Why DTC Is Hard for Big Firms — And How It Could Help Grow Business

Forget about large-scale direct-to-consumer distribution if you’re a big company, say a Diageo or a Brown-Forman.  But it’s still worthwhile for a big company to maintain a DTC presence, says Boucard Nesin, lead beverage analyst at Barenberg, in a new report.

First, why DTC is such a challenge for a big company.  First, consumers in general aren’t buy food and drink via the Internet.  “Even the most tech-savvy consumers can’t really be bothered to shop on a company website offering only a few widely distributed brands.  They don’t want to buy ordinary potato chips, dish soap, soda and beer from separate websites, each requiring separate accounts, checkouts, shipping charges and deliveries,” he says.  It’s just easier to go to the supermarket.

The solution, Nesin says, is to view DTC as an insights channel, not a sales channel.  That’s what PepsiCo is doing with Snacks.Com.  Ramon Laguarta, PepsiCo’s CEO, says “the direct-to-consumer model … is more of an attempt for us to stay closer to the consumer, read them, understand (their) reaction to early innovation and then obviously take that innovation mainstream.”

Here’s the key:  By establishing a direct connection with consumers, CPG companies can essentially create “a focus group on steroids, giving brands a place to build their digital muscles and collect personal data from real consumers, in real time,” and on a large scale.  Goodbye, focus groups.

Nesin sees six benefits for big companies from DTC programs: (1) identify what drives demand (do consumers buy because it’s low-calorie, convenient packaging, or what?); (2) determine which ads work best through A/B testing; (3) create more efficient target consumer groups and improve merchandising and activation on a local level; (4) observe how consumer shop on the DTC platform, thus improve conversion across all e-commerce channels; (5) build sampling and trial online, and (6) show retailers there is demand from consumers in their territory.

But the most exciting opportunity, he says, is to revolutionize product innovation.  “Consumers in a focus group express their preferences by checking a box, consumers in a DTC environment express their preference by checking out.”  They vote with their wallet.

Nesin says a DTC platform would permit brands to launch two or three new products a month, to see quickly which generate renewed sales.  “The goal is not to guarantee success, but dramatically (t0) reduce the cost of failure.”

 

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