Reframing a direct-to-consumer business model for a B2B/B2B2C enterprise will uncover customer growth and loyalty.

Brands engage directly with your customers, no matter who they are or what your business is. Through social media and Ecommerce, everyone from buyers at enterprises to end consumers see direct channels as table stakes. So, how are you directly engaging with your customers to transform and grow your business? And if you still haven’t gone direct, there’s no day but today. Here’s why.

Direct-to-consumer (DTC) businesses have disrupted many legacy business models. For example, Lemonade took on the insurance business, a high-margin industry, armed with intermediary agents and salespeople, and took it directly, without the dependency on channel partners. And they were welcomed on Wall Street with a stellar IPO. Even more impressive is how they figured out a way to make SEO work for them with a brand name like Lemonade.

With new players coming up fast, even in commercial industries, like energy and manufacturing, legacy businesses need to understand the challenges of DTC brands (which I have covered in previous pieces here and here). Then, they need to look to apply a DTC model to a highly scaled, operationally savvy business. Applying DTC principles and tactics to your business might be the secret sauce you’ve been looking for in transformative growth.

Here’s why B2B companies need to embrace a DTC model. 

Your customers are consumers, too

With the massive growth and adoption of digital-native companies like Amazon, Uber and DoorDash, the expectations around customer experience have shifted. Ease of use, transparency, high accessibility and availability are part of the digital customer experience. So why would the same person who tracks their dinner delivery en route, not have the same expectation of transparency and updates with critical business transactions?

Innovate or die, but at least go down fighting 

In the very near future, the next generation of DTC businesses will reach a level of growth and maturity because they’ll have out-innovated incumbent companies. They will catch up on brand portfolio management, optimization of the distribution and operational scale and strategic inorganic growth. These new entrants will be positioned where long-standing companies will no longer have much leverage to compete.

However, there is still a window of opportunity for incumbents to act; but, fast innovation must be the mandate. There aren’t any fancy tricks in innovation, but embracing a design-thinking and strategic-testing gut will be necessary to turn a big ship. How much are you investing in innovation? What criteria are you using to consider companies to watch, partner with, invest in or buy?

Help me help you 

The common concern we hear with B2B and B2B2C companies is the fear that going direct will cannibalize channel business and hurt long-standing, trusted sales partnerships. However, if done right, owning and bolstering your direct channels should actually improve the overall brand experience, which helps your sales and retail. Applying a DTC mindset doesn’t require launching a direct commerce business. It does require the utilization of DTC business tactics in customer acquisition, performance marketing, branding, communication, customer service, etc.

“If done right, owning and bolstering your direct channels should actually improve the overall brand experience, which helps your sales and retail.”

At the end of the long day, the brand experience is on you. Customers place the burden of the brand—to deliver, to live up to the brand promise—on the brand itself, and not on intermediaries. Foregoing direct channels allows your channel partners to own conversations with your customers. A DTC model helps diffuse that dependence and rewards you with the customer data that can identify essential behaviors. Once you have these customer insights, you must create an environment where partners can learn from your data and further strengthen the partner relationships.

Speaking of first-party data…

Ain’t no party like a first-party data, ‘cause a first-party data is first.

One of the biggest benefits of going direct is owning, controlling and learning from direct customer data. The learning is key. The immediacy of readily available data is key. Customer insights to be applied, tested…rinse and repeat. It equips you to expedite learnings by shortening the feedback loop, to observe and listen to your customers, and to raise critical business decisions, faster and earlier. Annual customer insight reports are interesting, but oftentimes it’s too late. It reports history. You want your data to work for you to inform your next steps. A DTC mindset means looking at your data daily, even hourly, in performance-based operational models.

The DTC Trifecta – Content, Community and Commerce

The undeniable power in direct-to-consumer is when you have the winning combination of content, community and commerce in a beautiful orchestration. Being a great storyteller to a devoted brand tribe will deliver on customer loyalty. The DTC Trifecta is the goal, and building each muscle does not require all three to be there to start. Don’t have direct commerce, don’t think you ever will? Then build your content and community. Don’t have a dedicated brand tribe or community yet? Then build your content to attract an audience so you can nurture and grow a community.

There may never be a better time for incumbent companies to prioritize DTC, even for just a single product line. Pandemic disruptions to retail channels and supply chains mean people are more open to new ways of buying everything— from potato chips to manufacturing equipment. However, it’s not just about launching a new brand with a sans-serif modern logo using an outdated DTC playbook.

