Manufacturing has become increasingly complex, with different channels and partners involved in the process of getting products to market. While this can have many positive benefits, it can also lead to channel conflict when a manufacturer decides to go direct-to-consumer (D2C).
Understanding the D2C Landscape
D2C channels are becoming increasingly popular for businesses looking to expand and maximize profits. But embracing D2C can be a daunting task, particularly when it comes to avoiding disruption of existing sales channels. To help understand the different elements involved in a successful D2C expansion, let’s explore the current landscape of customer options.
Defining the Different Types of D2C Channels
The most common types of D2C channels include e-commerce stores, marketplaces, and subscription services. E-commerce stores are websites that allow customers to browse and purchase products directly from the business’s website. Marketplaces are online platforms where businesses can list their products alongside other vendors (such as Amazon.com). Subscription services involve regular delivery or access to certain products or services (such as Dollar Shave Club).
Mobile stores are a bit different and could be deployed to sell to distributors, rather than end-user customers. Yet, when these platforms are designed and/or targeted to do so, they can enable DTC sales.
Exploring the Benefits of Going D2C
Businesses that embrace D2C channels have more control over customer experience since they are managing every step along the customer journey, from product selection to checkout process and post purchase support. Additionally, by cutting out middlemen such as distributors or retailers, businesses may increase their profit margins significantly while providing competitive pricing options for customers. Going D2C also helps businesses collect valuable data about customer preferences which they can use to tailor their product offerings and marketing strategies accordingly.
Understanding the Challenges and Complexities of D2C Expansion
While there are many benefits associated with going D2C, there are also some challenges that need to be addressed before embarking on this kind of expansion strategy. One big challenge is navigating channel conflict between existing sales channels—such as traditional retail stores—and new ones like online marketplaces or ecommerce stores—which could result in lost revenue for both parties if not managed properly. Additionally, there’s a learning curve associated with launching new sales channels; businesses need to ensure they have processes in place for delivering customer service excellence across all platforms, as well as sufficient resources needed for proper marketing campaigns on each platform in order for them be successful at expanding into new markets via direct consumer engagement methods.
Understanding Channel Conflict in Manufacturing
Channel conflict is an important issue in the manufacturing industry, as it can have a significant impact on profitability. It occurs when different channels or partners involved in the process of getting products to market create tension or disagreement between them, and usually fall into one of three types: horizontal, vertical, and transnational.
Horizontal channel conflicts occur between companies that compete in the same product categories, such as two manufacturers with similar products vying for customers.
Vertical channel conflicts arise when a manufacturer has multiple levels of distribution partners, such as wholesalers and retailers, who disagree over pricing or other issues. This is the type of channel conflict we focus on here at Perficient.
Channel conflict may be reflected in differences in pricing, focus on marketing strategies, or different product offerings. For example, a manufacturer may offer a lower price than its distributors or disagree on how to promote the product to customers.
When a manufacturer decides to go D2C, there are additional issues that should be considered. This shift can cause disruption for existing distributors as they now face direct competition that can lead to tension with both the manufacturer and other existing retailers. There may also be problems with pricing if the D2C model results in lower prices than what distributors were already offering.
Navigating Different Types of Channel Conflict
Navigating different types of channel conflict is essential for manufacturers who are considering going D2C. To break channel conflict up in a different way, they can be price-based, brand-based, and product-based conflicts.
Price-based conflicts occur when manufacturers are competing with channel parts by undercutting their prices. Companies can lose profit as customers seek out better deals elsewhere.
This type of conflict could be resolved by clearing price discrepancies.
Brand-based conflicts arise when an intermediary is concerned about their own brand image being affected by a manufacturer’s choice to go D2C. For example, if a distributor has been promoting the manufacturer’s products for years and then suddenly the same products become available directly from the manufacturer on their own website, it could damage the distributor’s reputation and reduce sales through them.
Another instance is situations where a manufacturer feels a distributor or retailer is not representing their brand in a manner consistent with their desire. For example, a luxury manufacturer feels a retailer is not representing them in a manner consistent with luxury.
Some ways to combat this is to be collaborative and open about communication. Partners benefit during the transition while minimizing disruption to existing relationships. Also, all parties understand each other’s needs and perspectives. Failing to communicate can lead to confused customers buying from competitors instead.
Product-based conflicts can occur in different ways:
- If distributors feel that they can’t offer customers access to all of the products available from a manufacturer. When a manufacturer goes D2C, they may suddenly have access to new product lines and exclusive deals which distributors cannot match or compete with.
- Manufacturers might identify opportunities where they sell products not available through distribution directly to their customers. This could include unique products manufactured specifically for a single or small group of customers.
- The distributor can’t support an appropriate service model aligned to a product.
Manufacturers should also consider the following strategies:
- Vertical integration – bringing in additional elements of production under one umbrella to create more control over pricing and product promotion
- Understanding own role –taking ownership will help ensure effective resolution
Is Your Business Ready?
The move from conventional to D2C channels isn’t an easy one. Companies should analyze their current business operations, consumer base, channels. and available resources to determine their readiness for such a change. To minimize any disruption of existing customer relationships or channels, factors like customer feedback, product optimization, and digital marketing strategies must be considered.
With careful planning ahead of time along with understanding both potential risks as well as rewards involved with such a transition, businesses can make sure that they successfully transit from traditional models towards D2C models without experiencing major disruptions or losses during this process.
If you believe you’re ready, contact one of our strategists today.
