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With retailers discovering the perks of selling their products directly to their consumers (including cutting down costs, establishing autonomy over supply chains and experimenting with distribution strategies), a new wave of direct-to-consumer (D2C) e-commerce is here to challenge the traditional online marketplaces.
Bridging the gap between products and consumers, the overall growth of the D2C sector was expected to grow by 24.3 percent in 2020. But with new opportunities come new challenges — the biggest being the ability to capture consumer attention in a cut-throat competitive market.
The status quo of D2C brands
As customers embrace the prospect of buying their favorite products directly from manufacturers and cutting out middlemen (retailers), businesses are still relying on the same age-old strategies to win them over and reach them. Spending heavily on social media and search ads, running glamorous influencer campaigns and expanding presence across channels to improve brand awareness and recall — they’re doing it all.
In fact, D2C brands have increased their ad spends by 30 percent since the first quarter of 2020, a trend smaller businesses might not be able to keep up with. As it turns out, this model is neither sustainable nor scalable, according to Modern Retail. Businesses have to compete for the same limited mind space with dollars, especially now that newer D2C brands are coming up almost every day.
Apart from solving daily operational and logistical challenges, businesses are now struggling to even establish their presence online. They’re continually combatting the rise in customer acquisition costs, competitive pricing and the dynamic demands of consumers. The game is in the favor of those who can play their data right.
A shift in approach is the need of the hour
The digital landscape is diverse, unpredictable, and inconsistent. Is the internet eating the world? Yes. Are your customers’ purchase decisions guided by the internet? Also yes. So the pressing need for doubling down on your digital marketing efforts is essential. However, you need to focus on the right channels. Some of the questions you need to get concrete data on for answers include:
- Which social media channel does your target audience prefer?
- What is the most common traffic source for your digital properties?
- Which device is most commonly used by your potential customers?
Without specific answers to these questions, you will just be spreading your budget and efforts in all directions, thereby reducing your marketing ROI. You must observe the following five truths as you develop a plan to reach your customers.
1. The competition is ruthless and never-ending
Competition for market share is at an all-time high. D2C brands are fighting for the limited attention spans of similar consumers. Consumers are spoiled for choice, while sellers are having a tough time reaching them and keeping their attention captive.
The average internet user sees up to 5,000 ads per day. The competition is endless, and unless you know who you’re talking to and where to reach them, there is no way for you to win this battle. The spray and pray technique will not work.
2. Each customer’s needs are different and dynamic
Apart from their interest in your brand and products, there might be nothing common between your customers. While some are looking for exclusivity, others could be looking for cost-friendly purchases. While some have a regular need for a product, others may find occasional buys enough. Their motivations to make a purchase are definitely different, so blindly advertising to win them over without understanding their preferences, likes and pain points can cost you. In fact, 80 percent of consumers actually expect personalization from brands.
3. Price is no longer the only buying criterion
Gone are the days when all that buyers used to look for while making a purchase was a low price point. Today’s consumer demands a holistically delightful shopping experience, assurance of quality, trust and credibility, and a smooth post-purchase experience.
Availability, convenience and value for money were the strongest drivers for purchase in 2020, according to a McKinsey study on consumer behavior shifts. Therefore, for D2C brand owners, the challenge is not to offer the lowest pricing point but also to learn and meet the other criteria.
4. The demand for products is ever evolving and erratic
Customers’ needs are driven by market trends that tend to fluctuate frequently. The ongoing pandemic is proof that brands need to adapt to seasonal trends and situations, because these result in a change in demand for most products. For instance, the shopping intent for essentials like toiletries and sanitizers peaked like never before in 2020. While the other industries saw a slowdown, the high demand for these products choked supply chains. When possible, businesses should be able to predict these changes in time to adjust to the demand.
5. The loyalty of consumer is hard to win over
One 2017 study found that millennials are the most experimental consumers and are very willing to give newer brands a chance. With an endless array of options now available, customers are naturally going to be inclined toward more than just one brand in a particular category. This makes it exceedingly hard for any one brand to win their loyalty. The similar strategies that most brands use to entice online shoppers make this even harder.
The way forward is data, not guesswork
The only way to combat competition is to bulletproof yourself with data. E-commerce businesses need to continually gather, analyze and put their data to work. The following five strategies can help.
1. Get to know your customers better
Data can help you find answers to questions so you have to don’t rely on guesswork to know who you’re talking to and how you can get them to buy from you. Data can help you figure out where your customers prefer interacting with your brand and store, the device they use to browse your store, what their demographic attributes are, their purchase behavior and their motivations, among many other data points.
When you understand your customers better, you can create consumer segments. With consumer segments in place, you ensure better personalization. For example, let’s say that you notice that a major segment of first-time customers doesn’t return to your store. To systematically win them over, you can target this customer segment with exclusive and irresistible deals periodically during their inactivity.
2. Understand which marketing channels work
Analyzing your web analytics can help you discover the channels that are working well in driving traffic to your store, as well as identifying those that are not performing well. Once you have this information, you can use it to optimize your marketing spend so you allot the maximum budget to the best performing channels. You can also work out a plan to strategically improve the ROI on other channels.
For example, if your analytics data tells you that a large percentage of your web traffic comes from organic search, you can polish your SEO strategy to rank better for relevant keywords and improve the traffic you bring in.
3. Figure out the performance of your products
Product performance analytics help you understand trends and patterns in your products’ demand — and also predict it. This not only helps you plan your inventory and marketing activities better for hot-selling items but also for cold ones, so you can decide in advance how to clear your stocked-up shelves. Product data also helps predict consumer demand and map the changes there may be in current product consumption.
4. A/B test pricing, discounts and other charges
Instead of blindly trying to beat your competitor over every pricing point, it’s wiser to A/B test your pricing strategies and figure out what works best for your target audience and drives the most amount of sales.
For example, if your data shows you that your checkout page has a dangerously high bounce rate, you will want to analyze it further. Perhaps you deduce that shipping charges getting added at the very last step is causing people to drop off. In this case, you can devise an A/B test, and if your hypothesis proves to be right, you can change the interaction and be confident of improvement.
5. Boost customer loyalty
Once you have created smart customer segments and identified your high-value customers, you can target them specifically with a loyalty and rewards program so you can steadily win over their trust to drive repeat purchases. Repeat customers spend more on your products, so identifying customers who are more likely to join your loyalty program is the first step (and it circles back to customer segments).
Leverage data to unlock potential
With the relentless competition that is only predicted to rise in the future, your best bet would be to turn inward and leverage your own data to best understand the market and your customers so you can confidently fuel growth. By piggybacking on data that tells you what works best for your target audience, you can unlock limitless growth opportunities that are lurking in plain sight, or even identify a new one.
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