Before you start selling direct to consumer (DTC), you need to know why you’re doing it. Direct to consumer takes both time and money to execute successfully. You’ll waste both without a clear objective. Direct to consumer is used to do more than drive sales. It can help you:
- identify new product development opportunities
- collect customer data for remarketing purposes
- supplement existing marketing campaigns
- forge a direct relationship with customers
Selling DTC lets you collect customer data that will help you deliver personalized experiences and ultra-relevant marketing messages that convert.
Ask yourself the following 30 questions before going DTC to ensure you’re prepared to achieve your goal.
- Cost considerations of selling direct to consumer
- Fulfillment considerations of selling direct to consumer
- Retail partner considerations of selling direct to consumer
- Technical considerations of selling direct to consumer
I. Cost considerations of selling direct to consumer
Discover the differences between the various DTC architectures, how scaling globally can impact your total cost of ownership, and the human capital necessary to go DTC.
#1 Which is more expensive: an on-premise or a cloud-based platform?
On-premise platforms require significant upfront infrastructure investments, ongoing hosting and maintenance expenses, and a dedicated IT staff for new deployments and updates. And as you scale, variable costs can increase significantly. Cloud-based platforms often offer more predictable cost structures and deliver lower total cost of ownership. SaaS platforms include all the costs associated with servers, such as payment card industry (PCI) compliance, security, and content delivery networks (CDNs). While you’ll have ongoing design and development costs, reducing recurring costs allows DTC brands to reallocate budgets and human capital away from costly infrastructure and development and onto what truly matters for retailers: strategy, customer engagement, social influence, and data-guided marketing.
#2 Will I need to hire new people?
If you have an existing IT staff with bandwidth, you can tackle DTC internally. Otherwise, you can partner with a design and development agency with expertise on the platform you’ve selected. Larger consumer packaged goods manufacturers may need to work with a systems integrator to connect DTC operations with an enterprise resource planning (ERP) system. You’ll also need to figure out whether you have personnel within the company to manage the DTC site including marketing, sales, and customer service staff.
#3 What’s the fastest and most cost-effective way to scale our DTC strategy globally?
First, select a commerce platform with a global dual content distribution network (CDN) for speed, flexibility, and functionality wherever you expand internationally. Next, be sure your platform lets you clone and launch expansion stores in the countries or regions you’re targeting. You’ll also need a platform that offers multi-currency shopping so customers can check out in their preferred currency. Ask whether the platform you’re considering directly integrates with international warehouses and fulfillment solutions.
#4 How can we compete with Amazon without spending like Amazon?
With a robust cloud-based platform you can sell on Amazon and easily offer an Amazon-like experience via your own store. Choose a commerce platform that lets you offer personalized product recommendations like Amazon. Be sure you can offer predictive functionality so suggested products appear immediately as customers type into your search field.
#5 As we grow, how much will additional capacity cost?
Cloud-based commerce platforms should automatically scale with you while offering predictable cost structures you can rely on for accurate forecasting, budgeting, and planning.
#6 How much does a customized checkout cost?
Customized checkout should be standard on SaaS solutions, letting customers check out on your own branded domain or subdomain. Select a platform that lets you customize the data and views within the checkout process at no extra charge. Customizing the checkout can help your brand stand out. It also offers the possibility of split testing different checkout sequences so you can increase conversions.
II. Fulfillment considerations of selling direct to consumer
Learn about the logistical challenges of going DTC, your fulfillment options, and the shipping and packaging differences that impact margins.
#7 I’m used to shipping in bulk to retail distributors. Can I outsource individual orders to be fulfilled?
Instead of bulk distribution, DTC requires one-off, last-mile delivery, which requires investment. Retailers are increasingly turning their stores into mini-warehouse and fulfillment centers for their own online orders. If you’re experimenting with DTC or have no intention of fulfilling orders on your own, partnering with retailers to fulfill orders is a win-win scenario. There are two other options: 1) build out your logistics and fulfillment capabilities, 2) outsource the work to a third-party logistics (3PL) company.
#8 Why don’t any of the commerce platforms offer end-to-end fulfillment?
It’s a great question, and why we’re accelerating our investment in building out the Shopify Fulfillment Network, a geographically dispersed network of fulfillment centers with smart inventory-allocation technology. We use machine learning to predict the best places to store and ship your products, so orders get to your customers as fast as possible. We’ve negotiated low rates with a growing network of warehouse and logistics providers. And we support multiple channels, custom packaging and branding, and returns and exchanges.
#9 We’re not used to offering individualized packaging. What do I need to do to prepare?
