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Leveraging the D2C model: Relevance, opportunities and success factors for B2B companies

Katharina Fröhlich — Fri, 28 Jun 2024 10:15:44 +0000

Navigating the Digital Shift: The Rise of Direct-to-Consumer Models

The rapid expansion of e-commerce over the past years has cemented its role as a vital resource for businesses adapting to an increasingly digital world. The COVID-19 pandemic significantly accelerated the shift to e-commerce, especially as lockdowns in 2020 limited physical shopping, pushing diverse consumer segments online. This surge in online shopping not only opened new sales channels but also highlighted e-commerce as a tool for building economic resilience amidst challenging market conditions.

While e-commerce in general has risen in significance, one approach stands out: Direct-to-Consumer (D2C) models. This new sales strategy offers excellent opportunities for building close relationships with customers, navigating brand strategy and innovation with data-driven foresight, and realising higher margins. It’s no wonder that this e-commerce approach currently represent one of the most promising sales strategies, especially in the B2C area. According to a recent study by ECC Cologne in collaboration with Publicis Commerce Germany, every second customer in Germany is a D2C buyer.

While Direct-to-Consumer has become a reality in consumer markets, B2B companies are still lagging behind in realising its potential as a purchasing channel that can accelerate growth. This article explores why Direct-to-Consumer is now more relevant than ever in the B2B environment, what advantages its adoption may bring, and which success factors must be considered to exploit its full potential.

Challenging waters for B2B companies

In the current market environment, B2B companies face a multitude of challenges that underscore the critical need for adopting Direct-to-Consumer strategies. Raw materials scarcity, supply bottlenecks, and price pressures are putting immense strain on relationships between suppliers and their customers. Increasing competition necessitates accelerated efforts for customer retention. However, complex, multi-level sales structures at many B2B companies hinder direct engagement with end customers. This leads to not only lost margins at intermediaries but also unresolved customer issues that never reach manufacturers.

At the same time, not only market conditions but also customer requirements are becoming more demanding. The proliferation of global marketplaces and e-retailers has elevated the importance of multi- and omnichannel commerce. Customers now prefer selecting products from a wide array of platforms, which makes digital channels increasingly vital for B2B procurement. While B2B customers previously engaged with up to five channels in 2016, they now consistently use ten or more channels to interact with manufacturers, according to a study by McKinsey.

Additionally, in the consultancy-intensive B2B environment, customers now demand closer relationships with suppliers across various channels more than ever. Having a direct and personal line to the manufacturer for addressing queries and finding solutions, along with creating a holistic customer and purchase experience, becomes paramount to success. While customer expectations spike, their loyalty to specific suppliers simultaneously declines.

In this challenging environment, adopting an efficient, flexible, and customer-centric sales strategy may be key to economic resilience. But what exactly does D2C entail?

Defining D2C

Direct-to-Consumer modernises the traditional practice of direct sales by leveraging digital tools. It involves manufacturers selling their products or services directly to end customers, bypassing intermediaries. The contemporary significance of D2C lies in its digital execution, primarily through company-owned online shops or other digital touchpoints such as marketplaces. A company’s strategy, products, and customer base determine the choice of platform.

Though commonly seen as just a sales model, Direct-to-Consumer rather represents a digital business model. It introduces complexity while unlocking potential, fundamentally reshaping a business’s strategic direction and sales operations. For manufacturers, this approach involves creating their own distribution channels, taking comprehensive control over the supply chain, and establishing robust infrastructure and communication channels for direct customer interactions. This shift necessitates rethinking the entire customer journey to deliver seamless, end-to-end experiences.

Strategic advantages of D2C for B2B brands

The essence of Direct-to-Consumer is building strong, valuable relationships with customers throughout their entire journey—from initial interest to post-purchase and product use. This includes addressing all challenges during product ownership and use, and ultimately increasing Customer Lifetime Value. No retailer can do this better than manufacturers who know their products way better and are capable of offering more personalised and valuable experiences to customers. By adopting this sales models, B2B companies can shape the transactional moment of the customer journey themselves and close the gap to a more seamless customer journey.

