:43.040] - Hidde So how can dynamic pricing dynamic pricing isn't a differentiator per say it's it's it's a tool it's an enabler to manage these prices and the price perception that comes with it in an automated way based on large amounts of data. So again the data of both the retailers and other brands can fit into the system and uses all of your strategy to to manage it is thereby saving quite some hours making decisions or in an automated way. That really helps so you can use both your resources internally to focus on other stuff. So to ask that brand experience such as analyzing data and figuring out where to improve that assortment we were talking about. So in the end it's it's really an important tool to manage all this to enable you to have an automated way in setting the price based on so much data [00:15:39.880] - Grace So dynamic pricing can also help brands avoid market collisions? [00:15:43.430] - Hidde Yeah definitely. For instance it can quickly pick up when the price is decreasing in overall market and you might be the one that set off that decrease. And that way you can always increase the price again to get the over market up. That's one way to look at it but also managing stock for instance that would have been done by hand and these algorithms could pick up when you were having trouble with your stock and have an automated way of managing the price for a troublesome stock for instance. [00:16:13.730] - Grace Well thank you for chatting with me about assortments. If people have questions how can they get in touch with you. [00:16:19.460] - Hidde People could reach me via my email hidde at omnia retail dot com or connect with me via LinkedIn and then send me a message. [00:16:27.820] - Grace Perfect and I'll include all of that in the show notes. So thank you. [00:16:31.370] - Hidde Thank you. [00:16:37.040] - Grace Thanks again for listening to the second episode of price points. I hope you enjoyed it as much as I did. If you'd like to get in touch with him. You can email him at hidde at Omnia Retail dot com or visit his LinkedIn profile which I've linked to the show notes. As always if you're a retailer or brand and want to try dynamic pricing free for two weeks with your feeds you can connect with us here on our website or by calling +31 0 85 208 3140. Finally if you'd like the show let us know. Send me an email at Grace at Omnia Retail dot com and let me know what you thought or if you have any suggestions for the future. In the meantime though have a great rest of your day. SHOW NOTES: Omnia was founded in 2015 with one goal in mind: to help retailers take care of their assortments and grow profitably with technology. Today, our full suite of automation tools help retailers save time on tedious work, take control of retail their assortment, and build more profitable pricing and marketing strategies. Omnia serves more than 100 leading retailers, including Decathlon, Tennis Point, Bol.com, Wehkamp, de Bijenkorf, and Feelunique. For her clients, Omnia scans and analyzes more than 500 million price points and makes more than 7 million price adjustments daily. Website • LinkedIn Music: "Little Wolf" courtesy of Wistia TO CONTACT HIDDE ROELOFFS VALK: Email: hidde@omniaretail.com LinkedIn: Visit here TO CONTACT GRACE BALDWIN: Email: grace@omniaretail.com LinkedIn: Visit here
13.10.2020
Price Points Podcast EP 1: What Do Brands Need for a Successful D2C Strategy?
What do brands need for a successful D2C strategy? Learn more in this interview with Jasper Wiercx, Solutions Consultant at Omnia Retail What are the benefits of brands going direct to consumer, and how can they set...
What do brands need for a successful D2C strategy? Learn more in this interview with Jasper Wiercx, Solutions Consultant at Omnia Retail What are the benefits of brands going direct to consumer, and how can they set themselves up for success in this new channel? Jasper Wiercx from Omnia Retail answers all your questions and more in this week's episode of Price Points. AUTOMATICALLY GENERATED SCRIPT: Hello and welcome to Price Points, the new podcast about all things pricing by Omnia Retail. My name is Grace, and I'm your host. And this month, we're focusing on "brands and the direct-to-consumer, also known as the D2C, arena," and exploring why more brands are entering the direct to consumer market, as well as what they need to succeed in this sphere. To start learning more about this, I spoke with Jasper Wiercx, one of our solutions consultants here at Omnia and our in-house guy for brands and dynamic pricing. Jasper is our newest addition the Omnia consulting team, but he has a long history of consulting. Before Omnia he worked as a strategy consultant at Deloitte for a few years, and before that he got his Masters in Business Economics from the University of Amsterdam. He's laid back and not one to waste words, opting instead to offer insightful and articulate words of wisdom every time he speaks. I sat down with Jasper to talk about what exactly brands need before going direct to consumer, covering everything from why a brand would want to go direct-to-consumer, what the benefits of a D2C channel are, how to avoid channel conflict, and more. So without further ado, let’s dive right in and hear more from Jasper Wiercx. Grace: Cool alright so do you wanna maybe introduce yourself a little bit? Jasper: Yeah so I am Jasper Wiercx. I am a solutions consultant at Omnia. In that role I translate commercial strategies into our software to apply dynamic pricing. Other than that I've been a strategy consultant for Deloitte and now I am primarily focusing on the D2C capability development of brands to serve their direct to consumer channel. Grace: And so how did you get into the direct-to-consumer channel? Like is it something that you had done before and that you brought that experience to Omnia or is it something that you've kind of taken on here at Omnia? Jasper: So I've taken up the role here at Omnia primarily because I do find it very interesting topic because you can see a shift is going on in the marketplace, in a sense, where it’s is easy to connect with your consumers and to sell to them directly given all the developments on the Internet and the did the capability of e-commerce. While traditionally would be more to put in the retailers actually the dependency is lower. Grace: So what are some of the benefits of brands going direct to consumer? Jasper: Yeah I am so I think benefits is actually really important and that I think there's three primary benefits. So first of all is all about that you are in direct contact with the