Going Direct: Exploring the D2C opportunity in UK Consumer

COLOURBOX/Prathan Chorruangsak

www.s im on-kuc he r.c om

Going Direct: Exploring the D2C opportunity in UK Consumer Goods

10th Feb 2020

James Brown

London office1 Plough PlaceLondon EC4A 1DE, UKTel. +44 20 7832 6700 james .b [email protected]

Going Direct: Exploring the D2C opportunity in UK consumer goods

3rd in a series of webinars

22nd Apr 2020 – Preparing for recovery: Implications and actions for Revenue Management in UK Consumer Goods

24 th Nov 2020 - Outlook 2021: Revenue Management in UK Consumer Goods

10 th Feb 2021 – Going Direct: Exploring the D2C opportunity in UK Consumer Goods

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Direct to Consumer(D2C)

What do we mean by going direct?

Why should CG companies in the UK market be looking at this?

How do successful companies approach this?

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Before we begin: Audience & scope today


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Sourece : ONS

Context: UK was already a global leader in ecommerce, and 2020 of course accelerated the shift online

£99bnIn online retail sales in 2020

26.2% Share of retail sales

87% Over 16 year olds shop online

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Online shoppers

55%

32%

29%

28%

24%

22%

22%

18%

18%

17%

13%

13%

13%

12%

8%

0% 10% 20% 30% 40% 50% 60%

Clothing

Meals/restaurant food

Books, newspapers, magazines

Furniture & home accessories

Computers, tablets, phones

Childrens products

Cosmetics, beauty or wellness products

Cleaning & personal hygiene

Consumer electronics

Sporting foods

Food or beverage (grocery)

Medicine or supplements

DVD /Blue Ray

CD etc.

Vehicles & spare parts

Share of re spondents

Note(s): United Kingdom (Grea t Brita in); 2020; 16 years and older; 1 ,800**; bought within the las t 12 months .Source(s ): Office for National Sta tistics (UK)

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Context: Which ever consumer category you are in, someone is buying it –and selling it - online

Most popular goods purchased online in Grea t Brita in 2020

Going Direct: Exploring the D2C opportunity in UK consumer goods 6


Source : Barc lays – “A Direc t Approach”

Context: When it comes to buying direct

57%Of shoppers order some items direct from manufacturer

24% 27%

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Source: Simon -Kucher & Partners

D2C is one format in the "own retail" business offering profitable growth in a digital Consumer Journey

D2C/E2C ("own e -com")

Web shop: se lling via own website d irectly to consumer

Marketplaces: se lling via third party providers d irectly to consumers

Distance sellingPure Online Player

3rd party shop on online porta lOnline shopping clubs

TV shoppingMail order

...

Stationary retailDepartment s tore

Specia lty re ta il cha inWholesa le Premium Reta il

Big Box Reta ile rsHyper- and Supermarket

…

Own stationary retailFlagship s toreRegular s toreShop-in-shop

Factory outle t center

Cha

nnel

to c

usto

mer St

atio

nary

Onl

ine

B2B B2C

Route to customer


Source: Simon -Kucher & Partners research


Nestle Diageo

‘He inztohome.co.uk’ launched April 2020, offe ring bundles of core He inz products

“Very good online traffic a t these early s tages” Head of e-commerce at Kraft Heinz UK

2020 saw a multiple brands trying out D2C offerings in the UK

Launched partne rship with De live roo in May 2020

Selection of chocolates , snacks & coffees via De live roo Essentia ls de live ry p la tform

‘Haigclub .com’ launched Sep tember 2020

Real push to d rive sa les through socia l media

‘Revl.co.uk’ launched Nov 2020, offe ring full range of Molson Coors b rands + drinks and snacks from se lect 3 rd

partie s Curated bundles & “at

home occas ions”

Molson CoorsKraft Heinz

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Investing in new routes to market

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Source: Simon -Kucher & Partners research


Clorox (US) Nike (US)

International examples

PepsiCo (US)

‘pantryshop .com’ and ‘snacks .com’ launched in May 2020 offering s tap le b rands

From conception to implementa tion in less than 30 days

Launched ‘Objective’ in la te 2019, a d igita lly na tive supplement b rand to appeal to younger audiences

Focus on da ta genera tion and personalisa tion

Closed severa l wholesa le accounts in 2020 to focus on D2C s tra tegy through Nike Digita l and own s tores

“The consumer shift to d igita l is permanent, and our d igita l penetra tion will only increase” Nike CEO

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Timely reminder / Bundling and personalising lower value product

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A big shift for most CG manufacturers!

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Successful D2C business in a nutshell: Operational and mental transition are key!

