E-commerce in 2017: How brands are going direct-to-consumer

Source: Warc Trends, Toolkit 2017

Downloaded from warc.com

This article, taken from the Warc Toolkit 2017 report, looks at the growing number of brands that are exploring direct-to-
consumer (DTC) opportunities with the help of apps, buy buttons and subscription services.

DTC is a form of e-commerce that involves a direct transaction between manufacturer and buyer, often enabled through
mobile and digital channels, that allows brands in sectors such as FMCG and food to cut out the retailer 'middlemen'.
Innovative subscription brands are challenging established business models: Dollar Shave Club, a US-based online
brand, sends high quality razors directly to subscribers' homes for a monthly fee.
PepsiCo's IZZE brand of fruity drinks aims to appeal to millennials through the use of an Amazon Dash button which,
when pressed, orders a pre-selected quantity to be sent to the customer's address.

Jump to:
Definition | Expert guidance | Key insights | Examples | Viewpoint | Quotes

Brands in sectors such as FMCG and food are increasingly looking at direct-to-consumer opportunities. These cut
out or minimise the retailer 'middlemen', allowing brands that previously had no direct relationship with their
customers to develop one.

Toolkit 2017
This article is part of Toolkit 2017, Warc's guide to six trends for the year ahead, produced in association with Deloitte Digital.

Low-cost start-ups have disrupted established business models with customer-centric, online businesses. Innovative apps,
subscription services, buy buttons and engaging branded social platforms have encouraged impulse purchases and trial with
seamless transactions and personalised experiences.

The challenge for established brands is responding to these new models – Unilever's billion-dollar purchase of Dollar Shave Club
shows they are taking them very seriously.

Definition
Direct-to-consumer retail (DTC) is a form of e-commerce that involves a direct transaction between manufacturer and buyer. The
rise of digital and mobile channels have enabled a growing number of DTC business models.

Expert guidance
Ganesh Kashyap, GM & Director, E-commerce, Asia, Middle East & Africa, Mondelez International, discusses the company's
approach to DTC retail.

Key insights
1. Subscription services enable brands to acquire consumer data

The success of innovative subscription brands, particularly among younger age groups, has disrupted some industries and has
challenged established business models. Dollar Shave Club, a US-based online brand, attracted male millennials with high quality
razors which it sent directly to subscribers' homes for a monthly fee. In 2016, Unilever purchased Dollar Shave Club for $1bn,
giving the FMCG business a 5% share of the US market. It also gained access to a new stream of customer data – a key benefit
of DTC strategies over traditional retail.
Procter & Gamble's Gillette has also responded to the rise of subscription-based companies by launching a rival online 'Shaving
Club'. In another part of its business, P&G launched the Tide Wash Club in Atlanta; this is an online subscription service for Tide
Pods capsules which are shipped free at regular intervals.

Read more in: Razor market battle sharpens and P&G 'Uberises' laundry

2. Mobile is central to the DTC experience

Mobile is key to DTC opportunities because it reduces the number of steps between browsing and buying. Apps including Uber
and Airbnb have been at the forefront of integrated commerce, a trend which many in the payments industry refer to as the
"uberization of payments". In the case of Uber, the mobile app turns many would-be cash or card transactions into automatic
digital payments. Apps such as these have introduced many first-time mobile payment users to the concept of mobile-enabled
commerce.

Major brands are looking for their own 'Uber' opportunities. Procter & Gamble, the FMCG giant, has pursued the "uberization of
laundry" with its Tide Spin experiment: customers in parts of Chicago could use a smartphone app to order laundry pickup and
delivery from Tide-branded couriers.

Unilever, meanwhile, conducted a three-month 'Persil Wash & Fold' tie-up with ZipJet, a mobile dry cleaning and laundry start-up
that allowed users to book laundry pick-up and delivery times and locations via an app.

Read more in: The new connected consumer code: Unlocking digital commerce opportunities and P&G 'Uberises'
laundry and Unilever eyes consumer services

3. The DTC 'insurgents' focus on strong customer experience and frictionless payments

Some of the most disruptive direct-to-consumer strategies have been created by firms with limited resources. Many of these
successful brands have developed ingenious solutions to age-old marketing problems. Warby Parker, a start-up eyewear retailer
in the US, identified that the category had an issue with customer service. It launched a digital-first business that offered
reasonably priced and stylish eyewear. Customer experience was at the heart of its strategy and, in a category slow to offer its
products online, Warby Parker was able to positively differentiate itself from established brands.