end-user. So that's very good for your relationship and you can gather a lot of data on those end consumers that will ultimately help and give you feedback to increase your brand loyalty. You’ll understand better what a consumer for thinks of your brands and also product feedback of course. And you can link that back, is it actually is the brand that I want to have in the market or do I need to steer a little. And ultimately based on that feedback loop you can improve the customer experience from end to end as a brand. So not limited to your own direct to consumer channel but it also applies of course across your different other channels because it's just an improvement of your brands and your products in that sense. So I think that's the most important reason why you should assess how you can Grace: Get into touch with your consumers? Jasper: Yeah get in to touch with consumers and gather the data yeah Grace: And so it isn't it's mostly because of the Internet and the rise of e-commerce that Jasper: Yeah I think it's like it is the trend so as always I think I personally always believe trends are here to stay and it’s a signal of where the world is going to but it also applies to direct to consumer. so if initially if you could see how easy it is even for start ups and small business to directly sell to consumers via Instagram or via e-commerce and via Shopify platforms that essentially that also applies to larger brands of course that the ease of reaching those consumers is just as easily. However the entire the dependencies across your organization is more complex of course. Grace: What do you mean by that? What do you mean by the dependencies? Jasper: So if you make a comparison from a really small business that doesn't have that many dependencies in place as other relationships to care for of course a widespread and renowned brand has already been serving the consumer for decades probably and in the traditional traditional model where they were manufacturers and supplied retailers whom sell it to the consumer is something of course it has developed in a very unique relationship between the retailer and the brands and that's those are the dependencies that you need to be aware of and of course which you will influence if you directly sell to consumers was yours as a brand yourself. Grace: Yeah makes sense, it'll affect your relationship with your retailers, yeah Jasper: Yeah exactly. Grace: And so is a strategy important then for brands that are then moving direct to consumer? Jasper: So next to like the relationship with the retail of course, your relationship with the consumer will also differ if you will serve them directly. I think those two are quite a key in this in his area. And first of all why do you need the strategy as a brand for going direct to consumer? So a strategy my from my point of view is all about a certain choices that you make in order to drive profitable growth and that includes so what are my goals and aspirations but also where do we want to achieve this is and where do want to play but also how do we want to win those markets and in order to win what do we need to create an organization to be able to win? Grace: so the strategy involves goalsetting tool setting, too Jasper: Goal setting, but also the execution of the goals. so also how do I set up my this is the goal, how do I eventually set up my organization to achieve that goal and that includes so do I want to be active in the consumer markets directly. but also if that's my choice to directly serve the consumers do I want to service via retailers or do I want to serve directly via e-commerce? but essentially it's a about how will I win in comparison to my brand competitors and that develops into the sense of what type of capabilities do I need in order to achieve that strategy or that vision I would say. Grace: And so what are some of the capabilities that you think are important then the people need, in a more broad sense? Jasper: So the capability to the organization would need is first of all understand how your channel strategy is set up. So you'll set up a channel strategy because you think that it is the best way to serve those markets that you focus on. So not limited to only to, for instance, the consumer market, but all your markert that you're serving. if we look at the consumer markets, what capabilities do I need in order to achieve that is to achieve the channel strategy? and that’s of course the balancing of the channels across. so you want to limit your cannibalization of course, your cross-channel cannibalization which is important, you want to do you want to improve and optimize your brand perspective from a consumer point of view but also you don't want to risk your relationship with your primary retailers and strategic retailers because that will ultimately harm your sales assuming they still have 90% of your sales of course. Grace: And so for most brands is it in something like retailers are 90% of their sales and they're introducing the direct to consumer market to expand that? Jasper: Yes I think so I think traditionally the most renowned brands still a majority of the sales are driven by large retailers and or marketplace. But how different brands are now moving into the direct to consumer space is of course different dependent on your product or dependent on how you want to have your relationship with your consumer Grace: So what does a strategy look like? so if you're selling razors or shoes that sort of strategy look like versus a different type of product Jasper: Of course it differs quite broadly in between different types of goods that you have so let's take the easy example of the food industry right now and it's still not even that's adopted by the consumer and we can see is more more in recent years that you buy your groceries online the development is very much going on while more of like more computers or IT is already widely purchased online of course. secondly so it's all about how is the consumer market has e-commerce already been adopted by it considering the industry you’re operating in? or also show what is the best way to serve my consumer given if you would say razors or shoes and like maintenance is less important for those FMCG products while if you look at bikes or cars of course maintenance is really important and therefore your retailer or dealer network is even more because you've got those maintenance spots your consumer can go back to. Grace: So if you're an auto parts brand considering going direct to consumer would you focus more on your relationship with your retailers because