Enhanced Customer Insights

Digital means data. And data is one of the most valuable assets in e-commerce. D2C approaches enable direct data collection and analysis of first-party data at the digital touchpoints. This provides a 360° view of customer behaviour, satisfaction, and sales patterns. By understanding what customers buy, why they buy – or return items – helps manufacturers develop action plans for improving marketing strategies, touchpoints and targeting. This also allows for more personalised offerings tailored to individual customer needs, revealing cross-selling and upselling opportunities often missed in non-D2C models.

Example: An industrial safety equipment manufacturer utilises data insights from its platform to analyse buying patterns. They discover that customers purchasing helmets frequently browse gloves but rarely complete the purchase. Responding to this insight, the company strategically recommends gloves at checkout to customers who add helmets to their carts, successfully increasing average basket volumes by promoting a complete safety solution.

Improved Brand Control

D2C models grant companies complete control over their supply chain and the entire brand experience. Traditional sales structures involving multiple layers often restrict how much influence a company can exert over intermediary interactions with customers, which can dilute brand messaging. Distributors, lacking deep product knowledge, might not deliver positive customer experiences. By adopting a direct sales approach, manufacturers take charge of communicating brand benefits and ensuring high-quality service, which strengthens the brand image and ensures a consistent experience at every customer touchpoint. Furthermore, direct interactions with customers facilitate a more effective response to their specific needs.

Example: A manufacturer of industrial adhesives shifted to a D2C model to ensure consistent messaging. Previously, distributors often overlooked promoting the adhesives’ superior heat resistance, which is critical for customers in high-temperature industries. By managing sales directly online, the company now ensures all communications highlight this key benefit, enhancing customer understanding and satisfaction with the brand’s specialized solutions.

Intensified Customer Relationships

D2C fosters more direct, long-term partnerships with customers. Despite a higher willingness to change suppliers in today’s market landscape, it enables a more targeted approach, leading to solutions that are better adapted to individual customer requirements. Do decision-makers need general information or data to convince others in the decision-making process? Do they need troubleshooting or an introduction to the product? Especially consultancy-intensive customers can benefit from more individual guidance via platforms, ultimately increasing customer satisfaction and loyalty, resulting in higher conversion rates and repeat purchases.

Example: A B2B supplier of specialized industrial coatings develops an interactive online platform where customers can input their specific requirements, such as resistance to certain chemicals or temperatures, and receive customised product recommendations. This hands-on approach not only solves specific customer problems but also builds stronger relationships by demonstrating a deep understanding of their unique industry challenges.

Agility in Evolving Markets

In a business environment with demanding and volatile markets, a fast-shifting economic climate and destabilised supply chains, an agile reaction and adaption to market changes is crucial. With a D2C sales strategy, companies can leverage more flexible adaption of product offerings and distribution strategies. Innovative product line extensions, subscription-based business models or digital services of manufacturers can be more easily integrated into the existing offering structure. In addition, adjustments of the existing portfolio based on customer feedback or the promotion of products to react to inventory build-up provide valuable flexibility and accelerated efficiency in the sales strategy.

Example: A commercial construction materials manufacturer used a D2C strategy to swiftly respond to evolving sustainability standards. Through direct feedback on their online platform from construction firms, they identified a demand for eco-friendly insulation materials. They quickly developed and introduced this new product line, aligning their production with market demands and regulatory changes, thereby optimising inventory and preventing overstock.

Cost Efficiency and Streamlined Sales Funnel

Ultimately, D2C provides significant cost advantages compared to classical multi-layer sales structures. The most obvious reason for this lies in the removal of intermediaries. Without distributors, B2B companies can significantly reduce overhead and transaction costs, hence improving margins as revenues are not shared with middlemen. Moreover, the relative cost of marketing can be reduced. With existing digital channels in place, existing customers can be re-activated most cost efficiently with targeted, data-driven approaches. The customer relevance is high and there are no additional budgets for media or performance marketing needed.

Example: A precision machining tools manufacturer switches to a D2C model, cutting out distributors to significantly reduce overhead and transaction costs. Using their online platform, the company launches automated marketing campaigns targeted at existing customers, promoting upgrades and complementary products. This direct approach revitalises customer engagement without extra marketing spend and enhances sales margins by avoiding distributor mark-ups.