A successful D2C bus iness:

Follows a clearly defined strategy and value proposition

Transforms capabilities into commercial guidelines to outline the D2C value p roposition

Has an in-dep th unders tand ing of consumer metrics and masters smart customer acquisition

Is enab led by focused, agile teams and a transformed organisational set -up

Involves all enabling functions to combine and leverage operations centrally in one p lace

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Demons trates an omni -channel mindset which supports execution from concept to scaling


Sources: Simon -Kucher p rojec t insights, Macrotrends, Businessinsider, Amazon, Desta tis

Digital channels play an increasingly important role – and everyone’s reason for getting on board is different

Become part of the digital consumer journey

Shift of consumer journey online acce lera ting37% of offline purchasess tart online

Keep up with Amazon

Stock market va lue +74%UK Sales growth +51%

Leverage e -commerce growth

Continuous growth acce lera ted by change in buying in 2020+ 35% growth in UK e-commerce share in 2020

Reduce channel dependency

Manufacturers with dependencies not res ilient in a vola tile world .- 25% re ta il sa les in April 2020 compared to 3 year average

Why put D2C on top of your

agenda?

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… But we end up spending much of the time at arms length from these, working through a retailer who does not share our objectives!

Manufacturer Shopper Consumer


When we talk Revenue Management, we talk about identifying the demand/revenue pools for consumption moments and shopper missions…

Manufacturer Distributor Shopper ConsumerRetailer


Source: Simon -Kucher & PartnersE2E= End to End

Why: D2C contains value creating opportunities, with tremendous potential for growth if executed correctly

Gain control with lower dependency on (dominating) re ta ile rs Realise higher margins due to control on pric ing and promotions Re-inves t trade spend and shopper marketing budge ts

Es tab lish an E2E brand experience for your consumers Use data to build and improve your consumer relationships

Build the ideal organisation to leverage your business Speed up and profit from low barriers to test new products

Commercial

Consumer

Organisation



How : It’s not all about the tech

“If Netflix was only showing re runs of Fras ie r and Ally McBeal no-one would have s igned up” – Bened ic t Evans

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D2C in a nutshell: From strategy to go -live – How to reshape and deploy a profitable D2C online business?

Vision& Value

proposition

Capability build ing

Smart customer

acquis ition

Enabling functions

Organi-sa tional

focus

Execution Mode


Vis ion& Value

proposition

Capability build ing

Smart customer

acquis ition

Enabling functions

Organi-sa tional

focus

Execution Mode

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Structure follows strategy – Is the value proposition and operating model for your D2C business defined?

Vision & value proposition

Manufacturer

Market Consumers

D2C Valueproposition



Structure follows strategy – Is the value proposition and operating model for your D2C business defined?

Vision & value proposition

Manufacturer

Market Consumers

D2C Valueproposition


Occas ion

Brand

Pack

Price

Channe l

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Source : Simon-Kucher & Partners

Organisational focus

D2C requires organisational focus: Transform your organisation and D2C set -up to enable your strategy

D2C Go -to -market approach - central or local?

Option 1: One team per local webshop

Web shop

Web shop

Option 2: One centra l team

Web shopWeb shop

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D2C business requires agility and speed : Successful corporate D2C ventures are ring-fenced teams includ ing a ll critica l functions with full autonomy and freedom.

Organisational focus

D2C requires organisational focus: Transform your organisation and D2C set -up to enable your strategy

D2C Team structure – focused or cross -functional?

D2C product owner

Analytics lead Marketing lead

Analys t

Tech & Ops lead

Head of operations

Content leadCX leadFull s tack developer

Overview : Illus tra tive D2C Team

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Ensure all capabilities are in place and align commercial guidelines with the value proposition

Capability building

Fron

t-en

d

Portfolio Assortment Subscriptions Bundling

Pricing strategy Product pricing Promotion pricing

Subscription pricing

Content & Care Content Planning

Content Creation

Digital asset management

Marketing Brand management Marketing Mix Automation

Consumer Personalisation Member management Segmentation

UX (Experience) Data capture UX management CRM

Back

-end

Channels Digitaladvertising Social media Campaign

management

Suppliers Paymentmanagement

Agencymanagement

Fulfillment management

IT & Analytics Process automation

Systemsintegration

Databasemanagement

Operations Delivery Inbound logistics

Returns management

Governance Monetisation New business development

KPIs and incentives

Consider all required capabilities for a successful D2C business…


Ensure all capabilities are in place and align commercial guidelines with the value proposition