they might be the ones that are providing those services rather than trying to find a way directly to the consumers? Jasper: Yeah I think so, so I guess it would. So initially you want to be in control of your own brand that might be more applicable to full-on cars, instead of car parts but if you were cars you might just have some experience centers in place to have a good brand in place where people can serve for you well, and you could potentially also purchase a car from there. But essentially you're dealer network is important because your dealer is closer to your consumers in that region and so of course I do think that’s a difference because the services that you provide to a consumer is also different because a fast-moving consumer goods you just receive on your doorstep, you don’t require anything else until it’s empty or has been depleted while maintenance is of course something completely different. so if you have a bike you want to have a you want to purchase the bike at the dealer which will also help you maintain it if you also have any problems Grace: So what about a multi channel brand strategy? so how does that the brand strategy and a pricing strategy relate to each other in this new kind of arena? Jasper: yeah this of course a very interesting topic in the quite sensitive topic in a sense because so your brand strategy ultimately also dictates some pricing strategy, in a sense, because you believe that you are a premium brand and therefore you want to have a certain premium brand perspective in the market brand image I would say. Often that also implies a higher price however because you're not by you by regulations you're not allowed to dictate what your retailers or what they should charge the consumer for your products, because a retailer is entitled to do that themselves, it's all about the relationship you have with the retailer and if they would adhere to that higher price it price premium basically on that premium brands. So that’s very much aligned and it also applies your multi-channel strategy. So if you, for any reason, see that a lot of channels different channels it's going to be more difficult to maintain or control in a sense at that higher price premium. in comparison if you just have two specific retailers and maybe your own direct channel that is of course easier to manage as a brand Grace So if brands are going to go direct to consumer is it difficult to build a strategy or is it relatively easy? I guess it depends on the brands right? Jasper: It depends on the brand and also I think in the policy you set. So basically you need to have a story or you need to have an operating model on your direct to consumer channel and that adheres to certain deals or certain agreements you have with your retailers. So and with the policy in place you can always reflect back to the policy if any of the retailers are having doubts about your price position of a certain product in your own D2C channel. but of course is always in the balance in it and the primary and I think I was also the most interesting and challenging part of it is how do you achieve that balance in your policy? so your pricing policy in that sense to not risk any issues in your multi channel strategy. Grace: Do you have any tips for finding a balance? Jasper: So I think it's all about having the discussions of course. Grace: With the retailers? Jasper: With the retailers as well but also understand how different markets operate because so often these are programs, commercial policy programs, that are that are designs centrally I think for my headquarters’ point of view, while the markets are also very important to consider, also given the different consumer behavior in those markets, of course. Secondly I also think it's very helpful to have some new eyes to help you out with these kinds of programs I would always have at least reach out to any consultant or something else also very helpful I think that's to better understand how other brands are dealing with it and also to ask the right questions, basically. Grace: So is this something that Omnia can help with then, that consulting? Jasper: I think one of our power partners are better like A.T. Kearney, as an example, because this is more on a real strategic level. we of course can very much help with the execution of that policy and also probably with the design of the operating model because it’s all about the synergy across the system, which potentially could be Omnia, but also across your own process and your own people that you have your organization Grace: Thank you for chatting with me Jasper. If people want to get in touch with you, what’s the best way to chat? Jasper: So people can send me an email, of course, or drop me a note via LinkedIn. Grace: Cool, and I will include that information in the show notes as well. Thanks! Jasper: Thank you! Grace: Thanks for listening to price points by Omnia retail. If you’d like to get in touch with Jasper specifically, you can drop him a note at Jasper@omniaretail.com. If you’d like to go a step further and try Omnia free for two weeks with your feeds, feel free to give us a call at +31 (0)85 208 3140. I’ll include all of that contact information in the show notes as well. Lastly, if you liked this show, let us know! Send me an email at Grace@omniaretail.com and let me know what you thought, or if you have an idea for a future topic. I’d love to know what any of you who are listening think. Have a great rest of your day! SHOW NOTES: Omnia was founded in 2015 with one goal in mind: to help retailers take care of their assortments and grow profitably with technology. Today, our full suite of automation tools help retailers save time on tedious work, take control of retail their assortment, and build more profitable pricing and marketing strategies. Omnia serves more than 100 leading retailers, including Decathlon, Tennis Point, Bol.com, Wehkamp, de Bijenkorf, and Feelunique. For her clients, Omnia scans and analyzes more than 500 million price points and makes more than 7 million price adjustments daily. Website • LinkedIn Music: "Little Wolf" courtesy of Wistia TO CONTACT JASPER WIERCX: Email: jasper@omniaretail.com LinkedIn: Visit here TO CONTACT GRACE BALDWIN: Email: grace@omniaretail.com LinkedIn: Visit here
21.06.2019
How Brands can Differentiate their Assortments for Better Relationships with Retailers
Whether you are transitioning into the direct-to-consumer (D2C) sphere, or simply want to build a better relationship with your retail customers, your assortment is the key to making your brand stand out from the rest...