Success factors for Direct-to-Consumer models

Having explored the numerous strategic advantages of Direct-to-Consumer models for B2B brands, we now turn our focus to the essential factors that drive its successful implementations. The following graphic outlines the critical components necessary for optimising D2C operations, ensuring that businesses can fully leverage their direct engagement with customers.

Conclusion

The adoption of Direct-to-Consumer models presents a promising future for B2B companies looking to navigate the complexities of an increasingly digital marketplace. As businesses continue to adapt to evolving customer expectations and market dynamics, this approach will likely become even more integral to their strategies.

You are currently exploring the benefits of digital business models or consider digitising your marketing processes? Get in touch with us about your requirements here.

4 must-do’s for brands to conduct successful crisis communication

Katharina Fröhlich — Thu, 16 Mar 2023 16:30:01 +0000

Author: Katharina Fröhlich

Apple, Danone, Mercedes and over 450 other brands have already done it in the first month. More brands are continuously following their lead: In the aftermath of the invasion of Ukraine in February 2022, an increasing number of multinational brands have been pulling back their operations in Russia and hundreds of businesses are supporting philanthropic initiatives.

While the active engagement of brands in times of global crises has, for the most part, evoked appraisal from consumers, other brands such as McDonalds received resentments for their response or lack thereof, resulting in damages to the brand reputation.

As the pandemic has subsided from our awareness and the war in Ukraine is dominating the public discourse, brand and marketing officials find themselves confronted with just the second internationally impactful crisis in a short period of time and the same pressing questions: How can brands engage in successful crisis communication? What are appropriate ways to inform and empathise with affected publics? Which crisis communication strategies focus on solutions, not selling?

This blog post presents four hands-on approaches for successful crisis communication:

1. Start with empathic crisis communication.

During crisis, people expect organisations to care. Successful crisis communication therefore demands brands to express empathy as an essential first step to build rapport with publics. The need for such emotional support comes from the human desire for emotional connections in times of hardship. People want to feel a response as much as they want to see a response. Empathetic crisis communication meets this desire as it enables brands to directly address and ratify feelings of emotional fragility, thereby supporting relationship building and brand credibility. For instance, brands who eased public fears and supported emotional coping of publics during the pandemic, were four times more likely to gain brand trust compared to others.

An empathetic crisis communication message contains two aspects: First, an acknowledgment of emotions felt by others and their circumstances as a sign of validation. Second, an active expression of emotions by the brand itself to display sincere emotional involvement and compassion.

2. Provide a timed crisis response.

Complex global crises are connected to high levels of uncertainty. Secured information about causes and scope is rare and facts at hand are often ambiguous. Additionally, the direct consequences for brands, such as supply chain disruptions or product shortenings are unknown at the onset of the crisis.

Meanwhile, crises are also time-critical issues and demand a fast reaction to provide support for stakeholders. According to a recent study examining brand responses to the war in Ukraine, there is a strong correlation between the reaction time to a crisis and the positive reception by the public. Effectively, the research shows that brands with a shorter reaction time received more positive feedback compared to those responding slower.

As a result, brands should provide timely responses at the start of crisis and acknowledge the situational uncertainty by transparently stating what is known and what is unknown. In doing so, brands can boost
their own reputation as fastest responders and potentially redirect and specify given information when more or new evidence comes to light without losing credibility. In times of crisis where trust and transparency are critical, building up and protecting a good reputation is essential to a brand’s success.

3. Communicate how business continuity is ensured.

While global crises interfere with society at large, they also mess up the functioning of dominant operating models. During the Covid-19 pandemic, brands responded with a variety of actions to the disruption
of their business, which included shifting from physical stores to e-commerce, implementing hygiene measures to protect employees and consumers, or pursuing remote work.

Since the war in Ukraine, brands are withdrawing their operations in Russia, relocating their logistic network, and providing support for Ukrainian employees. Whatever measures brands adopt in crises, depending on the circumstances, their active and transparent communication towards stakeholders is essential for their success. Brands need to include a statement into their crisis communication that that highlights which operations are exactly impacted, which products and services are still available and which approaches are taken to ensure business continuity. By doing so, brands can prevent brand damage due liabilities created through unmet consumer expectations.