Going direct-to-consumer is hard. It requires a new mindset that embraces a performance-based approach. Many digital natives are experiencing challenges to reach that next level of growth. And the scale and operational rigor that incumbents can bring might be the combination to unlock that next level of DTC magic. Let’s break down how to achieve the next level in the DTC ecosystem.

DTC Through the Lens of the Pandemic

There’s no arguing that these are dark times for many direct-to-consumer businesses, especially for some formerly high-flying digital natives. But while the era of the DTC unicorn and massive acquisitions may have hit some roadblocks, more significant changes to the marketplace are underway. Despite the pandemic-induced decrease in consumer spending, those digital natives with the strongest communities, such as Peloton and thredUp, are thriving and among the top DTC brands. And many legacy companies, especially those in the CPG and B2B arenas, are adding DTC lines. Companies like Pepsi and Ocean Spray are going direct not just to recoup revenues lost to COVID-19 disruptions, but also to gain vital insights that inform the rest of their business strategies.

“These companies are learning that the direct channel is a game-changer that deepens customer relationships.”

These companies are learning that the direct channel is a game-changer that deepens customer relationships. It’s not just about digital channels and sales, but about cultivating meaningful engagement through DTC branding and marketing. By building communities with relevant content, help and services, customers interact with them again and again. And with the data these companies glean from DTC channels and transactions, they’re finding ways to innovate throughout the entire enterprise. The benefits of real-time access to direct consumer data and communications just weren’t achievable before with traditional B2C and B2B models.

Digital Native Growing Pains

But first, it’s worth taking a close look at why so many of the DTC companies are struggling. Even before the pandemic, the DTC market was shaky. The cost of customer acquisition had been increasing at staggering rates. DTC marketing on social media in a diluted digital marketplace was less effective, so brands began leveraging physical and traditional platforms such as billboards and subway stations. And in growth-at-all-costs mode, many rushed into physical retail, either with their own storefronts or pop-ups with retail partners.

For many, the goal wasn’t near-term profits, but a near-term exit. And that worked for some, including Unilever’s $1 billion deal for Dollar Shave Club in 2016 and Amazon’s $1 billion purchase of Ring in 2018. But megadeals in recent times have been scarce.

Others hoped to cash in by going public. But the harsh reality is that Wall Street measures financial health differently than venture capitalists, with well-known DTC brands like Blue Apron and Casper struggling after initial public offerings. Others, including Airbnb, have delayed IPO filings.

And then there’s the bad behavior. Toxic leadership at places like Uber, WeWork and Away was a problem before the pandemic. But the worldwide crisis is shining a bright light on how businesses treat employees. Against the backdrop of illness, layoffs and widespread suffering, that kind of toxicity is especially damaging.

These visible meltdowns of a few call the organizational performance of the entire category into question. Once revered within DTC circles, Brandless’ demise and Outdoor Voices’ shakeup are sending strong reality checks to the venture capital funds supporting them. And the sharp downturn in consumer spending has sparked massive furloughs at top brands like Everlane, ThirdLove and Rent the Runway.

Refining DTC Acquisition Efforts

Some companies will come through this period stronger than ever, and this upheaval is creating many opportunities. Lululemon’s recent $500 million acquisition of Mirror proves that there are still deals to be made when the fit is right. For private equity and investment organizations, this may be an excellent time for acquiring undervalued DTC assets and putting cash behind those that have a differentiated offering and deep customer engagement.

For digital natives, it’s time to hit the “refresh” button. Top DTC brands should focus on optimizing organizational operations for sustainable growth, building with profitability controls. Painful as they are, furloughs can offer breathing room for companies to reset priorities for growth in this recovering market.

And it’s crucial to rethink customer acquisition. Before 2020, the focus had been on getting as many customers as possible at all costs. Now, it’s time to refine acquisition efforts with a retention and profitability filter. There is no standard DTC acquisition playbook. It’s taking a next-generation performance-based mindset of quality over quantity, anchored with a relentless focus and patience on customer value.

Even before the pandemic, chief marketing officers had been navigating a complex and shifting digital landscape. And due to COVID-19, according to Gartner 76 percent of marketing leaders expect to be working with drastically reduced budgets. While some may view that as a doom-and-gloom scenario, we see it as an opportunity.

The CMO role is more important than ever, playing an essential part in guiding companies as they respond, reignite and reimagine themselves in a post-pandemic world. Here are four shifts we see as urgent priorities for CMOs today:

1. Accelerate Digital Transformation

Marketing leaders have long known, of course, that customers are shifting to digital across the entire journey. But the resiliency and dexterity shown during stay-at-home orders provide dazzling proof that customers are ready for much more than they’ve been given credit for.

