Direct to Consumer vs Wholesale: Customer Experience Over Competition

Here, we explain how companies selling direct to consumer (DTC) can maintain strong relationships with existing retail partners, plus:

Selling direct-to-consumer for the first time is like building a new bridge while simultaneously trying not to burn older ones. In your attempt to own the customer relationship and the valuable data that comes with it, you’ll bypass trusted retail partners. 

But experimenting with DTC doesn’t mean the end to those valuable relationships. Even better, going DTC may even strengthen the bond between companies and big box retailers.

#1: Clearly define your direct to consumer strategy

Your DTC strategy should be clearly defined and integrated into your company’s overall strategy. Doing so will help anticipate potential channel conflict, or the potential cannibalization of retail sales, resolving these conflicts before they impact the consumer.

Two of the most important considerations when going DTC include:

• Providing clear value to the customer 
• Do so without introducing friction to the customer journey

Friction can take the form of confusion. If shoppers wonder whether they might be able to find your DTC offer cheaper at a big box retailer, they may delay purchase until their confusion is resolved. 

To set expectations for retail partners and B2C customers, narrowly define the goal of your DTC strategy. What do you want? Increasing sales is just one of many possible objectives:

Image via: McKinsey & Company

When companies focus on DTC as a sales driver, the potential for channel conflict increases. But as we’ll soon highlight, the goal of a DTC strategy may be to obtain customer data and insights. If used to inform new product creation or to fine-tune marketing strategy, your DTC strategy may increase retail partner sales and strengthen your relationship.

For example, The Honest Company, a CPG company founded by actress Jessica Alba, has a clearly outlined strategy that drives new DTC sales while also increasing revenue for retail partners. Consumers purchasing directly from the brand’s website can bundle items they use most often and have them delivered as subscription-based products:

Image via: The Honest Company

The company’s site doesn’t neglect its retail partners, making it easy for consumers to find a retail location nearby, if they prefer shopping in-store. 

Image via: The Honest Company

#2: Differentiate to avoid direct competition

Bypassing retail partners isn’t necessarily a zero sum game in which your DTC sales cannibalize retail partner sales. Consumers may purchase from both of you if given a compelling reason and offered the right incentives.

Deliver both by differentiating your DTC offering from what retail partners offer in their brick-and-mortar stores. Creatively bundle, brand, or package your DTC offering so as not to compete directly with retail partners. 

Here are three ways to differentiate your DTC offering:

Differentiator #1: Added value propositions

Extending a popular brand online often requires the brand to add to the value proposition already offered in retail locations. For example, premium products offer a distinctive consumer value proposition. Pairing a premium product or unique assortment with a subscription service can further distinguish your DTC offering from that of your retail partners. 

Besides premiumization, value-added propositions can take many forms; new products that save time and money, customized offerings, or compelling brand experiences that can only be had directly:

Image via: Supply Chain Quarterly

One way to add to the value proposition is through social responsibility as PepsiCo has done through it’s Lay’s potato chip brand. The brand launched more than sixty new potato chip bags featuring 31 “Everyday Smilers” as part of a campaign to donate up to $1 million to Operation Smile, a charity devoted to providing surgeries to children with cleft lip, cleft palate, and other facial issues that impacts their smile and self-esteem. 

Additionally, consumers were also invited to visit the first-ever Lay's Smiles Station in Times Square, where they could take home their own limited-edition Lay's Smiles bags and experience firsthand the power of sharing a smile.

Value-added propositions ensure shoppers aren’t forced to choose between purchasing the same product from you or your retail partners. Illustrating the difference between what the shopper can get directly from you online and what they can get in the store insulates retail partners and gives consumers a reason to do business with both.

Differentiator #2: New brands

Offering a new brand DTC significantly reduces channel conflict. When launching a new brand, it’s vital to map out how you want to be perceived:

• Base the brand around price
• Base the brand around convenience
• Create a category or fill an unmet need 

Launching new brands bears risk—companies going DTC should use their expertise in an existing space to enter an adjacent market. For example, Fit for Life, the parent company of several health and wellness brands, has sold its Gaiam yoga gear through big box retailers for years. 

When it recently decided to go DTC, the company leveraged its expertise as a leading maker of yoga recovery and massage products to enter the pet massage product space. In launching PetWell, the company is using existing intellectual property to target a new market without directly competing with its retail partners.

Differentiator #3: Customization

Forty percent of shoppers spend more money with brands that personalize the customer experience. The more you engage directly with consumers the more first-party data you’ll get. This will eventually allow you to personalize customer experiences with product recommendations, loyalty programs, and ambassador programs. 

