Why D2C is a mindset, not a channel

Three problems can limit the success of D2C strategies.

Here’s how the right mindset can help you avoid them.
The rapid emergence of direct to consumer (D2C) strategies is
In brief a transformative opportunity for consumer goods companies.
• D2C exists in many forms. Each requires different New technologies and new ways of engaging and serving people
technologies and capabilities. are creating almost limitless possibilities, which is why D2C is
so exciting. But it’s also why D2C efforts can easily become an
• Leaders with a D2C mindset think about how D2C, in all unfocused, unprofitable or unscalable drain on resources.The key
its forms, can help to create value. to getting this right is to approach D2C not just as a channel but
• Decide how you want to leverage D2C and how its role in as a mindset. That will help you avoid three problems that get in
your business could evolve. the way of winning D2C strategies:

01 02 03
Channel conflict The wrong metrics Partial view of the consumer
A narrow approach to D2C creates internal Assessing D2C initiatives using traditional When D2C is treated like a channel, it’s
competition between channels that channel metrics makes it harder to harder to build a comprehensive view
undermines the cooperation that success innovate and scale ideas with potential. of the consumer. With a D2C mindset,
requires. With a D2C mindset, you can With a D2C mindset, you measure the everything you learn about the consumer
get all your channels making a positive success of D2C across your business, using is used to create a comprehensive view
contribution. a set of metrics more suited to the task. of who you are serving and how to be
profitably relevant.

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Where are you in the D2C matrix?
It’s useful to think about any D2C strategy in terms of two variables: the degree of control you have over how your brand is experienced
and the degree of access you have to data insights about how consumers are engaging with your offer.

If a consumer is encountering your product on a website or phone app you own, for example, you have total control over the experience
and can capture all the data generated by that interaction (to the extent that the consumer gives permission).

If the interaction is taking place in a marketplace owned by another organization, your ability to control the experience and gather data
will be limited, depending on the rules of engagement with the platform.

You can plot any number of consumer engagement activities on the experience/insight matrix, from pop-up stores and livestreaming to
social selling, on your own websites and a variety of branded presences on third-party platforms.

Depending on the geographic region, we believe these can all come under the broadest definition of D2C, but they each require very
different strategies, capabilities and technologies to make them work.

Organizations with a D2C mindset think about the role that D2C, in all its forms, can play in helping the organization as a whole create
value for all its stakeholders. They then balance D2C imperatives against the needs of the rest of the business and create the operating
models needed to support them.

Those that approach D2C as a channel find all of this much harder because their perspective is so narrow.

Here are three ways the right D2C mindset can help you generate better insights and grow your business:

1. Put channel conflict in context

When D2C is a mindset, not a channel, people inside the business worry less about channel conflict. Will the success of one initiative
undermine efforts elsewhere? Too much focus on that question can create an internal culture of winners and losers that limits internal
cooperation and makes it harder for the business as a whole to succeed.

For example, one of the central benefits of D2C engagement is that it can generate rich insights about consumer preferences and
behaviors. When those insights are shared widely within the organization, they can have transformative value. But in a culture of
channel conflict, that sharing is limited.

2. Trust the right metrics

When D2C is a mindset, not a channel, people manage and optimize what they are trying to do around a broader set of metrics. This
awareness of the bigger picture leads to better decision-making.

D2C is an opportunity to experiment with new propositions and experiences, especially towards the point in the D2C matrix where you
have maximum control and can gather maximum insights. But promising D2C ideas don’t secure funding, are killed off too soon or don’t
get scaled fast enough because they are judged against metrics that don’t reflect their fuller contribution to value creation. A different
set of metrics would reflect the opportunity to create value with that consumer across all channels.

3. Create a comprehensive view of the consumer

When D2C is a mindset, not a channel, decisions are based on a more complete view of the consumer. Often, organizations have only a
limited record of a consumer’s transaction history with the brand; their journey across all channels and touchpoints is not well cap-
tured or understood, which makes it harder to shape an ongoing relationship.

To serve the future consumer, this perspective needs to be seamless. Then you can fully deliver on your brand promise. You’re also in a
stronger position to give consumers what they want when they want it, and to shape new products, services and experiences that feel
personalized to their needs and context.

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Define the role of D2C in your business
Companies that approach D2C with the right mindset can engage the consumer and deliver experiences across multiple channels at
multiple points in time. But it’s important to decide how you want to leverage D2C now and how its role in your business could evolve.

The challenge is to grow D2C in a way that works for your organization. Many companies are using D2C to drive sales growth, but often
those sales are not profitable. Whether that’s a problem or not depends on your overall business strategy.

To master D2C, you need to master the economics of D2C. They are fundamentally different from the economics of traditional retail
channels, and they vary among go-to-market approaches.

Consumer insights are valuable, but how valuable? Can you use them to create more value than it cost to get them? Which levers will
determine the success of your D2C strategies? What does it take to move the dial in your favor? Where can you innovate to make D2C
accretive to the overall business results?

Innovate new ways of connecting with the consumer

The answers to these questions should be based on your understanding of how consumer needs are evolving and what they could look
like three to five years from now.

If you have better consumer insights and can experiment quickly, you can find new propositions and new ways of doing business, and
rapidly scale those that work. You can also identify what missing data insights you need, how to get them and how to make the best use
of them.

Approach D2C as just a channel, and it’s much harder to secure the benefits it can offer and, in many cases, it’s impossible. But treat it
like a mindset, and it can transform your organization.

EY | Building a better working world

Authors
EY exists to build a better working world, helping to create
long-term value for clients, people and society and build
trust in the capital markets.
Brigid L. Tabour
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