The current disruptions in all parts of the value chain create breakthrough opportunities for digital to drive success in marketing and customer experience. They can stoke demand, build relationships, optimize customer data and predict channel shifts.

Yet many digital transformation efforts leave CMOs outside of the decision-making circle. The upcoming State of Digital Transformation report from our Altimeter research team finds that CMOs only “own” 4% of digital transformation efforts. CMOs can play a greater role by supporting the corporate digital transformation agenda in any manner they can.

2. Continuously Fuel and Feed Customer Insights

To determine how to win, CMOs need to understand their customers’ needs–and accept that much of what they used to know is no longer true. Continue to collect and use customer data to augment existing market research, address market uncertainties and go one step further to create an insights engine. Look for new ways to capture more information on how customers and intermediaries are feeling and behaving. That intelligence will add value not only in marketing but through the entire enterprise.

Nike is a powerful example. While it built its reputation with great products and relevant marketing, business growth is powered by digital insights that it embeds into every part of the company. Its Nike Direct division hasn’t just fueled sales. It provides data on fast-changing tastes and preferences, informing decisions in everything from innovation strategy to product design to community building. And it’s led to breakthroughs like the Nike Fit app and the 30-day wear test.

3. Build at Two Speeds

To succeed, CMOs need to throw themselves into two-speed thinking. First, they must adapt and innovate marketing and sales to meet the short-term realities of business in this radically disrupted environment, while also planning for things that drive return in the long run like purpose and customer experience. The second speed requires reimagining different scenarios and which bets will be successful. Armed with customer insights and investments in digital, it can be done.

“Even as the world waits for a “new normal” to emerge, reinventing marketing for immediate challenges looks different for each company.”

Even as the world waits for a “new normal” to emerge, reinventing marketing for immediate challenges looks different for each company. According to our State of Digital Transformation research, the majority–64%–of companies say revenue has fallen since the pandemic began. And for 15% overall, the drop is significant. For these companies, marketing is all about restarting the engines. But a lucky 17% have seen revenues increase. And while that’s nice for now, they face short-term challenges in retaining those new customers.

Starbucks has been perfecting the art of operating at two speeds. Short-term, it is taking advantage of its mobile app and loyal base to keep relationships and drive growth. For the longer term, the company is revising the experience for both customers and employees, investing in new drive-through stores, pick-up windows and better machines. All will allow Starbucks to continue to increase and meet demand.

4. Re-Define and Re-Execute your Brand Purpose

Purpose, a brand’s reason-for-being, means so much more today, as consumers demand better corporate behavior. They want to buy from ethical companies that are trying to do the right thing. They expect businesses to be empathic, responsible employers–and recent events have shown us they are willing to walk away from brands that mistreat people. And while they’ll forgive many missteps, they expect transparency.

Amazon, for example, has come under shareholder and employee fire for its refusal to disclose how many workers have contracted COVID-19. In response, the company went beyond mere words, committing an astonishing $4 billion–about a quarter of its annual profits–to make Amazon workers safer and fulfill its mission.

“Providing for customers and protecting employees as this crisis continues for more months is going to take skill, humility, invention and money,” founder and CEO Jeff Bezos says in its statement. “If you’re a shareowner in Amazon, you may want to take a seat, because we’re not thinking small.”

It’s not enough to be trust-worthy. Consumers expect companies to make an impact on society. They want assurances that the brands they buy are protecting people’s health and the environment. And they want to see them promoting social change, such as addressing racial bias. Procter & Gamble, for example, had already established itself as an outspoken advocate for social justice. As a result of recent protests, it stepped up its commitment with a $5 million pledge and compelling new content in its “Take On Race” challenge.

Building a New Action Plan

To act on these new priorities, recalibrate marketing plans. Accept that these are no longer annual documents, but works-in-progress to review monthly, if not weekly.

Make sure plans…

• Get ahead of budget cuts. Do more with less, re-evaluate marketing ROIs, setting up more frequent reviews to challenge assumptions.

But more importantly…

• Show marketing as a value creator. How can marketing contribute to the organization versus being seen as a cost center? How can it use brand purpose to increase relevance?
• Create or recalibrate a continuous customer insights engine, to understand shifting customer needs. How and when should the CMO initiate new market pulsing?
• Ensure the production of intelligent content, relevant to the moment, contextualized for the consumer.
• Make sure operating models can execute data-driven test-and-learn efforts.
• Audit the marketing technology stack to make sure the best moves are automated.