Whether you are transitioning into the direct-to-consumer (D2C) sphere, or simply want to build a better relationship with your retail customers, your assortment is the key to making your brand stand out from the rest of the competition. In fact, it’s the ultimate do-it-all tool that helps you build a better brand experience, get consumer data, improve your relationships with retail customers, and more. But how do you make your assortment the ultimate tool in your toolbox? In this post, we’ll explore differentiated assortments — what they are, how brands can use them, examples, and more — and give you some actionable tips on building assortment strategies that make your brand shine. Curious? Keep reading to learn more. Why should brands differentiate their assortments? Differentiating your assortment is a way to manage your relationships with retailers and consumers at the same time. At its core, the strategic move to differentiate your assortment will help you build better relationships with your retail customers through strategic partnerships and clear expectations of who makes sales in which channels. Differentiating your assortment is also beneficial when you open a direct-to-consumer channel. Opening a direct-to-consumer line has numerous benefits, but it also creates friction between your brand and your biggest customers: the retailers who buy your products from you and sell them to consumers. If you sell the exact same products as your retail customers, it’s easy to see the reason for tension. If you price yourself lower than the market average, you effectively undercut your retail customers. And while that lower price can earn you more sales through your D2C channel, you risk damaging overall price perception and your relationship with your customers. But differentiating your D2C assortment from what you sell to your retailers reduces channel conflict and protects your relationship with your biggest customers. How brands can differentiate their assortments There are 3 specific ways that brands can differentiate their assortments, depending on your end goals. 1. Build unique SKUs Best for: Brands with strong retail partnerships and connections. One way to differentiate your assortment is by leveraging your relationship with retailers. In this strategy, you’ll build a unique SKU to sell through retail channels and forge a strategic partnership with retailers as a result. With unique SKUs you can: Build better relationships with retailers Enrich your own market knowledge with retailer insights Reach consumers through channels they already know and understand In this setup, you can still control your brand image, but you also build a strategic partnership with a retailer who has demonstrated an excellent ability to sell your products. The retailer will be more likely to share their market knowledge with you to build a more profitable relationship. There are two ways to go about using unique SKUs to your advantage: 1. Unique SKUs for particular market segments The first way to use the unique SKU strategy is to focus on a particular market segment. If you know a certain segment of the market is more likely to buy certain features, you can build a model of your product specifically for that market segment. You can then push that product through retailers who cater specifically to that segment and who have a history of high sales. Say you sell notebooks, for example, and notice that the red version of a particular model sells especially well on a certain retailer’s webshop. You can use those insights to create a unique version of the notebook that consumers can only find in that retailer’s store. This strategy is a win for both your brand and the retailer. Ultimately, the main benefit of this channel, beyond more sales, is a strengthened partnership. The retailer will get a unique EAN code that is difficult to match, and can also leverage its connection with you to boost its own market image. They will also earn more sales and become the go-to retailer for this target segment. A great example of a company that does this is Miele. According to Hidde Roelaffs-Valk, one of our consultants here at Omnia, “That was one of the things I saw [while working at Simon Kucher and Partners as a consultant for Miele]. They would make a special product, a special SKU for specific retailers where maybe one feature is added or the color is a bit different.” Miele taps into their retail customers’ knowledge bases and analyzes what consumers are buying through each retail channel. If they notice a strong pattern or trend, they will create a special SKU for that specific retail that has the features that consumers on that specific site tend to choose. 2. Unique SKUs for a limited time at high quality retailers You can also create a SKU that is available through a selective partnership with one retailer for a limited amount of time. An example of this might be a food item that comes in limited flavors and which are only available at certain retail locations, whether they are a physical brick-and-mortar store or an online retailer. You don’t need to keep your SKUs limited to that specific retailer forever. You can also stipulate that you will roll the SKU out to the larger market after a certain period. In any case, your original partner will get the first-mover advantage and become known as the place that sells that version of your product. 2. Embrace mass personalization Best for: Brands selling high volumes of stock with relatively low costs for production alterations. Mass personalization means you give consumers the chance to customize their product offers directly through your website, while leaving retailers the chance to sell the more “generic” versions of your product in-store. The benefits of the strategy are numerous. For one, it lets retailers do what they are best at: selling to the masses. This keeps your biggest customers happy, while also opening up a direct line to the consumer market. With mass personalization you can: Talk directly with consumers Gather more interesting (and specific) consumer data Exert more control over your brand image Build a better relationship with consumers Maintain relationships with retailers The best examples of mass personalization come Nike, which allows consumers to make their own products on an easy-to-use website, while they sell generic shoes through their retail outlets. The company is successful in this because they have some great manufacturing processes which make it possible for consumers to order shoes in specific colors and styles and receive them in two weeks. D2C differentiation isn’t just for brands with tons of money though. You can also look at smaller companies and see the same principle in place. An example of a small company doing something similar to Nike is Doppr water bottles. You can go into a store and buy a plain Doppr bottle, or you can order one online that’s customized with your name, logo, or design. 