4. Be authentic in your solidaric engagement.

While acts of solidarity are generally perceived positively by the public, they can also evoke scepticism and feelings of hypocrisy among stakeholders. This is because often, brand contributions show no comprehensible connection to the brand identity and are consequently perceived as purpose-washing.

Since the war in Ukraine, brands have engaged in various acts of solidarity, including donations to NGOs, providing donations in kind to people in need or raising awareness on social media. To show stakeholders that their engagement is genuine, brands must adopt authentic crisis communication and actions. Indeed, consumers are more likely to react positively to brand contributions if there is a strong fit between the social cause and the brand’s purpose. Positive examples for authentic brand initiatives in crisis include Airbnb who offered free, short-term housing to up to 100.000 Ukrainian refugees, or Fedex who provided transportation of supplies and goods, as well as Deutsche Bahn who provided facilitated travel for Ukrainian refugees through free tickets.

It consequently is important for brands to design crisis communication messages that do not only give evidence about their engagement but also fit their core business and values.

Conclusion

Without a doubt, consumers worldwide will continue to expect brands to take a stand during complex global crises and to contribute to their resolution. By empathically addressing social issues. By reacting fast and determined. By clarifying the measures to sustain business. By engaging in authentic acts of solidarity.

What is your advice for a successful crisis communication? Send us a message under: froehlich@biesalski-company.com

Why Leaders Need New Thinking

Heike Amler — Wed, 25 Jul 2018 16:40:58 +0000

Author: Frank Weber

Digitalisation has triggered a race for the future. New players have emerged challenging traditional business models or even disrupting them. C-level trips to Silicon Valley are booming. And there is literally no escape from AR, VR, Big Data and Artificial Intelligence. But one fundamental dimension of digitalisation tends to be neglected or even overseen: the need for cultural change in organisations.

Hierarchical models are in crisis

Recipes of the past are not necessarily suited for the digital future. This is especially true for hierarchical models that are based on the principles of power, subordination, command and control. Employees work within precisely defined structures, jobs and processes. Conformity is rewarded. This top-down model has shaped generations of managers and determined corporate cultures. But now these foundations are being challenged and shaken. What has happened?

Welcome to the VUCA world

The speed of change has accelerated significantly. Globalisation, increased competition and last not least digitalisation are among the key drivers. What used to be stable, clear, predictable and controllable has been replaced by volatility, uncertainty, complexity and ambiguity. Therefore, new concepts are needed to cope with this fast-paced, fluid environment. Scrum is such an approach. Initially invented for agile software development, it has in the meantime conquered many sectors outside of IT. In a manifesto, published in 2001 by seventeen software practitioners, the core principles of agile software development were defined: focus on individuals and interactions, pragmatic solutions, collaboration and flexibility. In other words: rigid organisation structures and linear project management slow down processes while they do not deliver better results.

The chief commander has served its time

To become more agile, companies need to redefine their corporate cultures as a prerequisite. How should they proceed? Contrary to common understanding, they should not start with their employees or their middle management (the so-called clay layer). The starting point should be their leadership team. Why is that essential? Because the leadership team is the catalyst of digital change, not only providing purpose and leading by example, but also inspiring, empowering and driving collaboration. Above all, leaders need to be authentic to win employees’ hearts and minds. Mere lip service will not work. Do these leaders actually exist?

Caught in traditional thinking

I think most of the leaders are still caught in traditional thinking. And that has to do with long established patterns, their professional socialisation and their age (many of them are not digital natives). They need new skills to become the new type of leader and transition from chief executive officer to chief purpose, inspiration, empowerment and collaboration officer. They also need to understand that digital change cannot be prescribed top-down and is more than using digital tools and introducing digital business models. And most importantly, they need to be prepared to critically reflect themselves and overcome fears of losing power and control in favour of moderating processes and unlocking synergies.

Leaders need to be at the forefront

The digital revolution requires a fundamental revolution of mindset and culture. And leaders need to be at the forefront to pave the way.

