Consumers today are spoiled for choice. No matter where they live they have at their fingertips a vast assortment of products, a wide array of delivery options, and a never-ending parade of exclusive products and special offers. The consumer journey is becoming increasingly frictionlessthanks to advances in digital commerce technologies and disruptive innovations from the likes of Amazon and Alibaba, which continue to push the frontier to enable consumers to buy what they want, how they want it (see Figure below):
Presently, branded manufacturer’s direct-to-consumer (DTC) or eCommerce sales — that is, sales fulfilled by the manufacturer, regardless of whether the customer makes the purchase online, a manufacturer-owned store, or at a third-party retailer, — typically account for between 5 and 10 percent of total revenue. We believe brands can increase their DTC sales to between 15 and 25 percent of total revenue over the next three to five years. Such a shift will not only improve brands’ operating margins, but it will also create greater stickiness with end customers and capture their fair share of market power.
Based on our client work and research, one of the biggest gaps preventing Brands from full potential DTC growth is fulfillment. Branded manufacturers spend significant effort and energy on generating online demand but often fail to build the necessary supply side capabilities to deliver against a rapidly changing and rising consumer expectations (see below Figure):
Long order to door lead times, not having the right assortment deployed in the right location, disjointed click and collect operations will not only significantly erode order margins but devastate the overall value proposition to the consumer.
In our forthcoming paper “Creating an Omnichannel Supply Chain for Branded Manufacturers” (in collaboration with professor Sunil Chopra, Kellogg School of Management), we describe a systematic approach to getting 3 key areas of DTC fulfillment right:
– Define a clear and winnable fulfillment promise
– Reinvent and redefine the role of the store, either owned or within retail partners
– Evolve supply chain and 3PL partnerships
Branded manufacturers can take advantage of this unprecedented opportunity to get closer to the consumer, if they manage to acquire the requisite fulfillment and supply chain capabilities.