3. Provide a different service Best for: Brands in the Fast-Moving Consumer Goods (FMCG) space whose products have a plethora of alternatives. If your products can easily be replaced by a different brand’s offering, it can be hard to stand out in the market. Differentiating your product based on color or the materials can help, but in many cases it’s just not enough. This is where differentiating your brand based on additional services is especially useful. With a service differentiator you can: Stand out from the crowd Disrupt the traditional D2C channel Create a unique brand experience Foster your relationship with local retailers and service outlets Gather more consumer data There are a few ways to do this. Subscription models are on the rise in the FMCG space, with companies like Harry’s Razors and the Dollar Shave Club disrupting the traditional razor blade market. Philips also did something similar with their razor and shaving category. The company had an electric razor for women which was a great success and highly coveted, but the high cost of the product created a barrier for many women who wanted to buy. Philips decided to adopt this monthly subscription model for the razor and gave women the product for a low monthly payment. After several months of payment, the consumers would then own the razor outright. Sales exploded because people were able to afford the lower monthly payment instead of the high upfront cost. Subscription models are also on the rise in fashion, whether it’s from the brand itself offering a monthly subscription plan to receive more products or through some sort of monthly boxed assortment. If the subscription model doesn’t sound right for you, you can also think about product maintenance as a way to differentiate your assortment. This can be done in your physical stores, or through strategic partnerships with local repair and maintenance companies. This model can work for a variety of categories, from offering free in-store tailoring services for fashion or discounted repairs at local experience centers. Can price be a differentiator? When it comes to your D2C channel, price can be a differentiator, if you wish. But you should be strategic about it. Undercutting your retail customers not only hurts your relationships with your biggest customers, but it also undermines your brand price perception. So if you want to use price as a differentiator for your assortment, there’s one key thing to remember: your price should differentiate you from other brands selling similar products, not the retailers selling your products. In other words, your price should follow the retail market, but stand apart from your direct brand competition. To keep your prices aligned with the rest of the retail market, you need to follow the market and update your prices multiple times per day. But following the market takes significant time and resources if you do it manually. That’s why dynamic pricing is so important for retailers who are opening their own D2C sales channels. A software like Omnia will automatically check your product prices against the retail market, meaning your prices will always align with what retailers charge. This not only protects your brand perception, but it also protects your relationship with your retail customers. Brands: increase your sales, reduce tension with retailers, and maintain your brand image with Dynamic Pricing. Curious about how to use your price as a strategic tool in the consumer market? Try Omnia free for two weeks and see for yourself. Click the button below to get started.
13.06.2019
3 Things Brands Need for a Successful D2C Strategy
A new trend in retail is the rise of the number of brands entering the direct-to-consumer (D2C) space. Instead of selling their products to retailers, who then turn around and sell their products to consumers, some...
A new trend in retail is the rise of the number of brands entering the direct-to-consumer (D2C) space. Instead of selling their products to retailers, who then turn around and sell their products to consumers, some brands are now skipping the retailer and going straight to shoppers. And in a new marketplace where it’s easy to connect with consumers via e-commerce and social media, it’s easier than ever to do. The Internet and e-commerce have shifted how we shop, and brands need to respond accordingly to keep up with market demands. No matter the reason why more brands are entering this space, one thing is certain: this leap directly to consumers means brands are now in uncharted territory. The channel also creates some conflicts between brands and retailers, who might see your new D2C strategy as a threat to their bottom line, and a poorly-planned strategy can have disastrous consequences on your brand perception. So what do brands need for a successful transition into the direct-to-consumer world? Here are the 3 things you need before you get started. 