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Unlocking Value in DTC

Unlocking Real Value From Direct-To-Consumer Models

CPGs can create a revenue stream that allows for more freedom and control over first-party data, which opens new opportunities.

CPG companies have traditionally trailed other online retailers when it comes to establishing direct-to-consumer (DTC) models, leaving potential revenue on the table as consumer habits become increasingly more digital. According to a recent Publicis Sapient research on consumer spending trends, e-commerce saw a 31 percent increase in transactions as physical retail slowed in the wake of the COVID-19 pandemic -- resulting in a new, more digitally driven “normal.”

Looking ahead, there is significant headroom for CPG companies to embrace DTC. Analysis from eMarketer/Publicis Sapient projects that DTC for CPG companies will grow to about 15 percent market penetration by 2024 – up from 11 percent reported in 2020. More aggressive growth cases forecast market penetration of up to 20 percent by 2024 – almost double the amount of customer reach CPGs are experiencing today.

The need for CPGs to explore alternate revenue streams like direct-to-consumer is clear. But to get started with establishing the right DTC model, build organizational buy-in and investment focus, CPGs must first understand where the greatest opportunities for value creation exists within their organization. In this first part of this series, we’ll take a closer look at what value drivers exist for CPG firms in the DTC space, and the role they play when assessing how to build a scalable DTC strategy.

Understanding Value Drivers for DTC

As we already know, DTC creates value to consumers through multiple drivers:

  • It provides convenience and reduces friction with easier and more enjoyable shopping experiences
  • It provides consumers with unique offerings via access to products or product bundling that is not available anywhere else
  • It provides delightful experiences which offer rich category, brand, and product experiences that create value beyond or in addition to the purchase
  • It provides attractive price point or savings for consumers not available via traditional retailers and offline channels

But the value DTC provides to the business is generally less understood. DTC offers companies several business-value drivers that extend well beyond the revenue it generates. In order to truly maximize DTC opportunities, CPGs must focus on evaluating, assessing and measuring DTC initiatives based on direct value (new revenue streams), as well as the more holistic, indirect value (both monetary and non-monetary). The indirect value pool is often the missing part of the equation – not considering and including it results in missed opportunities.

Value Added

A look at how indirect value drivers could lead to the 1.4x-1.7x increase in overall value if CPG companies pursue direct-to-consumer strategies. 

0.7x-0.8x
Data-Driven Consumer Insights
0.4x-.05x
Product Development
0.3x-0.4x
Brand Affinity

Direct Value: New Revenue

Establishing new revenue streams through DTC channels allows for continued growth and scalability looking ahead, offering a foundation for incremental sales growth through innovation as DTC continues to grow in popularity. For some industries -- like food and beverage, which currently offers fewer DTC commerce options when compared to apparel and luxury goods, there are unique opportunities to pioneer DTC efforts now and stay ahead of the curve as a digital leader.

Indirect Value

Quantifying indirect value is critical for prioritizing specific DTC initiatives vs. other competing investments. At Publicis Sapient, we have found that indirect value drivers can be worth 1.4-1.7x direct value.

  • Data-Driven Consumer Insight:  DTC models allow CPGs to engage directly with their customers, opening new paths to collect first-party data that was previously inaccessible or difficult to obtain through traditional retail or e-commerce partner models. With DTC acting as an always-on engagement channel, CPGs can continuously learn more about customer shopping preferences, buying habits, and other insights. First-party data can then be leveraged to create more personalized customer experiences, reduce churn, and develop new products or services that align closely with consumer needs.
  • Product Development: Developing new products can be a costly endeavor for CPGs, with limited data often making it difficult to mitigate risk and ensuring success upon launch. By engaging directly with consumers during the testing/development phase, CPGs can get a clearer view of exactly what customers are interested in purchasing. This way, CPGs can be more confident in the investments they’re making, while reducing speed-to-market and creating new sources of revenue.
  • Brand Affinity: As digital disruptors and white-label product lines from e-commerce giants continue to permeate the market, consumers are inundated by choice, posing new challenges for legacy brands to maintain share-of-voice. According to a 2019 Wikibuy analysis, more than half of consumers do not consider themselves loyal to specific brands. Leveraging digital channels gives CPGs more control over how customers interact with their products, which can influence conversion rates, loyalty, and increased organic brand advocacy through word-of-mouth customer reviews and recommendations.
  • Business Flexibility: The market is constantly changing, and CPGs must be prepared to adapt and innovate alongside the evolving needs of consumers. DTC models give CPGs an owned channel where they can quickly innovate, expand and adapt to shifting trends in a way that relies less on outside retailers that may be exposed to different risks.

The Path to DTC

CPG companies have a lot to gain from investing in building out DTC capabilities. Creating a revenue stream that allows for more freedom and control over first-party data opens up new doors for building deeper consumer relationships, more personalized experiences and greater brand affinity across both online and offline channels. Capturing the full value potential from DTC requires CPG companies to focus on both indirect value and direct value that capitalizes on unique opportunities to push their organization forward in a digitally enabled world.

Sabrina McPherson
Sabrina McPherson
Senior Managing Director, Management Consulting, North America

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