The Future of Marketing

Heike Amler — Tue, 15 May 2018 13:29:24 +0000

Author: Frank Weber

I am always struggling with how marketing is being perceived by most of the companies and where it ranks in terms of importance compared with other functions. Why is that the case?

The above-the-line syndrome

Marketing started pretty much with advertising. Later other disciplines joined such as direct marketing, sponsoring, public relations and online. Advertising was and remained king for a long time (professionals called it above-the-line, so everything else was below). This development established the predominance of creativity which was and is still being celebrated in numerous award contests and reflected in rankings.

The problem with creativity is that it is associated with taste. And taste is very personal. Therefore, everyone feels like an expert and is inclined to comment or suggest alternatives. So any advertising campaign, logo, icon or website design presented internally tends to end up in discussions (I think there is too much red on the webpage and the circle should be closed).

Is this the essence of marketing? Taste and look? Not really. Creativity is not an end in itself, it is rather a means to an end.

Marketing is making things nice or making nice things

Where did this development lead to? Well, marketing is regarded by many companies as the function which is responsible for making things nice or making nice things such as booths, brochures and give aways. The strategic dimension of marketing tends to be pushed to the background. What complicates the issue even more, is that a simple success metric which would build the bridge to business is missing. Instead, there is a large number of KPIs across multiple touchpoints. But the number of booth or website visitors does not translate directly into top or bottom line. And without this ultimate proof of business contribution, the function remains somewhat disconnected.

The way out of the downstream trap is moving up

So what is the way out? I think the best way of contributing tangible value is the brand. Not brand in the creative sense. But brand in the business sense. Something I call upstream marketing (strategic and business driven) as opposed to downstream marketing (implementation and creativity driven). What do I mean?

A strategically managed brand is not only based on a purpose and clear identity, but delivers upon the promise, captures and responds to needs and builds strong relationships with stakeholders. As a result, preference is being generated as well as willingness to pay more and buy again. This translates into more revenue and better profitability. Marketing is the orchestrating and driving force behind it, creating real added value beyond its own costs.

The toolbox is there, let’s use it

The brand value is one of the most important assets of a company. It usually accounts for up to one third of the company value. In some cases, it is even the most important asset (if you think of Airbnb or Uber). But it is not only the company name that counts. Protected trademarks, like company slogans or product names, represent valuable assets, too. The toolbox for measuring, tracking and calculating the impact of strategic brand management is there. Let’s use it.

Three brand rules to rule new markets

Heike Amler — Wed, 07 Mar 2018 17:14:48 +0000

Author: Jan Kubik

The processing digitalisation enables disruptive innovations. At the same time customers require cutting-edge solutions fulfilling their needs in terms of being seamless, sustainable, or smart (just to mention a few). Therefore, entrepreneurs and visionary companies work on new business models to bring out innovative products and services. However, they face the question whether it really pays off to be the first mover or if they are better off when using possible advantages coming with a follower strategy.

My post answers this question by providing ‘Three brand rules to rule new markets’. The brand rules are deducted especially through an expert survey carried out in the Indian Automobile Industry, which is nowadays obviously dominated by established providers. However, the survey takes on a retro perspective to reveal the success factors of first mover brands as a blueprint for other industries and emerging markets.

Brand Rule ONE: The earlier the better.

How does the timing of making important strategic decisions affect the ability of a company to create competitive advantages? Strategic decisions taken early in the development of an industry or market can enable the company to gain competitive advantages. This can also be seen in the Indian Automobile Industry where first movers have reached superior market shares and profits compared to their followers.

Take the chance, be fast and grab market shares at an early stage of the lifecycle. But to really gain competitive advantages you have either to differentiate with greater customer value, generate comparable value more cost-effectively, or do both. How this has been worked out in the Indian Automobile Industry is explained in Brand Rule TWO.

Brand Rule TWO: Differentiation instead of cost leadership.

In the Indian Automobile Industry there was a fundamental requirement to market success. Namely, to quickly anchor a vivid and differentiating brand perception in the target group to reach a price premium. Successful pioneers have fulfilled this precondition in order to reach competitive advantages. In comparison the cost leadership strategy was less promising as shown in the correlation analysis on the left. Use your brand as a valuable differentiator that has to be clearly profiled to keep an edge over followers. Therefore, you have to examine the decisive brand differentiators in terms of customer benefits and competences. Brand Rule THREE summarizes the learnings we can draw from the Indian Automobile Industry.