B2C packaging must be designed to withstand the shocks of last-mile delivery and branded to impress. Consumers expect a more elegant unboxing experience than B2B customers used to pallets and crates. Consumer packaged goods manufacturer Mondelez International, the parent company of Oreo, had to completely redesign its DTC packaging when it decided to sell DTC. Consider the impact your packaging will have on consumer perception and design accordingly.
#10 Do I really have to offer free shipping to compete?
Free shipping isn’t required, but expedited shipping is now an expectation. Once you know your average order value you can test free shipping thresholds or the amount a customer must spend to earn free shipping. Experiment by setting your threshold higher than your average order value to increase sales and profitability to offset free shipping.
#11 What do we need to do to prepare for returns, and how do we reduce them?
Returns are expected to cost retailers $550 million USD by 2020. Return rates for ecommerce companies often are higher than for their brick-and-mortar peers. To combat this, learn why your DTC customers return items. Identify customers most likely to return items and consider excluding them from marketing promotions or discounts. Consider integrating a returns-management system with your ERP system, third-party logistics (3PL) partner, or inventory management system (IMS) to track and optimize the returns process.
III. Retail partner considerations of selling direct to consumer
Learn about managing retail relationships when going DTC, ways to avoid sales cannibalization, and the cultural shift necessary to succeed.
#12 What’s the point of going DTC if it’s going to destroy decades-old relationships with retail partners?
Going DTC can not only maintain commercial relationships with retail partners, but it might even also strengthen the bond between companies and big-box retailers. Retail partners may cheer your decision to go DTC if you: 1) differentiate your DTC offer from what’s sold in store, 2) partner with retailers on fulfillment, 3) use your customer data to help retailers optimize their overall ecommerce strategies.
Get additional insight into maintaining retail partner relationships when going DTC.
#13 Other than increased sales that could cannibalize existing retail sales, why should I sell DTC?
Avoid cannibalization and differentiate your DTC offering from your retail offering by: 1) extending your existing brand and offering a premium DTC product, assortment, or customer experience, 2) creating a new brand specifically for DTC, 3) allowing customers to personalize your DTC offering with custom packaging options or assortment selection. Owning the relationship with the customer lets you collect customer data you can use to offer a personalized customer experience, target customers with relevant marketing, and inform future product development. You can also strengthen relationships with your retail partners by offering them insight gathered from your data to help them optimize their ecommerce efforts.
#14 We’re not sure DTC is for us or our partners. Is there a way to test the waters without fully committing?
Some of the oldest and largest multinational brands experiment with DTC before going all in. Doing so may require restructuring your supply chain to support your DTC strategy. But before going all-in, many legacy brands run relatively small DTC tests to experiment and learn. They often start small and prove they can form direct relationships with customers. Successful tests provide hard data you can take back to your boss as evidence in support of a larger DTC rollout.
#15 How is managing a DTC business different?
DTC requires significant investment in technology, fulfillment, and personnel. It takes top-down buy-in and a massive cultural shift. Supply chains often have to be restructured. Besides fulfilling bulk orders to retailers, you’ll have to fulfill individual orders from the warehouse to the consumer’s doorstep. Customers increasingly expect more of brands so selling direct means they can expect to find every variant (color, size, and style) at a cheaper price. After mapping out and launching your DTC brand, you need to manage, maintain, and update it. This requires a data-informed, higher-touch approach to operations, marketing, and customer service.
IV. Technical considerations of selling direct to consumer
Find the right DTC infrastructure to integrate with your current business systems and the technical specifications DTC requires.
#16 Should I build on-premise ecommerce infrastructure, use a cloud-based platform, or modify my current wholesale platform?
On-premise platforms are built for developers. They require complex integration work and hosting costs. They also require that you architect your solution to accommodate the expected single highest peak in traffic (so you don’t crash during high volume events, like Black Friday). Conversely, software-as-a-service (SaaS) platforms scale on-demand, allow you to get to market faster, and never require time-consuming upgrades, patches, and point releases. They free you to focus on customer experience, personalized marketing, and scaling internationally rather than on information technology (IT).
#17 We’re late going DTC. How can we speed up our launch?
Expedite your timeline by selecting a robust cloud-based platform that doesn’t require any installation or deployment. SaaS solutions are designed for speed. Most DTC brands can launch in two or three months with standardized application programming interfaces (APIs), flexible themes, and pre-built connectors that accelerate custom development and integrations. Compare this timeline with on-premise builds and complex enterprise resource planning (ERP) integrations that can take 12–18 months and often fail to meet budget and deadline.