Capability building

Fron

t-en

d

Portfolio Assortment Subscriptions Bundling

Pricing strategy Product pricing

Promotion pricing

Subscription pricing

Content & Care Content Planning

Content Creation

Digital asset management

Marketing Brand management Marketing Mix Automation

Consumer Personalisation Member management Segmentation

UX (Experience) Data capture UX management CRM

Back

-end

Channels Digitaladvertising Social media Campaign

management

Suppliers Paymentmanagement

Agencymanagement

Fulfillment management

IT & Analytics Process automation

Systemsintegration

Databasemanagement

Operations Delivery Inbound logistics

Returns management

Governance Monetisation New business development

KPIs and incentives

Consider all required capabilities for a successful D2C business

Dynamic pricing

Use a pricing algorithm to adjust your pricing to meet current market dynamics with clear pricing rules

Competitive pricing

Follow a low price strategy to always stay competitiveand attract consumers via low price levels

Value-based (static pricing)

Keep the RRP stable over the full lifetime of a product to emphasize value and ensure consistent value -based pricing hierarchies of your overall portfolio

Product pricing

And align commercial guidelines to strengthen your value proposition:


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Operations are key – don’t underestimate the power of joining all enabling functions in one place

Legal & tax structure

IT

Financial model

Supply chain model

Q&R

Enabling functions



Rethink your definition of financial success - are you already a master of smart customer acquisition?

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Visb ility: Every £ you spend links back to what you ge t

D2C profitability is driven by smart consumer acquisition:

Consumer lifetime value

Key metrics: Retention ra te Revenue / consumer Contribution margin

Consumer acquisition

cost

Key metrics: Channel mix - free vs . pa id channels Avg. cost per click Convers ion ra te

D2C profitability

Smart customer acquisition


Client example, >€300m baseline revenue

Rapid “growth hacks” disrupted the way e -commerce, marketing, and sales are done…

Sanitised client example

+ €1.1m p.a .

Triple basket at point of sale

Added a "3x add to cart" button next to the s tandard "add to cart" button for top-se lling products

Add to cart

add to cart for free shipping3x

Don't feel like shipping costs?

+ €580k p .a .

Terms and conditions email

Sent out information email about changed te rms and cond itions to add ress cus tomers with no opt-in

Everything is new – we changed our T&C

Dear Martin,

+ €396k p .a .

Push notificationflash sale

Sent out push notifica tions with limited time offer for one hour only to a ll app users

OUR-SHOP 12min ago

◊ FLASH-SALE ◊ for the firs t day of sp ring!

🌸🌸Trip le your bonus points on our-shop .com!

+ €2.6m p .a .

Personalisationin checkout

Personalised the recommended products in check-out based on pas t purchase behavior


Kickstart into execution: scale your D2C strategy from concept to full deployment

Execution

Discover

Scale

Deliver

Design

Clear value proposition and strategy

Concept developed and go live prepared

Testing and learning with pilot & consumer insights

Full deployment, optimisedway of working & omni -channel mindset

Organisation , team structure and processes designed

Awareness for multi -channel mind -set created

Pilot and roll -out plan prepared Consumer decision journey

understood and value proposition defined

Commercial guidelines aligned with D2C strategy

Onboard team Execute pilot/MVP and capture

learnings Assess gaps in capabilities,

resources & processes Review concept

Fully deploy reviewed concept Scale organisation , processes &

technologies Enforce mindset change Build and grow team

We can support you to excel in all aspects of (re-)shaping and your D2C strategy and (re -) fueling sales growth in your online D2C business!


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Post webinar check: From strategy to implementation –How advanced is your D2C business?

Yes No

8 Do your processes and systems enab le the des ired commercia l se t-up?

1 Do you have a clear strategy for your D2C business and fixed revenue/ profit targets that you want to achieve?

9 Do you have an action plan in p lace how to exploit consumer data you collec ted via D2C channels?

3 Do you ac tive ly manage your channel conflicts ?

Do you have a dedicated team inc lud ing supply chain and IT functions d riving your D2C bus iness?5

2 Do you have a value proposition tha t d ifferentia tes your D2C bus iness vs . other online players?

Does your organisa tion show the required capabilities and set -up to enab le your s tra tegy? 4

Do you know how to create and leverage the optimal marketing mix for your D2C opera tions?6Do you measure your Customer Lifetime Value and the Cost of Customer Acquisition ? 7

Are you successfully operating in an online D2C environment? 10


Simon-Kuche r | Outlook 2021 | Revenue Management in UK Consumer Goods

Three key takeaways

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2

3

Reasons to try D2C mode ls are compelling – increased brand control and reduced re liance on re ta ile rs

Barrie rs in te rms of shopper accep tance , logis tics and technology have fa llen

Inte rnal capab ilitie s and the mindshift needed are – for many – the b igges t barrie r to success

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Documents

Going Direct: Exploring the D2C opportunity in UK Consumer