Helping enthusiast brands understand the direct-to-consumer landscape is one of our primary objectives. We feel very strongly about the tenets of our decision-making as it relates to the opportunity to sell direct, and want to share our perspective. We are often asked by entrepreneurs how, why and how much. We are then immediately asked about the potential disruption to their existing channel. The following is 10 years of experience in opening up a direct channel for traditional 2 and 3-step distribution brands:
WHY
The key rationale for going direct has to be the consumer experience. If you are doing it strictly to make more revenue or margin dollars, you will fail. It is far more expensive to go direct in the near-term than to sell through a dealer-based model. Further, the infrastructure needed to do it successfully is significant. The consumers we offer these products to are used to shopping on Zappos, Bonobos, Backcountry and Amazon. Anything less than a completely frictionless experience will fail.
Generally speaking, we segment enthusiast consumers into two buckets: Do-it-yourself (DIY) and Do-it-for-me (DIFM). This works basically across any product or category. The DIY folks are the ones that are comfortable doing all the research online, installation or assembly (if needed) and purchasing themselves. They may rely on forums, demos, reviews or CSR interaction - but these folks are generally sight-unseen. The DIFM folks need to be hand-held. They like to touch, feel, try on and demo these products. These guys prefer a dealer-based model that stocks inventory.
So, in every category, there are a percentage of consumers that are DIY and a percentage that are DIFM. You can move the needle gradually between the two camps with a number of initiatives, but let's assume that % is fixed.
The DIY people already buy online. They are offered choices such as REI, Backcountry, Altrec, etc. They may choose to buy from these outlets (especially if they are purchasing more than one item), or they may choose to buy direct from you. The choice to buy from you will be based on service. If they feel that they can get a higher level of consumer support by buying direct - they will do so - assuming all else is equal (price, shipping, speed, etc). It all comes down to the experience. You know your product better than anyone. If you can make that DIY guy feel like he is getting DIFM service, without going out of his way - you will win his dollar spend.
HOW
There was a tiny little statement in the previous paragraph about price. All else is equal, right! Therein lies the rub. Most brands cannot successful launch a direct-to-consumer effort because they cannot control the retail price of the product. Look at every successful multi-channel DTC enthusiast brand: Patagonia, Apple, Sonos, etc. All control the MSRP of their products extraordinarily well. If you can't do that, you can stop reading. You cannot sell successfully online if you cannot offer your goods or services at an equal price to the market.
So, how do you get your pricing in-line. Easy - don't discount in the first place and ensure your dealers don't either. Set realistic retail prices that sustain demand and keep them constant. There are a whole host of reasons to do this besides a DTC model. But, it's hard when you get hooked on the monthly sale mentality. We recommend strong MAP policies and discontinuing relationships with dealers who don't acquiesce. Once-a-year sales at different times and that is it.
What? You say that ship has already sailed. You can still get back there - but you will likely take a near-term margin and revenue hit to get your MSRP in line with street prices. You can do it over time with new product lines / features or by ripping off the band-aid and taking the pain. We have seen both be successful.
If your prices are in line, here are the steps to get going:
- Start with customer service: At least 6 months prior to launching a DTC effort, get your service up-to-snuff. We recommend an entire company approach to service. It's not a department, it's a mentality. We know it's exceptionally cheesy, but this book seems to be the best. Every single employee that we have ever worked with has gone through Jeffrey Gitomer training. It's ridiculous - but it's very, very good. The most important aspect of the training is that is offers a baseline language for talking about service across an organization. It has to be a widespread commitment to the experience. It just can't be compartmentalized in a single group.
- Infrastructure build: 6 months out, you need to work on your infrastructure. It is easy to tell a single dealer when a $100,000 order has shipped, but how do you let 1,000 people know that their $100 order has shipped. What happens when they call? Where will your employees find the information? How long will it take? How will they know if they are talking to a first-time consumer or your biggest fan? These are all simple questions to ask, but difficult to solve. Luckily - technology is on your side. The first time we did this it was incredibly expensive and complicated to put these systems together. Today, it's getting easier. At the bottom of this article - we will lay out our favorites with some screenshots. Take the time to map out the customer experience tree. You will thank yourself later.
- The website: 4-6 months out (depending on the complexity), you will need to put up an ecommerce site. An ecommerce site is not your existing website with a "buy" button. An ecommerce site is a site specifically oriented around educating your consumers as if they were immediate purchasers, and pushing them quickly down the sales funnel to a transaction. If you put a buy button on a site that is just a hodge-podge of information in a firehose orientation - it will not work. I think it was Oscar Wilde who said "Experience is simply the name we give our mistakes".
- Dealer communication / Pricing: Do not spring this on your dealers or keep it a secret. Do not assume that they will be OK with it because they will not. Spend the time 2-3 months prior to launch to go through your DEALER RULES OF ENGAGEMENT. Make them partners in the decision. Remember, there are still a huge number of DIFM and multi-product DIY consumers out there. It is hard for you to service those direct.
AN EXAMPLE OF DEALER RULES OF ENGAGEMENT
There are a number of consumers we cannot service direct and I appreciate our dealer network and their ability to satisfy that demand
I will continue to offer you all the training and information we have available to make you extensions of our customer experience
I will never compete on price
I will never talk someone out of buying from you.
I will immediately discontinue doing business with any dealer who does not abide by MAP, regardless of how big or important they are to my business
I will continue to innovate and drive demand through aggressive marketing spend that is not just direct-demand driven
I will not have a sale without giving you 2 weeks notice to stock inventory and participate on the same terms
I will not compete against my other on-line retailers for adwords, pay-per-click or similar
HOW MUCH
This is my favorite topic. Most forecasts I see from enthusiastic entrepreneurs have a revenue line item for DTC. It's not a line item. It's a channel. You have to assume that unit demand is constant (i.e., any unit sales you assume will be direct will be coming at the expense of another channel). Putting an ecommerce site up will not necessarily increase demand. So - forecast organic demand first - and then divy up the channels. Here's an example:
We are forecasting unit sales of 12,000. 10,000 units will go through traditional channels at $250 each. 2,000 units will be sold direct at $400 each. $3,300,000 million in sales. That's $300K more than you would have received from selling completely through traditional channels - but the unit volume is unchanged.
It is a safe assumption that, if done correctly and depending on the DIY / DIFM split, you could see online conversion rates of .5%-1% in the first 2 years of executing on a DTC strategy. This is just a framework for traditional 2-step enthusiast businesses starting to sell direct. However, you will immediately see yourself become obsessed with site traffic, Average Order Value (AOV), customer service wait times, first-time-fix, return percentages and repeat consumer purchases. Welcome to DTC.