#18 What’s the best way to set a realistic launch date?
Create a work back schedule. What date or time of year do you want to launch (for example, Black Friday)? With this goal in mind, you can set dates to achieve the following: 1) reach out to platform vendors that interest you, 2) finalize technical requirements, 3) select a platform, 4) select a development partner if you don’t have in-house capabilities, 5) establish a project start date. Launching can require months of planning and testing. Start early.
#19 Should I integrate our DTC platform with existing systems?
Decide what should be your single source of truth: your current ERP or technology stack or your new ecommerce platform. Larger companies may integrate stores with supply chains and business systems. Other DTC brands start with their ecommerce platforms as their single source of truth and integrate business systems as their DTC strategies become more sophisticated and complex.
#20 Will my current ERP work with a cloud-based commerce platform?
DTC brands often use their commerce platforms as de facto ERPs, but you can integrate your current ERP as well. Select a platform that offers standardized RESTful APIs you can use to integrate with popular ERPs, like Netsuite, Sage, or Microsoft Dynamics.
#21 What’s the best way to accept payments?
Do you want to build a custom commerce platform or select a SaaS-based solution? The former may require you to select a third-party payment provider or create a merchant account. The plumbing and integration will be your responsibility. You also can choose a cloud-based platform that offers a built-in payments solution so you can accept all major payment methods the moment you launch your store. When weighing payment solutions, look for native multi-currency capabilities. This lets customers check out in their currency of choice and will be especially important for international customers.
#22 We plan to highly customize our site. Won’t cloud-based commerce platform themes limit what we can do?
Although themes are highly customizable, some brands find them restrictive. You don’t need a theme to launch a custom store on cloud-based platforms if you know a bit of HTML, CSS, or the easy-to-learn templating languages that come with some ecommerce platforms. Select a platform that gives you full code control of your front-end and software development kits (SDKs) that let you build custom applications.
#23 What if we want to regularly experiment with price and shipping discounts?
Choose a platform that lets you deploy complex promotion rules with inclusion and exclusion logic for maximum control over your discounts. To offer popular discounts like tiered pricing or buy-one-get-one (BOGO) offers, you’ll need to be able to deploy promotions logic to line items in a cart. To streamline the checkout process and increase conversions, you’ll also need a platform that lets you create discounts that are applied automatically to a customer’s cart, without a discount code.
#24 How do DTC companies keep track of taxes?
Businesses with a tax module attached to their ERP systems can integrate their existing solution with their commerce platform. If you don’t have a tax module, choose a platform that offers an automated tax solution for nexus and liability in all 50 U.S states. It should offer real-time tax calculation for all 14,000 jurisdictions and protect you against audit, obsolete data, and outdated tax laws.
#25 How do I know the platform I buy today won’t be outdated tomorrow?
See if the platform you’re considering shares its product roadmap. If so, observe the cadence of new capabilities and features being released. Investigate the utility of those innovations for your business. Ensure they’re narrowly focused on streamlining the management and deployment of enterprise commerce.
#26 We’re also planning pop-up and branded retail locations. How do I blend the physical and digital experiences?
Select a platform that lets you sell anywhere. Robust point-of-sale (POS) systems offer centralized reporting of both physical and digital sales in real-time.
#27 How can we use automation like larger DTC enterprises?
Does the platform you’re considering simply integrate with third-party automation applications or is it natively embedded with a powerful ecommerce automation platform? SaaS solutions with embedded automation capabilities allow DTC brands to automate many repetitive, manual, and time-consuming tasks with just a few clicks and no coding. Be sure your platform also lets you automate flash sales, product releases, and major campaigns.
#28 If we decide to go with a headless commerce architecture in the future, what are the essentials we need to look for in a platform now?
#29 We’ll probably want to sell on multiple channels later on. How do we prepare for that today?
Check that the platforms you’re considering allow you to launch and optimize sales channels across marketplaces, mobile, social, and physical locations. The platform needs to be capable of managing the complexity of omnichannel campaigns on your front end and orders, inventory, and fulfillment on your back end. List your products natively and sync prices, orders, inventory, and fulfillment from a single hub.
#30 Migrating to a new platform can kill sales, SEO, and morale. Isn’t it better to stay on my current platform?
Have more questions?
The answers today to these 30 questions may be different tomorrow. So the right decision now doesn’t guarantee DTC success later. Demand a DTC partner that will automatically scale with you. Partnering with a growth-minded, future-looking DTC ecommerce platform will inoculate your DTC effort from uncertainty, changes in technology and shifts in consumer behavior.
This article was originally published by our friends at Shopify Plus.