CPG firms close the customer gap by going direct

Consumer packaged goods (CPG) firms are positioning themselves to thrive and lead in the marketplace by creating new sources of value through the direct-to-consumer (DTC) model. In a recent study, in partnership with Genpact, HFS surveyed more than 150 CPG executives and found that 70% of CPG firms are building a direct-to-consumer (DTC) business model to increase sales, drive customer loyalty and increase profitability. Although CPG firms are betting big on DTC, it comes with its fair share of challenges, including building a new supply chain and managing critical functions such as customer service, returns and after-sales, e-commerce platforms, and order fulfillment. CPG companies need to understand the primary drivers behind the uptake of the DTC model, factors that may pose challenges, and ways forward if they decide to walk down the DTC path.

More than 70% of CPG firms are building a direct-to-consumer business model

Of the 150 CPG companies surveyed, a quarter already has mature DTC, and another 47% are actively investing in developing a DTC business. It’s important to note that most of these surveyed companies are not turning into 100% DTC brands in the way of Warby Parker, Blue Apron, or Dollar Shave Club, but they are working toward a hybrid sales approach. The aim is to reap DTC benefits and hold onto their conventional distributor-retailer sales paradigm.

Exhibit 1: 70%-plus of CPG companies are well on their way to building DTC capabilities

Sample: 150 CPG executives across the Global 2000 enterprises
Source: HFS Research in partnership with Genpact, 2022

CPG companies seek a long-term sustainable advantage through more control of the customer experience

The DTC model allows greater control over CX, more flexibility to offer personalized experiences, and, therefore, to pitch the right product at the right time during the customer lifecycle. G generating more sales and gaining customer loyalty through DTC adoption emerged as the biggest pull factors among our surveyed CPGs (Exhibit 2).

Aligning with new customer expectations and post-pandemic buying behavior surfaced as the next set of reasons behind the DTC uptake. As DTC businesses get direct access to customer data, this allows them to gather valuable insights about customer preferences, behaviors, and buying habits. Such data, combined with internal agility, means firms can respond fast to external market conditions and adjust their product offerings, pricing, and marketing strategies in close-to-real time. Additionally, the DTC model positively boosts the bottom line as CPG companies can eliminate intermediaries.

Exhibit 2: CPGs think DTC will bring them closer to customers and boost sales

Sample: 150 CPG executives across the Global 2000 enterprises
Source: HFS Research in partnership with Genpact, 2022

DTC adoption comes with its own set of challenges

While commenting on the impediments to the uptake of the DTC model, respondents identified (Exhibit 3) setting up and running an efficient customer services function as the top challenge. Many shared operational worries about handling returns, providing aftersales services, and competing in order fulfillment times – all the things retailers must be good at. There was also much hesitation regarding the existing legacy infrastructure and their inability to develop, run, or migrate to a high-grade e-commerce platform. Some also feared that this might impact their existing relationships with retailers and marketplaces, which can severely affect sales through those channels.

Exhibit 3: CPGs fear they don’t have the customer service chops

Sample: 150 CPG executives across the Global 2000 enterprises
Source: HFS Research in partnership with Genpact, 2022

How to make the DTC journey more seamless and successful

Although the challenges are real, the majority of surveyed CPG companies hopping on to the DTC bandwagon believe that the DTC benefits far outweigh the challenges. The following measures can help a CPG company reap maximum benefits from a DTC model.

Build a resilient and agile supply chain for digital commerce
Invest in robust technology solutions and partner with experienced service providers to manage inventory, order processing, and fulfillment. Also, implement a procurement process to manage inventory levels and efficiently maintain the required stock levels.

Build and operate a high-grade website
Benchmark your site against top brand and retailer sites on metrics such as bounce rate, average visit duration, and pages visited per visit. Turn to data analytics and personalization to enhance CX. For instance, if a shopper is looking for children’s sneakers, information such as what other buyers have bought, similar and add-on recommendations, what is likable in a particular product based on user reviews, and how prices compare with similar products can provide context and aid conversion.

Carve out a clear go-to-market strategy
Clearly define your DTC objectives—target audience, product range, pricing, marketing, and distribution channels.

Leverage the power of social media (and influencers)
Leverage social media to engage with your customers, run promotions, and create compelling content to connect with customers, build brand awareness, and promote products.

Build an efficient fulfillment channel
Establish a fulfillment center, or partner with a credible third-party logistics provider to handle order processing, picking, packing, and shipping. For owned fulfillment centers, leverage automation such as automated sorting and barcode scanning to expedite deliveries with minimal error.

The Bottom Line: Develop a holistic DTC journey for a seamless and successful connection with consumers.

Although adopting the DTC model poses many challenges, more CPG companies are embracing it as an avenue for growth and loyalty. The DTC model is advantageous in meeting fast-changing, continuously evolving customer requirements and improving your top- and bottom-line, Besides, as most of these recommendations have a strong technology angle, working with experienced service providers with domain expertise and scale is always recommended.