Over the next few weeks we’re looking at the importance of direct-to-consumer (DTC) in the manufacturing industry. For traditional manufacturing businesses this requires a cultural, operational and mindset shift. For SMEs entering the space, it’s business as usual.
Let’s take a deeper look at what it is and what it means for the industry.
A quick history lesson
The manufacturing industry had a set model that was stuck to for years. And in many cases is still stuck to. The manufacturers would create the products, distributing to wholesalers, who would sell direct to the consumers. An entire industry was built around wholesalers as middle-men.
The manufacturers would ensure they gained a set price for their products, while the wholesalers we’re able to set the consumer price. Often two or three times more.
This benefitted everyone (in a way). The manufacturers could concentrate on what they did best, without the need to invest in the manpower, retail space and infrastructure to sell to consumers. The wholesalers covered that. The increased margin they made on the products enabled them to do so.
But this model doesn’t always benefit the consumer. The manufacturer lost control as to how their product was sold to the end user the minute they struck a deal with a wholesaler. They also knew little about the needs, wants and desires of their end-user as there was no real relationship.
And it’s for these reasons the old model is starting to be broken down.
The impact of tech and digital marketing
The relatively low cost required to set up an e-commerce site, and the small size of digital marketing budgets compared to traditional media spend has given savvy manufacturers the opportunity to take their products straight to market, cutting out the middle men.
While traditional manufacturers may have been slow on the uptake, as is often the case it’s the SMEs that are the real trailblazers.
Remember – and we’ve covered this point before at length – technology instantly enables smaller businesses to compete with the major players quickly putting them on a level playing field.
Manufacturing in the male-grooming space
A great example of a manufacturing SME going direct-to-consumer is Dollar Shave Club. The US-based manufacturer hit the DTC sweet spot. They recognised a real problem their target market faced; the price of razors (specifically replacement blades) and set about providing a solution.
They knew they could manufacture a competitive product but provide it to their customers at a fraction of the price of the big boys, who were all selling through the traditional manufacturing model.
The business model was savvy – an online subscription service with a low cost of between $3 and $9 a month.
The use of digital marketing was exceptional, driving awareness through quirky online videos that quickly went viral. The USP was easy to understand and the audience engaged with a brand on their level.
We can all see the benefits of this model and how well it was executed. More on Dollar Shave Club and some more cool brands innovating in the DTC space next week.
The business benefits of DTC
There are very real benefits to be enjoyed by manufacturers who adopt this model. Specifically:
- Control – they can control all elements of the consumer experience, enabling them to set the parameters at each stage of the customer journey as well as providing a personal touch.
- Data – by engaging with your consumer digitally and selling directly, there is a vital opportunity to collect their data and use it to inform your ongoing manufacturing and marketing efforts.
- Engagement – when dealing directly with your customers you can start to build a relationship based on trust. It also enables you to start offering personalisation and eventually collaborating – cloud technology is a key ingredient to make this happen.
- Margins – by selling directly to the end user through online channels you reduce the need for large investment around the infrastructure required for traditional bricks and mortar selling.
Getting it right
It sounds straightforward and a no-brainer for manufacturers, but as is always the case nothing is guaranteed.
For manufacturers to get it right, they need to:
- Control the customer experience and provide a product and service in a way the consumer needs – Dollar Shave Club is a great example of this.
- Use consumer data in the right way – capturing this data through an e-commerce selling platform.
- Engage with them across multiple touchpoints – the means and intent to listen to the audience across a variety of channels.
Adopting a direct-to-consumer strategy isn’t a guarantee of success. And for bigger, established and traditional manufacturing businesses it may not always be a smooth transition. However, when done correctly it’s the best way to truly engage with and cater to an increasingly savvy and demanding consumer.
At J B Cole, we work with manufacturing and complex organisations to understand operational inefficiencies and customer requirements to identify the right tech to respond to the individual challenges of the specific sector and client.
You can learn more about our client approach and results through our case studies, as well as our work in the manufacturing industry at one of our upcoming events.