1. A crystal-clear reason Before diving directly into the D2C world, make sure you have a solid understanding of why you want to enter this competitive marketplace. For some brands, it’s a matter of data. In the current marketplace, retailers tend to hold their consumer data close to their chests as their main competitive advantage. If you open up a D2C channel though, you can gather consumer data to help you improve your relationship with consumers, get product insights, and spur product innovation. Another reason many brands are making this move is to protect their brand name and offer a better brand experience. In a marketplace where product quality is evening out, brand loyalty and perception might be the key to many consumers’ hearts. Since retailers, not brands, dictate shopper experience in-store and online, brands can understandably worry about their image and price perception. The move directly to consumers, then allows brands to exert a certain amount of control over the market that they previously couldn’t attain. Finally, a new D2C channel can simply be an avenue to more sales. If consumers have more chances and ways to buy, it might boost your bottom line. No matter the reason, if you’re a brand and you want to move into the direct to consumer space you should thoroughly understand why you want to make the move. This will help you create better strategies within the market so you can achieve your goals and align your commercial strategy. Additionally, you might find that a retailer might be better suited to help you achieve your goals. If you want to ensure a better brand experience, for example, a retail partnership could help both parties grow. 2. A multi-channel brand strategy After clarifying why you want to go direct-to-consumer, it’s time to set up a multi-channel brand strategy to establish how you’re going to execute your plan. A strategy is all about a certain choices that you make in order to drive profitable growth. There are multiple moving parts to a strategy, but at its core is a goal of what you’re going to do, and a plan for how to achieve that goal. You should think about: Which channels do we want to cover, and how will we win those markets? What are my goals and aspirations for each of my channels? Is one channel better suited to achieve a certain goal than another? How do we want consumers to perceive our product in each channel? What do we need as an organization in order to make those wins? These are just a few of the questions you’ll need to consider. And without help, the multi-channel brand strategy can quickly get overwhelming. At Omnia, we recommend you use a consultant to help you sort through your strategy and come up with an easy plan to follow. To see who we trust to help you with this, take a look at our Partners page. Differentiating your assortment Your multi-channel brand strategy needs to cover all of your sales channels, not just your direct-to-consumer one. Your retail channel is a huge part of that. If you’re selling directly to consumers, you immediately become competition to many retailers. And when retailers are your biggest buyer, how can you reap the benefits of selling directly to consumers without fracturing your relationship with retailers? One of the easiest and best ways, according to Roger van Engelen and Jean-Paul Savelkoul of our partner marketing agency A.T. Kearney, is to differentiate your assortment. In other words, you should offer retailers different products than you offer to consumers. What this looks like in practice is creating personalized, tailored experiences for consumers who come directly to your brand, while the retailers take care of the mass sales of more generic products. In the end, you as a brand can still gather consumer information and protect your brand identity, while retailers can still make mass sales on your high-performing products. A great example of a company that does this exceptionally well is Nike. 3. A multi-channel pricing strategy A multi-channel pricing strategy is a natural result of a multi-channel brand strategy. As you figure out how each sales channel will benefit your brand, it will be easier to set prices and make marketing bids that reflect your goals. If you want to position your brand based on perceived product value, you’ll probably use higher prices. If you want your brand to be known as the cheapest source for goods, you’ll likely use charm pricing. Your price point in the D2C channel should reflect your overall commercial strategy, of course, but it should also align with the rest of the retail market for two reasons. First, your price affects your brand image. Pricing yourself drastically higher or lower than retailers and the rest of the market will confuse consumers and negatively affect your price perception. Consumers might feel cheated by one source or the other, and won’t know where to place the value in the product. If you make this mistake, regaining consumer trust and value is a hard hurdle to overcome. Second, pricing yourself dramatically higher or lower will also affect your relationship with retailers. If your D2C price is notably lower than the rest of the online retailers selling the same product, you instantly undercut your biggest customers. Brands, dynamic pricing, and the D2C market Keeping your prices aligned with retailers for every product in your assortment at all times is a daunting task, to say the least. That’s why Roger van Engelen, Principal at A.T. Kearney thinks that a dynamic pricing software is essential for brands that are creating D2C sales channel. “In my opinion, brands need to have dynamic pricing before they start selling directly to consumers because it will prevent them from agitating their retail customers. This, in turn, protects brands from triggering a price-markdown war, which helps protect brand price perception.” - Roger van Engelen. See interview. Most major retailers already use dynamic pricing to manage their online stores and keep their products competitively priced. Brands, on the other hand, can use the software to follow a market price within extremely tight limits. This not only keeps your relationships with retailers friendly, but also prevents you from kick-starting a market-wide race to the bottom. Protect your brand and your relationships with Dynamic Pricing Follow the online marketplace, automatically adjust your prices, and keep your prices aligned with your retail customers in just a few clicks. Dynamic Pricing for Brands keeps you aligned with your partners and strategy while giving you more data on your consumers. Try Dynamic Pricing free for 2 weeks and see for yourself how you can build a better brand-to-consumer strategy. Click the button below to get started.
06.06.2019
Why are More Brands Going Direct-to-Consumer? A Special Interview with A.T. Kearney
Why are more brands going direct-to-consumer (D2C), and how can brands use dynamic pricing to succeed in this new arena? This week we have a special interview to uncover the answers to these questions. I sat down with...
