April 1, 2019 Last updated March 26th, 2019 1,008 Reads share

Cutting out the Middle Man: 6 Key Things to Know Before Starting a D2C Business

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Direct-To-Consumer e-commerce has been on the rise for a few years now, and it’s not a surprise that more companies are jumping in on the savings that can come from cutting out costs and middlemen.

Your big concern is ensuring that you’re one of the brands which makes the change profitably, instead of one that sinks too much operating revenue into the wrong areas and ends up crawling back to your old partners or shutting your doors.

Understanding the challenges of the D2C business model and the prep work you need to do before a launch can ensure you’re ready. This article will look at the elements you need to know and prep for, giving you your best chance at a fruitful endeavor.

1. Everyone Must Be Together Mentally

When businesses first look at a direct-to-consumer transition, they tend to start with technology stacks and warehouses. We’d say those are great, but they’re the second phase of your development.

Making the D2C shift will be one of the biggest things your e-commerce business has done since its founding, and its success depends on everyone getting on board with the move. This change impacts every aspect of your business, potentially even your product selection, through all the things you own, tech you use, and partners you have.

Getting all of your leadership to agree with the change and get ready for its impact on their areas is a must. Meet, discuss, and work to remove internal resistance as well. We’d say your best chance for success is not only to get people to agree but to get everyone excited about the change because it makes them more likely to work on issues together and stick to the new model when the inevitable problem arises.

A landmark 1993 study found that 70% of all organizational change projects fail, and recent reporting says the number still holds. Give your team its best chance by working on the cultural resistance to the new process and including that in a change management plan.

2. Customer Expectations Will Shift

It’s not just the mentality of your team to be aware of when you change to D2C. Customer attitudes, expectations, and interactions will also shift significantly.

Customers are going to have to be told and shown that they need to interact with you in different ways, including directly purchasing from you instead of affiliates or e-commerce marketplaces. To do this, they’ll need a strong reason, and much of that is how you position yourself online.

In the U.S., 98% of adults go online at least once a day and those in this group who shop have a variety of wants from D2C channels, including free shipping options (79%), free turns (54%), same-day (42%) or next-day (40%) shipping, and more, according to Walker Sands’ The Future of Retail 2018.

More than half of those customers are also looking at social media as part of their buyer’s journey, and that’s whether you’re B2B or B2C. So, you’ll need a way to tackle this content stream.

Personalization is often a chosen path to deliver a compelling offering, whether it is adapting the products themselves or the marketing messaging you deliver on different platforms. When you’re trying things out, throw everything you can at the wall and see what sticks.

3. Infrastructure Needs Are Different

Adopting a D2C is more than a marketing change. You’re not just selling your products in a new way; you’re changing how you manage your business. The physical infrastructure, as well as your technology stack, should adjust accordingly.

You need every aspect of your sales cycle and supply chain covered, so there are a few things to consider acquiring or expanding to include your whole inventory:

  • Warehouse and distribution space
  • Warehouse management software, so consider WMS comparison tools too
  • Warehouse tools including scanners, mobile devices, picking machines, conveyor belts, and more
  • Supply chain management software
  • ERP and CRM tools
  • E-commerce platforms that integrate order management
  • Marketing campaigns and social media automation tools

Anything that you can afford to automate is worth considering at this stage. To create your complete list of tools and programs, ask your leadership for their input.

4. Refine Efforts Based on Goals

After you’ve thought about your company and the changes it needs to adopt D2C and get your customers ready for the shift, it’s time to finalize your goals and the methods you’ll use to achieve them.

Start by laying out the foundational need of your D2C move. Are you acquiring more customers? Are you looking to cut costs? Want to own the supply chain and all its data to avoid competition or trouble? Do you think you can provide better customer service than your partners? Do the costs of middlemen keep you up and angry at night?

Define your message and bring it to your team. Get them on board with the overall mission and then develop individual goals within their teams to meet your bigger goal. Bring this back to your planned infrastructure changes and see if you have items needed to accomplish goals.

5. Test All Your Payment Systems Repeatedly

Depending on the changes you’re making, this might be some of your first movements into direct payment collection from customers. This includes every aspect of the payment and processing, as well as handling things like returns and exchanges.

Credit card processors are the first step, as are proper bank accounts and escrow support. Depending on how broad you plan to sell, you might also need to establish global agreements — some e-commerce platforms will have these for you, which can make them a compelling tech choice.

Each new element is complex and requires thorough testing of every possibility. When you change technologies, add additional payment methods, or shift things like your shipment partners (even if it’s just last-mile support in a small region) then you need to retest every aspect again.

The final testing round must be live. Work within your own site and sales channels just like a customer would and look for hidden cost, hiccups, challenges, and even elements like price and shipping cost displaying correctly for the shopping cart.

6. Fulfillment’s Different Look Will Impact Your More

Customer fulfillment is a whole different beast than shipping to channel partners. You’re moving individual products, not pallets or trailers.

It’s going to feel complicated and expensive. Back-end logistics will be a new challenge, and partners can be as important as your software or in-house personnel. An e-commerce fulfillment expert is your best chance of getting things right, whether you use them as a full 3PL service or just bring in consultants to ensure your operations have what they need.

Some of the biggest things to consider include:

  • Warehouse locations that are near your main customers will save you significantly, but as customers disperse, you’ll want geographically central locations.
  • Every product has its own packing needs, and specialty items or those with unique requirements must have a standardized process to avoid damage or minimize returns.
  • You’re going to need agreements and relationships with a variety of carriers to give you multiple fulfillment options. In general, no single carrier provides the best rates to all of your destinations for all of your package sizes.
  • How everything works together is important too. You want all of your technology platforms, from WMS and ERP to marketing and sales, to share data. On the fulfillment side, this means orders, tracking numbers, returns, and a variety of information that your business needs to manage costs and keep every team, or partner, informed.

And, don’t forget to figure out which of your team members will be responsible for all of these items.

Start as a Complement Not a Replacement

Moving to D2C is an exciting shift, but we don’t recommend a complete transition initially. Adding the option to your website and capabilities first allow you to test a wide range of marketing, packages, fulfillment center locations, and more without disrupting significant customers.

Not quitting cold turkey also gives you a chance to let customers know that they may need to change their purchase habits. You can include marketing and messaging in order confirmations and packages that let people see the shift is coming, even offering a deal or coupon to get them to try the new service when you’re ready.

D2C is a new channel, at least at first. It can operate in conjunction with revenue streams and give you a buffer as you change, slowly removing the partners or avenues where sales drop off as you pick up D2C steam.

Slow and Steady Wins the Race

Careful planning minimizes the impact on your revenue and projections while slowly giving you more control, making it easier to handle correctly. Take your time and work with your team to give your business its best chance at D2C success.

Get everyone on the same page, discuss your needs and changes, test each option, and review your entire business process list as it all comes together.

The better able you are to understand how D2C impacts your customers as well as your business, the more likely you are to create a positive experience. That successful and happy experience, like all e-commerce efforts, is your key to success.

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Jake Rheude

Jake Rheude

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