Ease of payment is a key element of DTC strategies. Coca-Cola has been experimenting with connected vending machines that
allow users to buy drinks using their phones (via Android Pay and Apple Pay), and then collect credits and redeem rewards via its
loyalty scheme.

Read more in: Embracing constraints: How limited resources could be the best thing to happen to your brand and
Coke's three steps for IoT marketing

4. Brands are experimenting with purchase 'buttons', but consumers have concerns

The 'Internet of Things' presents another opportunity for DTC transactions. Connected 'buttons' that can order an item directly are
growing in popularity – Amazon's Dash service is perhaps the best known example. One study shows that more than half of UK
consumers (54%) would like to use smart shopping technology to order household supplies as well as food and drink, while a third
(34%) would use it for beauty, healthcare and personal hygiene products.

Consumers perceived the main advantages of smart shopping as enabling them to save time (37%), convenience (25%) and
saving money, if the service automatically selected products based on price (37%). That said, consumers also expressed some
reservations, such as lack of control over purchases (54%) and issues of security (51%) and data privacy (51%).

Read more in: UK consumers get ready for IoT

5. Online product demos can be a route to DTC

The beauty sector is also looking at DTC opportunities. However, in this sector many consumers want to try products before they
buy. Apps can be used by brands to allow trial as well as control purchase. L'Oréal's Makeup Genius, a virtual make-up app which
applies make up to a user's image, has already been downloaded by more than 16 million consumers worldwide. Purchasing and
click-through is encouraged on the app.

Read more in: The changing face of the beauty customer and L'Oréal: Makeup Genius

6. China has become a DTC leader, in part due to WeChat

The growth of e-commerce in Asia is transforming the way FMCG brands are marketing their products. In China, the rise of
messaging app WeChat has created new opportunities for DTC. The chat app, which has 600 million users in China alone, is
focused on connecting people with businesses, and is moving from social communication to payment, utility, commerce, and
service. Shoppers can browse and buy seamlessly from the app itself. This, inevitably, leads to an increase in online conversions.

Mondelez, the global food manufacturer, is pursuing DTC in a big way, particularly in China. Every digital ad it runs offers the
opportunity for an immediate online shopper conversion. While this does pose challenges for products that are generally
considered to be an impulse purchase, digital advertising generates valuable data which can lead to effective, highly targeted,
personalised activity.

At present, e-commerce transactions only make up 5% of Mondelez's total sales in China but that percentage is expected to
double by 2020.

Read more in: Mondelez taps data-driven programmatic and e-commerce for Oreo in China and How China's WeChat is
leading chat apps into the future

7. DTC is important in emerging markets where product availability is limited

E-commerce is particularly important in some emerging markets because it offers consumers access to international brands
where product availability is often limited, especially outside of urban areas.

This is the case in South and Southeast Asia, where Unilever is one of many companies using 'click to buy' buttons across its
digital ads and properties as it attempts to 'close the loop' with consumers.

In some of these markets, payment and delivery will be a significant issue. Brands using 'click to buy' buttons may need the
support of an e-commerce company with payment facilities and delivery infrastructure. Lazada, the Southeast Asian e-commerce
player, is an example – its payment options include cash on delivery.

Read more in: The Evolution of Retail: Unilever Adapts For Asia's Millennial Future and Five insights from Lazada on e-
commerce in South East Asia

Examples
1. PepsiCo's IZZE brand is focusing on e-commerce
IZZE – a range of fruity, carbonated drinks made by PepsiCo – aims to sell online to 'hipster millennials'.

As traditional forms of advertising are viewed with scepticism by cutting-edge millennials, IZZE has focused on working with
influencers, who can promote the brand online in more authentic ways.
It wants to tie this online work direct to sales, and is exploring e-commerce options. For example, it has used a 'Like2Buy'
button on Instagram, it has linked to Amazon, and it has become an early adopter of Amazon Dash buttons.
The buttons cost members of Amazon Prime $4.99 each. When they are pressed, a pre-selected quantity is automatically
ordered, paid for and sent to their address.
Another objective is for IZZE to reach millennials in 'party-planning' mode, then provide the tools to get the drink to them at
their convenience.