Why are more brands going direct-to-consumer (D2C), and how can brands use dynamic pricing to succeed in this new arena? This week we have a special interview to uncover the answers to these questions. I sat down with three industry experts: Roger van Engelen, and Jean-Paul Savelkoul, Management Consultants at our partner A.T. Kearney, and Jasper Wiercx, Solutions Consultant at Omnia Retail, to learn about brands, the direct-to-consumer world, and more. Hey guys, thanks for sitting down to chat. Could you all introduce yourselves a bit? Roger: Hi, I’m Roger van Engelen. I’m a Principal at A.T. Kearney Benelux, specifically focused in Consumer Products and Retail industry. I specialize in several functions, such as business transformation, end-to-end cost improvement, growth strategies, e-commerce…I’ve touched a lot of different areas of retail strategy in my 12 years of being in the industry! Jean-Paul: I’m Jean-Paul, and I’ve been with A.T. Kearney for less than a year. But before working with ATK I spent 8 years at Procter & Gamble, initially as a Brand Manager covering personal care, household care and health care brand portfolios, and later as a marketing manager across the P&G brand portfolio, with a focus on new business models and digital marketing and data strategy for (e-)retailers. During my period in P&G I worked on direct to consumer (D2C) strategy, and the launch of several propositions in this area. Jasper: And I’m Jasper, one of the Solutions Consultants with Omnia. I’ve become our go-to person for brand implementation within Omnia, and am currently working with a couple of brands to get them started with our Dynamic Pricing module. Let’s start with an overarching question: why are more brands moving into the direct-to-consumer sales space? What is changing? Roger: So, to answer that question we need to go back in time a bit. Back in the 1950s product offerings and brands were scarcer than they are today. Small retail chains were also abundant, and we didn’t have these massive retailers that we have today. Jasper: Exactly. Traditionally, brands’ biggest customers have been retailers. Retailers would buy products in bulk from a brand, then sell those items to consumers. Up until about 20 years ago, brands have had all the power in the relationship. They’ve dictated how much a product should cost and how retailers should sell it. Roger: Retailers have been gaining power quickly as they consolidated significantly, and the internet and e-commerce have accelerated this change. There’s now a power struggle between retailers and brands. Retailers have more control now than they’ve had before, and brands have less influence on their products once they are in the retailer’s store. That’s part of the reason brands want to sell directly to consumers now, but it also creates uncharted territory that both parties need to navigate. So is e-commerce the sole reason this new balance of power emerged? Roger: Not the sole reason. There are also several other factors that have created disruption in the market, not just the rise of e-commerce. For example, sourcing across borders has become a bigger opportunity for retailers, which adds pressure to a historically-grown margin structure. Furthermore, retailers have made huge steps in upgrading the quality and attractiveness of their private label assortment. On top of this, with e-commerce marketplaces now allowing small players with limited distribution capabilities to sell the same way ‘the big boys’ are selling, new competition has entered the arena. Jean-Paul: You also see the rise of new business models emerging. Subscription services are a great example, and the rise of disruptive companies like Harry’s Razors in the US mean consumer packaged goods (CPGs) face a new type of competitors. Companies like Harry’s compete through the D2C channel but are at the same time listed in traditional retail channels. This means they are better equipped to optimize for shopper behavior based on their D2C platform knowledge, while also leveraging the reach of large retailers to create scale quickly. Roger: Exactly. We’re sort of at a converging point for many different moving parts in the entire retail industry. And brands going direct-to-consumer is a reaction to that. The brands need to think more creatively to ensure they add value to consumers in a marketplace where diversity of assortment and points of sale is constantly increasing. Jean-Paul: The clear winner here is the consumer. Consumers have gained knowledge, price and ingredient transparency, an abundance of choice, higher levels of service, speed, and more relevant advertising. They’ve initially lost their anonymity but are now rightfully getting back in the driver seat when it comes to their personal data and privacy. Has the internet changed this dynamic? Roger: No, internet has added a new dimension to the retailer brand relationship that is only accelerating the change already in play. The rise of private labels, which retailers can now offer due to their economies of scale, was the biggest disrupter, in my view. A strong private label assortment gives retailers the means to impact both the brands market share as price levels in a category. Jean-Paul: The internet has also given consumers new power. A completely new level of “price transparency” has emerged, which lets consumers easily compare the prices of different goods and has driven the overall price for goods down between domestic and international retailers. Consumers can openly interact with brands through social conversation, compare products more objectively and leave product reviews, which increased consumer knowledge and control. Roger: The internet and e-commerce has given retailers a huge advantage because they hold all the data on consumer shopping habits. They currently fiercely guard this data from brands, because it’s one of the retailer’s main competitive advantages. However, retailers are starting data-collaboration with brands to jointly create value. For example, there is a lot to win in making loyalty programs really personal and attractive, and collaboration between retailers and brands helps both parties make a better experience. Is this another incentive for brands to go direct-to-consumer? To learn more about their customers? Jean-Paul: Yes. In order to stand out, brands need to create a relationship with consumers. Gathering consumer data gives brands insights into the profile of