The process of selling products is changing, and it’s changing quickly.
In the words of Microsoft CEO Satya Nadella, “we’ve seen two years’ worth of digital transformation in two months”, and it has had a significant impact on how businesses sell products. Even as countries ease COVID-19 related restrictions, online shopping remains dominant. This trend will continue as convenience and personalisation remain key value drivers for consumers.
While retail was already shifting towards digital channels pre-pandemic, the COVID-19 pandemic quickly accelerated the migration from brick and mortar businesses to eCommerce. UNCTAD found that the eCommerce sector saw a dramatic rise in its share of retail sales, from 16 to 19 per cent in 2020.
For businesses to survive in this new, digital world, they must consider their offering to their customers and adapt it according to their changing needs. This is where direct-to-consumer comes into play.
The rise of direct-to-consumer
Direct-to-consumer sales refer to the sale of products directly to consumers where no third-party retailers are in the supply chain. DTC brands are typically found online and are usually specialised in their offering.
An increasing number of brands are embracing direct-to-consumer (DTC) selling for several reasons. DTC can help brands gain an insight into consumer needs, shape the customer experience, and increase sales. Many companies have launched DTC programs to attract customers wanting products shipped directly to their door.
Innovative companies such as L’Oréal are pivoting towards direct-to-consumer business models. In response, their competitors are starting to follow suit in an effort to increase sales. L’Oréal’s Global Vice President, Guive Balooch, explained that “everything we do now is about DTC”. The brand expects 50% of its sales to come from online channels by 2050.
How has the pandemic influenced the sale of products?
DTC gained significant momentum as a result of the COVID-19 pandemic. When the virus spread forced many businesses to close, companies had to reconsider their distribution options amid the unprecedented disruption. Digital sales channels skyrocketed in popularity as millions were confined to their homes for long periods of time.
Amazon Business proved particularly popular. We found that search demand for Amazon Business, which “paves the way for you to transform your company through B2B e-commerce”, has grown by 17% year on year. Through Amazon Business, brands could sell their products online in a simple, competitive, and flexible way. Additionally, they could reach more consumers than ever in Amazon’s growing customer base. The sweeping closures of department stores show the power of eCommerce companies such as Amazon.
The death of the department store
In the United States, the retail landscape is changing dramatically as consumers increasingly migrate to eCommerce stores. While the department store used to be the ultimate American shopping experience, Green Street Advisors are forecasting that more than half of department stores in American malls will close permanently by the end of 2021.
Brick and mortar stores are being replaced by eCommerce stores that are convenient and more personalised to the consumer. Mark Cohen, director of retail studies at Columbia Business School and former chief executive of Sears Canada, explained that department stores “have too many stores, too many things, too many brands” and that customers are “no longer tethered [to the department store] because they have an online alternative”. As a result, department stores are either ceasing trading completely or shutting down stores to minimise financial damage.
Commentators are not feeling optimistic about the future of department stores. The majority acknowledges the power of DTC online businesses that are taking retail by storm. As we move through 2021, we may well see more closures of department stores as consumers migrate to eCommerce.
DTC and the pet care sector
One sector has taken a particular interest in direct-to-consumer eCommerce: pet care. The pandemic led to a surge in demand for pets of all kinds. For example, 3.2 million pets were purchased during lockdown. Not only are people buying more pets, but they’re also spending more money on pet care products. Pet owners are focusing more attention on their animals’ health and increasingly seek niche, personalised products. In their hunt for specialised products, consumers are increasingly buying pet care products online. The global pet care market size was approximately USD 179.4 billion in 2020 and is expected to grow to USD 255.4 billion by 2027.
The growing interest in the pet care market has led to several acquisitions in the sector, onefourzero recently assisted private equity firm Cinven in their acquisition of the pet care retail chain Acraplanet. Cinven and Arcaplanet will jointly acquire Maxi Zoo Italia, the third-largest pet care operator in the Italian market, as part of the transaction. The combination of Arcaplanet and Maxi Zoo Italia creates one of the leading pet care platforms in Italy. At present, the company sells food and non-food products in stores across Italy and online. About the acquisition, Maxim Crewe, Partner and Head of Consumer and Cinven, said: “Cinven has considerable experience in omnichannel retailing and accelerating digital strategies, and we look forward to supporting the Arcaplanet Group’s expansion in these areas.”
To assist Cinven, onefourzero conducted digital landscape mapping in Italy and other European markets and evaluated marketing efficiency and pricing versus competitors. This work allowed us to conduct digital commercial modelling to identify potentially lucrative market areas for future investment. You can learn more about the acquisition here.
What does the future hold for DTC?
As DTC moves into the mainstream, brands will need to differentiate themselves from their competitors. They will need to deliver experiences to consumers’ doors, not just products. Because DTC revolves around one-off shipments to consumers, brands will need to keep sustainability in mind. A key consideration over the next few years will be around packaging. For example, how brands can improve the experience for customers who are more conscious of their effect on the environment?
How is the B2B space changing?
Traditionally B2B products, such as SaaS accounting software, have been undergoing significant change over the last few years. The trend towards cutting out the middleman is very much alive and kicking in this sector. While accounting software was traditionally used by accounting firms to aid their clients, companies such as Xero and QuickBooks are increasingly appealing to small businesses directly. Small businesses are seeing the benefits of cutting out the middleman. They are increasingly choosing to pay for subscriptions to SaaS accounting companies and are managing their finances without an accountant.
We found that between June 2020 and May 2021, search demand for accounting software for small businesses has risen by 13% year on year. This suggests that this is a growing market which accounting software brands can exploit.
We’ve explored the evolution of two of the leading accounting software brands from embracing the middleman to appealing directly to small businesses.
In an interview in 2017, the CEO and Founder of Xero, Rod Drury, explained the company’s value proposition with accountancy firms and small businesses. He revealed that, at that time, the company had between 20,000 and 30,000 accounting firms and over 100,000 accounting professionals using Xero. Drury explained that Xero is turning “accountants into business coaches that are working with small businesses” as many of the tasks accountants gave way to automation.
Since 2017, their strategy appears to have shifted. Their marketing strategy appears more geared towards small businesses than accounting firms. Their website appeals to small business owners directly, stating that Xero offers “all you need to get your business into shape”. What started as an SaaS accounting platform used by tech-savvy accountants has evolved into a small business platform. Pivotally, it has the potential to cut out the accountant middleman.
A similar trend is occurring with QuickBooks, accounting software created by the American financial software business Intuit. It is clear that targeting small businesses is a strategy they are actively pursuing. We investigated how QuickBooks have changed their approach, and how consumers are interacting with the brand.
Over the last year, 3% of the organic website traffic from the search term “accounting software for small business” went to Quickbooks’ website, but for paid traffic, this number was as high as 19% – it was 12% from Jun 2019-May 2020. This is evidence that Quickbooks is effectively using an SEO strategy to drive traffic to their website.
DTC is set to dominate
On a broader level, online search demand for B2C and DTC related topics in the United States are growing at a higher rate than B2B related topics, exhibiting 31% and 44% growth in the last year, respectively, compared to 16% for B2B. As a proportion of the overall market, direct-to-customer sales are likely to increase compared to B2B. Evidently, many brands across a range of sectors are seeing the benefits of migrating to new business models to sell their products.
This article features multi-source, triangulated data insights generated by onefourzero’s expert consultants. To learn more about how we can assist your business by providing data with commercial value please click here.