Direct to Consumer channels rising in popularity

Posted on 23 Mar 2017 by Jonny Williamson

With revenue growth remaining challenging, a significant proportion of manufacturers are working to build Direct to Consumer channels, according to a new report published by The Centre for Supply Chain Management at Cranfield University and LCP Consulting.

The report reveals that almost half (48%) of manufacturers are already building Direct to Consumer (DTC) channels, with almost all (87%) seeing DTC relevant to their products and consumers.

The findings are based on a survey of more than 100 manufacturing executives from major global players, including two of the world’s largest automotive manufacturers and several of the world’s largest companies. A third of the respondents were from major food & beverage manufacturers.

Those manufacturers leading the move into direct to consumer, expect DTC to grow by 5% annually over the next five years. But, advocates remain steadfast that growth will come from retail – expecting 6.5% CAGR over five years. As a result, DTC ‘Leaders’ plan to invest around 1.5 times more revenue into DTC than ‘Followers’ over five years.

The Direct to Consumer Lifecycle - infographic courtesy of Cranfield and LCP Consulting

The report states that moving from a CPG manufacturer to a DTC model isn’t straightforward, and manufacturers must ask themselves if doing so is the right decision. The main considerations include establishing a brand presence, building an e-commerce platform, potentially opening stores, distribution, fulfilment, and ever-important last-mile fulfilment.

To find revenue growth from DTC the report says that companies need to personalise the experience for their customers. Manufacturers should improve demand forecasting and planning, better understand the Cost-to-Serve, and optimise their supply chain distribution networks to ensure the digital consumer can make a seamless transaction.

Manufacturers highlighted in the survey that ‘guaranteed delivery’, ‘speed of delivery’, ‘ease of access’ and ‘convenience’ are all key success factors.

Despite the risks and investment required, the report highlights five DTC benefits:

  • Control and clarity of brand – through product, packaging, and brand message
  • Full share of the ‘customer experience’ – brand alignment throughout the purchasing process
  • Speed to market – development, testing and introduction without seasonal delays or other retail interruptions
  • Direct access to the customer – yielding a wealth of valuable data and insight
  • Assortment access – providing consumer choice from the full product range, not a limited sample

Richard Wilding OBE, professor of Supply Chain Strategy Logistics, Procurement and Supply Chain Management at Cranfield School of Management, explained: “Manufacturers are increasingly focused on gaining control of the supply chain through to the consumer, this benefits them by gaining direct understanding about consumer preferences with regards to products and services, thus reducing costs and increasing value for both parties.”

LCP Consulting partner, Will Shepherd commented: “Those manufacturers who have already integrated a front and back-end DTC model have the ability to deliver a seamless omnichannel experience for their customers. For them, an omnichannel approach is core to delivering significant long-term growth and value. Ultimately, it is those manufacturers who respond to additional customer demands and adopt new models that will reap the rewards.”