the shoppers, how they use the products, how they interact on brand platforms, and how they travel through the shopper purchase journey. This enables more relevant advertising, a smoother purchase process, and, in turn, better relationships between brands and consumers. Roger: As the playing field levels out in terms of price, brands need to be more innovative in driving brand loyalty. This comes from building a relationship with the consumer. There appears to be a disconnect with a retailer in the middle though, and brands can’t necessarily dictate how a floor display should be positioned in a store, for example. Selling directly to consumers allows brands to gather more information on what buyers want, test and learn from consumers, and drive product and brand innovation from those insights. And they can use these insights to help retailers sell their product better as well. Okay, so what sort of hurdles do brands need to overcome to sell directly to consumers? Jasper: To start, there is a conflict between brands and their biggest customers: retailers. When a brand sells directly to consumers, they’re essentially undercutting their own customers, which creates a huge amount of tension between retailers and brands. Roger: Yes, I’d say that’s indeed one of the biggest problems. Brands are afraid their retailer partners will disapprove of the move as it is seen as ‘direct competition’. This makes brands very reluctant as retail will remain the biggest share of turnover by far. However, it’s a perceived channel conflict as we strongly believe both channels should be complementary What doesn’t help is that many brand owners manage their sales per channel, thus already create ‘internal competition’ between channels that is not necessarily in the interest of the of the overall brand. That makes it hard to overcome. So, how can brands AVOID channel conflicts with retailers in this new arena? Jean-Paul: There are two parts to this. First, brands should create a clear channel strategy, indicating in which channels they want to play, with clear targets and tactics to win. Within this channel strategy, smart differentiation between channels is key to avoid conflict. Roger: For example, brands can differentiate what they sell directly through their own channels and what they sell through a retailer. Brands can focus their direct-to-consumer efforts on unique SKUs that require more explanation and a more elaborate brand story. They can then let the retailers take care of selling the more generic “mass” products, which is what retailers are good at doing. This hybrid channel model means that each company can play to their strengths, but both benefit overall. However, it is key to reflect this into the trade terms (pricing and discount schemes) brands offer to their different retail partners, as this is often the root cause of channel conflicts and margin leakage. Jean-Paul: Second, brands should use leverage and share what they learn about consumers and the shopping trip to improve the shopper journey in regular trade channels as well. Retailers and brands working together to jointly grow the total category will benefit both parties. Jasper: Brands should also take this as an opportunity to evaluate their internal governance and organizational structure. It’s a chance to build a more efficient internal structure to avoid cross-channel competition. What’s the role of dynamic pricing in all of this? Jean-Paul: A brand’s number one priority in going direct to consumer is to deliver on its channel strategy. Dynamic pricing is what makes this possible. Instead of undercutting retailers, brands can use a dynamic pricing software to follow their recommended selling price, only dropping their price when all key retailers are a certain percentage below your suggested retail price. Roger: In my opinion, brands need to have dynamic pricing before they start selling directly to consumers because it will prevent them from agitating their retail customers. This, in turn, protects brands from triggering a price-markdown war, which helps protect brand price perception. Jasper: Exactly. Retailers and brands will use dynamic pricing differently. The retailers will use it to stay competitive in the market. Brands will use the software to guard price perception and prevent hurting retail relationships. And both will use the software to make managing their online assortments easier. Okay, last two questions! First off, what are your top tips for retailers as they navigate this new relationship with brands? Roger: Retailers have a lot to offer that brands can’t access, such as a higher traffic and a larger reach. Once a retailer understands how they can help brands beyond straight sales and how they can benefit from insights from their brand’s D2C channel, they can create a powerful strategic partnership. And each side of the equation ends up happier than they were before. Final question. What advice would you give brands? Jean-Paul: Evolving from a transactional commercial relationship to a strategic multifunctional relationship is key to unlocking the potential of deep collaboration between brands and retailers. Building this relationship requires time, dedication, resources and, most importantly, knowledge exchange. When brands enter the D2C space, they should be open about their intentions, make it part of a fair and differentiated channel strategy and share insights with retailers to ultimately boost total category value. Great, thanks guys! Jean-Paul and Roger, what’s the best way for someone to get in touch with you about building a direct-to-consumer strategy, since this is your area of expertise? Feel free to reach out via LinkedIn or email. We’re happy to meet for a coffee in our Amsterdam or Brussels office. Get in touch with Roger or Jean-Paul Are you a brand looking for strategic consulting on the direct-to-consumer market? Feel free to reach out to Roger or Jean-Paul through their contact details below. Roger van Engelen, Principal: Roger.vanEngelen@atkearney.com Jean-Paul Savelkoul, Associate: Jean-Paul.Savelkoul@atkearney.com Brands, try dynamic pricing free for two weeks. See for yourself how valuable dynamic pricing is for maintaining your relationships with retailers and protecting your brand perception in the direct-to-consumer market. Try Omnia free for two weeks with your products. Click the button below to get started.
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