Read more in: How IZZE reaches "hipster millennials"

2. IKEA opened up new ways to sell online using social media

Ikea, the homeware brand, engaged with German customers with its IKEA Hej co-creation platform to involve them in every stage
of the journey from design to purchase. Although IKEA had existing commerce channels, it needed a fresh approach to match
consumers' evolving purchase behaviour.

For 40 years, Ikea's catalogue has been inspiring customers, however, people were also increasingly turning online for
ideas used successfully in other people's homes.
IKEA developed a user-generated platform which serves as a gateway for social commerce. It showcases the homes of
IKEA's online community and transforms them into real life product showrooms. IKEA hej goes a step further than primarily
visual platforms (such as Pinterest) by telling the stories behind the pictures combined with tips from the IKEA experts.
Articles and inspirational pieces are regularly distributed through Facebook, Instagram, IKEA's website and offline media,
helping drive referrals to the IKEA site.
The approach attracted a new audience of digital natives who access information primarily online. As a result, the order
value for digital purchases has increased by an average of 10%.

Read more in: IKEA hej Community

Viewpoint: In search of a strategy for the IoT

William Grobel, Senior Manager, Deloitte Digital

The 'internet of things' (IoT) is not the next big thing. It's already here. An increasing variety of physical products are connected to
the internet: cars, TVs, kettles, thermostats, phones, toothbrushes, tennis racquets - you name it. Over half (52%) of UK consumers
own some form of connected device for their home (Deloitte Consumer Review, July 2016).

The increasing volume and variety of connected devices is opening up more opportunities for brands to engage and transact with
consumers directly, both complementing and competing with the traditional role of the retailer.

However, despite 22% of consumer goods companies having already implemented IoT solutions and 39% being in the process of
rolling them out (Forrester, 2014), both internet-enabled products and direct-to-consumer sales in this sector are still in their
relative infancy. Direct-to-consumer sales at P&G represent 0.3% of sales, and investment in IoT within CPG is the lowest of all
sectors, at an average of 0.24% of revenues.

A visit to a London restaurant recently reminded me of this nascency. Installed on each table was a 'press for champagne' button –
which was dutifully pressed, frequently, due to its convenience, fun and novelty value. It was a gimmick but it worked – the same
way I'm sure Peroni's 'press for Peroni' device, Domino's 'push for pizza' button and Molson Coors' 'Carling beer button' will work.
All great examples of tactical, PR-generating innovations. But not strategic.

Some categories lend themselves better to these call-to-action solutions. This is the path Amazon is following with its Dash
buttons, in categories such as laundry, personal care and pet food which have relatively low consideration and high repeat
purchase and consumption predictability. Other brands are leaning on personalisation for their direct-to-consumer approach, such
as Mondelez' Oreo Colorfilled initiative where consumers customise the packaging and order direct. Some rely on exclusivity,
such as Diageo with its Alexander & James online premium drinks store, or convenience, such as AB InBev's Modelonow beer-
ordering app or the many examples of brands selling through social media sites.

But you can't have buttons all over your home and consumers don't want to order products from multiple suppliers, all with different
passwords and delivery times. So the playing field remains firmly open. At some point it will converge.

As consumer goods brands rightly keep experimenting with both direct-to-consumer and internet-enabled products, the challenge
will be to learn from these tactical activities and evolve them into sustainable value-generating initiatives.

Quotes
"Subscription services such as Birchbox and Glossybox play to the desire to discover new [beauty] products and tap into the
hope that they can really make a difference, while also allowing challenger brands to get on consumers' radar."

Helene Mills, Director of Strategy and Consumer, Pragma Consulting

"'Click to buy' is a fundamental disruption that has happened across all categories. If you don't have a 'Click To Buy' button
after you have engaged the consumer, you will not survive."

Badri Narayanan, Global VP Customer Development, Unilever

Further Reading
Warc Best Practice: What we know about e-commerce and social commerce

Warc Topic Pages: Retail & Distribution; Innovation & NPD

© Copyright Warc 2016

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