In the first part of this series, we explored the different types of value CPGs can get from establishing DTC within their businesses – from creating new sources of revenue, to indirect factors like building customer relationships through first-party data, quicker time-to-market with new products, and stronger brand share-of-voice.
But how can CPGs ensure they develop the right strategy to capture the most value from their DTC investment?
Establishing a working DTC model requires careful evaluation and assessment of the business to ensure goals, resources and investments align with the value drivers that matter most. Further, CPGs must also ensure they have a set of core technology capabilities in place to support new projects and a scalable DTC model. This process will look different depending on where a CPG company is within their digital transformation journey and what goals are most important to the organization.
Now, we will take a closer look at some of the most common DTC model archetypes, how some of the largest CPG brands are using them today and what CPGs should consider when choosing the right model for their business.
Evaluating DTC Model Archetypes
In our experience, we’ve observed five core types of DTC models, described on a scale of growing technological and organizational complexity when it comes to investments in infrastructure, technology and operations. Each of these model archetypes provides a different profile of value potential across customer and business value drivers (both direct and indirect). The type of value each provides should be a key consideration for CPG players as they assess which model is the best fit for their organization.
1. Knowledge Hubs
This table-stakes DTC model focuses on engaging consumers though content; building unique, brand-centric engagement that informs, inspires and educates shoppers without e-commerce infrastructure. Knowledge Hubs can be used to collect valuable data on how consumers interact with content, shifts in interest and purchase intent.
In Real Life: Patron’s “Cocktail Lab,” a data-driven cocktail recommendation engine that serves up creative cocktail recipes based on personal preferences, educates and inspires shoppers to try new things while keeping Patron top-of-mind.
2. Digital Store
This DTC model establishes a fully functioning e-commerce website dedicated to direct sale of an assortment of company products, along with immersive content experiences. With e-commerce enabled, this model introduces a new online revenue stream, while providing convenience for shoppers who want to purchase direct.
In Real Life: Nespresso’s branded e-commerce site brings the entire coffee shopping experience under one digital roof. Shoppers can purchase Nespresso’s full range of coffee products, machines and accessories, along with seasonal specials, deals and curated collections. Supplementary content educates consumers on how to care for their Nespresso products and highlights the brand’s continued commitment to sustainability efforts.
3. Curated Subscription Models
Subscription models have a higher barrier to entry, challenging CPGs to consider acquisition, retention and loyalty over time. However, when executed correctly, subscription models provide CPGs with a direct source of revenue through recurring shipments of product or curated items tailored to consumer need. Subscription models allow CPGs to learn more about items customers want to purchase on a regular basis, delivery preferences, and other items they may be interested in. With this first-party data, CPGs can then create custom offers for consumers, deepening brand loyalty and increasing basket size.
In Real Life: Different subscription models allows CPGs to create a system that works best for their product line. For example, companies like DollarShaveClub and Daily Harvest leverage the replenishment model, which ships consumers the customized products they love on a regular basis – ensuring they get what they need on a dependable schedule.
4. Personalized DTC
Adding a layer of personalization to DTC models establishes a one-to-one relationship with the customer. While barrier to entry requires implementation of backend technology and e-commerce capability equipped for personalized DTC programs, this model helps drive deeper consumer engagement and sales insights, while providing uniquely customized and convenient experiences.
In Real Life: Purina’s “Just Right Pet Food” is a completely personalized shopping experience for dog lovers. Customers are asked to create a profile of their pet, listing health needs, age and taste preferences. Purina then gives owners recommendations based on their profile, along with nutrition guidelines. The customized food and feeding plan is then delivered directly to the shopper’s doorstep – creating a true one-to-one brand experience.
5. Touchpoint Commerce
As the most robust model, this DTC approach creates new paths to purchase by embedding DTC commerce in non-commerce digital touchpoints (social, games, IoT, etc.) This model sets the business up for ongoing and future innovation, allowing CPGs to embrace new methods of connecting with consumers as they evolve over time.
In Real Life: Cereal brand myMuseli gives consumers an opportunity to create their own blends of hot and cold cereals to order. With QR codes printed on the back of their packaging, customers can save mixes they’ve enjoyed – with reordering as simple as scanning a code on their mobile device.
Business and Market Readiness
It’s important to note that while all these DTC models offer opportunities for CPGs, not all models are the same when it comes to risk and outcomes. For example, while a Knowledge Hub offers new consumer experiences, engagement data and is easier to implement, it does not offer direct revenue. Conversely, subscription models, for example, provide high business and consumer value, but requires more time and investment to activate.
Each model has a distinct value profile that translates into a different mix of revenue, profit type and scalability depending on the specific category, product and market that is being considered for DTC. To understand what model works best, CPGs need to evaluate their own business as well as market potential. This way, CPGs can identify the best opportunities and prioritize projects over time.
- Market Readiness: Evaluation of factors like rate of consumer adoption of digital channels, e-commerce sales, and DTC market penetration.
- Company Potential: How a CPG stands within the market, economic position (both globally and regionally), operational readiness, and e-commerce profitability.