Consider putting personalization into the hands of your consumers. For example, Unilever’s popular beauty brand St. Ives opens a pop-up mixing bar, an immersive experience allowing consumers to create custom skincare products and learn more about the brand’s all natural extracts, exfoliates, and moisturizers.  

Image via: Beauty Packaging

The mixing bar includes hundreds of unique ingredients from which to choose and comes in a jar on which the customer’s name is printed.

Rather than ceding the customer experience to retail partners, injecting customization into your DTC offering creates new opportunities to reveal who you are as a brand without encroaching on retail partners.

Alternatively, consider allowing customers to personalize the experience by selecting custom assortments of your DTC offering.

#3: Partner on fulfillment

Your retail partners may actually be cheering your move to DTC. Under pressure to ship online orders faster, retailers are increasingly turning their stores into mini-warehouse and fulfillment centers. If you’re simply experimenting with DTC or have no intention of fulfilling orders on your own, partnering with retailers to fulfill orders is a win-win scenario.

Similarly, consider offering a “pick up in store” option as part of your DTC online strategy. Whether you fulfill orders yourself or outsource it to retailers, offering this option allows consumers additional options and can increase in-store foot traffic. Consider working with retail partners to build a dedicated online order pickup area or possibly a store within a store to deliver a branded experience.

The decision to partner on logistics is one of several “buy or build” choices you’ll make when going DTC:

Image via: McKinsey & Company

Be sure to ask retail partners if they have dark stores, or facilities at the outskirts of large metro areas that are closed to the public and dedicated specifically to fulfilling DTC orders.

Lastly, touting an omnichannel strategy can also endear you to retail partners. Investments you make across consumer touchpoints can result in incremental sales partners may not have made without you. Omnichannel buyer journeys are dynamic. What starts online can wind up leading consumers into brick & mortar stores they might not have visited without prompting from your DTC effort.

#4: Increase partner sales using data

The customer data you’ll collect going DTC can be used to help channel partners improve their overall businesses. As a brand with a direct relationship with the customer across channels, you’ll have path-to-purchase insight retail partners can use not only to better market your product but all of the products they sell DTC.

Image via: RedPoint Global

Immerse yourself with your early DTC adopters to learn what motivates them and how to construct incentives that increase sales.

It’s how Fit for Life, the yoga brand we mentioned earlier, has strengthened its relationship with retail partners since going DTC. Each quarter Fit for Life audits its brick-and-mortar retailers, hands out report cards, and offers training sessions aimed at helping partners optimize their ecommerce channels. For example, they recommend their retail partners:

• Ensure each product has variant SKUs, rather than separate SKUs, so its sales history and product reviews are attached and move it up the page
• Ensure each attribute is placed in the right category—all yoga mats are included in the yoga mat category rather than fitness mat category—to improve the customer search experience

“They are begging us for data,” says Katrina High, Fit for Life’s Merchandising Director. “We take what we’ve learned and offer it to our partners which is obviously good for us but it also helps them make incremental sales.”

#5: Improve the B2B buying experience

DTC success hinges on continuously optimizing the B2C experience. Don’t forget about doing the same for B2B customers.

Automating the ordering process for B2B buyers not only makes you both more efficient, it can also attract new B2B customers in what’s forecast to be a $7.7 trillion market.

A robust B2B portal can significantly improve the customer experience in three ways:

• Order Placement- customers log in to the portal and place orders anytime they want without having to call or email a company representative
• Order History- customers logged in to the portal are able to easily access their invoice history which gives customers instant visibility 
• Order Tracking- if customers misplace or do not receive a confirmation email with an order tracking number, they can easily retrieve the number themselves and track the order’s status in real time

Since Laird Superfood, which sells plant-based coffee creamers DTC, improved the buying experience for its B2B customers the company reports month-over-month sales increases of 15%. B2B accounted for about a quarter of overall sales prior to improving the B2B buying experience and expects that figure to top 75% within two years.

“Being able to automate the process changes how we build our team,” says Luan Pham, Laird’s marketing chief. “It prevents us from missing 2 A.M. orders and keeps our customers from having to wait to place an order until we’re in the office. It just solves so many problems.”

Your retail partners are evolving just as you are. Discover how you can simplify, personalize, and automate much of the B2B buying experience in just a few clicks here.

Sharing your direct to consumer strategy

Once you’ve clearly defined your DTC strategy, communicate it to retail partners and identify opportunities to prosper together by:

• Differentiating your DTC offerings from those offered in-store
• Partnering on fulfillment to increase profit margins for both parties
• Using your customer data to help retail partners improve their own DTC performance
• Improve the B2B buying experience to increase efficiency for you and retail partners

Sharing your DTC ambitions with valued retail partners doesn’t have to end in burned bridges. You may be frenemies competing for the same consumers, but you can do so in ways that are mutually beneficial.