Brand Rule THREE: Pioneers have to understand their customers quickly and deeply.

When it comes to a vivid and differentiating brand perception the pathway for pioneers in the Indian Automobile Industry was a high level of ‘customer centricity’. Considering the lower buying power in India first movers scaled down their offerings following a ‘good enough strategy’. This means that they tailored their products and services to the specific needs of the Indian automobile drivers. Therefore, providers needed various brand competences and capabilities like a high ‘proximity to the customers’ that enabled a strong ‘responsiveness for market trends’. In combination with highly ‘motivated employees’ pioneers have built up a superior ‘reputation transporting quality’ to gain confidence in the target group. Therefore, ‘marketing abilities’ and profound ‘managerial skills’ were necessary.

Focus on relevant and differentiating brand competences that really add value to your customers. Hard facts like high tech plants, up to date machinery, broad distribution networks, etc. are hygiene factors you will not draw your customers from the woodwork. Successful pioneers possess especially intangible brand assets like committed people, a culture of customer centricity, or skills to market products and services in an exciting way. These build the cornerstone to deliver brand benefits already in an early stage of the lifecycle that empower and fascinate the customers.b

Investing in brands is like watering plants: a call for efficient brand spending

Heike Amler — Fri, 30 Jun 2017 07:03:28 +0000

Author: Jan Kubik

Imagine you want your plants to thrive and prosper. What would you do? Even with the smallest green thumb, regular and continuous watering seems to be obvious. Otherwise, you would risk that the plant dries out. In this case, the plant is damaged it or at least its rescue takes much more effort while using more water and fertilizer.

Probably you are now wondering why I am talking about plants. It is because growing a prosper plant is similar to developing a strong brand. A strong brand is a value-adding factor. On an average, the brand value accounts for almost 50 percent of the company value (BIESALSKI & COMPANY, benchmark database, 2016). However, to get there the brand needs continuous and regular investments at an appropriate level. Pretty much as the plant, that needs water to grow.

To be aware of the relevance of brand investments is so important because they are directly manageable and assignable to efficient measures in the marketing mix. Having said that, it is the only way to influence the buying decision of the customer by increasing his perception, attitude and preference towards the brand. In turn, this can raise the market share and economic success of the company (see illustration below).

How to become a strong brand?

Creating a strong brand takes time and needs continuity of brand investments. This is not only a matter of fact in B2C but also in B2B. When you think about brand investments, you probably first come up with strong consumer brands like Apple, Google and Co. However, also more unknown brands in the B2B sector like Herrenknecht or Otto Bock are equally strong in their specific target group. Why? Because they have invested in the brand over decades in a focused and efficient manner. Less in advertisement but rather in innovations, product and service quality and customer orientation (BIESALSKI & COMPANY, „Die Marken der deutschen Hidden Champions 2015“). As investments have a delayed impact on the value added of the brand (e.g. in terms of higher market shares) it is important to spend the money sustainably in the long-term, as the graphic below illustrates.

Missing brand spending will result in brand erosion

So far, it is all best practice. Think about a company that exploits its brand while investing in it only on a low level. That is unfortunately also common practice. It is the same as for the plant without water – the brand will erode. How this looks like in a specific example can be seen in the case below. Based on a real example of a once leading German commodity producer we can see that first the brand picture gets less clear, attractive and differentiating to the customers. Consequently trust and loyalty decreases leading to a lower brand equity. Based on this, customers penalise the brand with a lower willingness to pay leading to a decrease in price premium. Concisely, the brand got in serious problems only within 10 years whereas the main competitor did well and out-competed the brand.

To sum up: Care about your brand, put enough money in it and increase business success

Keep in mind that the brand is a crucial value-adding factor. If you want to profit from the brand, put sufficient money in it in the long-term. The brand will reward you with higher sales and prices. The best thing about that: The output should be much higher than the amount of spending you put into the brand – provided you did the most things right. You want to learn how Hidden Champions do things right? Read the study ‘Die Marken der Hidden Champions 2015’.