Published 18 November 2021 - ID G00741494 - 21 min read
By Analyst(s): Jason Daigler, Michelle Duerst
Initiatives: Digital Commerce and CRM Sales Technologies
Incubated by the pandemic and the need to develop relationships with end customers, many brands are pursuing direct to consumer digital commerce. Application leaders must be able to assess their current capabilities and develop a roadmap for future success, mitigating risks along the way.
Application leaders responsible for digital commerce should:
Digital commerce, or e-commerce, is a mature discipline but one that is constantly evolving. Companies have been selling online since the 1990s and the applications used to sell products and services online have matured into SaaS-based solutions that are often maintained by business users with minimal intervention from development resources. Despite this maturity, many companies have shied away from selling directly to consumers, preferring instead to sell through retailers, distributors or other channel partners.
Especially during the early days of the pandemic, many brands were forced to rethink their strategies. CPG companies were the simplest example of this trend. When retail chains were forced to close and consumer shopping behaviors changed, CPG companies had to find alternative routes to market. Not only were these channels the lifeblood of many companies during the pandemic, but they also remained in place after stores reopened.
When companies choose to sell to end customers, they have many channel options. Broadly speaking, these channels fall into two buckets:
Although there are many channels available to reach end customers and many applications to facilitate digital sales, many companies, rightfully, are cautious about moving quickly into D2C digital commerce. Ultimately, D2C represents a new type of relationship with customers — one where a company is no longer just a manufacturer of a product, but now is responsible for optimizing the customer buying experience. This cannot and should not be taken lightly, as missteps can have long-lasting implications on customer loyalty and relationships. Avoiding those missteps and executing well can be highly beneficial for improved customer engagement and retention, or business transformation. In addition to avoiding “middle men” who typically consume a percentage of the sale, companies selling direct to consumers can develop long-term relationships with consumers and build loyalty.
This Strategic Roadmap is designed to help companies make the right strategic decisions and technology investments in the near term, while planning for future initiatives.
The future state of digital commerce includes a mix of strategies and technologies that some companies are already using today, coupled with some strategies that are nascent and not yet fully supported by technology vendors.
Brands (or manufacturers) will offer robust, feature-rich D2C digital commerce sites where customers can purchase a variety of products, often with subscription capabilities. These subscription capabilities will offer additional value for consumers that often cannot be achieved through indirect channel partners. For online sellers, subscriptions will generate recurring revenue streams and increased ability to connect with customers on a more regular cadence. Successful commerce sites will ultimately adopt the principles of commerce to you (C2U), where companies establish trust, focus on outcomes, act continuously and are anticipatory.
Selling directly to consumers through owned e-commerce sites and selling through indirect channels such as marketplaces are not mutually exclusive. Successful companies will adopt a mix of channels. However, they will likely not offer all their available SKUs on all channels, and instead will adopt a curated product mix based on how commoditized a specific product is, relative to other product offerings on the channel. In addition to existing broad marketplaces such as Amazon and Alibaba, companies are continually introducing vertically-specific marketplaces. Gartner client interest in marketplace strategies and technologies has grown consistently since 2019 and most of the marketplaces in progress are not Amazon competitors — they are, instead, specific to individual verticals. Online sellers must also consider these new marketplaces and continually evaluate where their prospective shoppers are spending their time online, so they can decide where to list products.
Indirect channels will continue to be an important component of digital commerce for most companies. But companies will optimize their product listings in those channels by adopting a closed loop product content life cycle. This means they will send enhanced product content, measure its performance through digital shelf analytics (DSA), continually make changes to the content, and resyndicate to the indirect channels. Ultimately, more marketplaces and retailers will add advertising networks as native components of their digital commerce sites, and ad buys will also be part of the process. Gartner expects to see consolidation of the individual functional components listed below, either through merger and acquisition or by vendors developing new offerings.
A Simple Product Content Life Cycle:
GDSN = Global Data Synchronisation Network; GSIN = Global Shipment Identification Number
Selling online, regardless of the number of channels, will present companies with ever-expanding sets of data about products, customers and ordering preferences. Combining data from several different channels will allow companies to create comprehensive strategies and action plans for product development, sales tactics and ongoing commerce optimization. In an optimized future state, companies will leverage AI to derive insights from several different data sources, such as:
Tools for combining these data sources are nascent today, and this capability is often performed in agnostic tools such as Salesforce Tableau or Microsoft Power BI. But fit-for-purpose analytics tools or accelerators will emerge to optimize the insight generated from these data sources. Vendors that specialize in the areas listed above will also develop better integrations with each other and a better understanding of the data gathered in each channel.
In the future, companies will drastically expand their geographic reach, either through better third-party logistic (3PL) partnerships or by outsourcing their digital commerce efforts to companies that enable cross-border digital commerce services. Sellers can also take advantage of multisite and localization functionality within their digital commerce platforms for creating individual country-specific commerce sites.
Pursuing only indirect sales channels results in a lack of future growth potential. Yet many companies today only sell through distributors, retailers or a limited set of online marketplaces such as Amazon. There may be very good reasons for this limited approach, including product characteristics, the level of commoditization for a product, or a lack of skills and/or processes to handle D2C commerce. Many companies are simply not structured in a way to handle individual transactions and the complexities they present such as:
On the technology front, many of these companies have not pursued digital commerce and instead only offer content-based websites offering product information, but no ability to purchase.
When companies pursue sales on indirect channels today, they often do so in a manual or rudimentary fashion. They often syndicate product information through product feeds, either by sending them manually or using a product feed application. Additionally, the feedback they get from the channels they syndicate to is often binary — either the feed or the individual attributes were sufficient and accepted, or insufficient and rejected. These feeds are not optimized for product findability and purchasing on the online channel. When sellers seek to understand how they’re performing in the indirect channels where their products are listed, they are often either only looking at order reports, or they are checking the sites manually to ensure the product listings are accurate. Digital shelf analytics (DSA) applications are typically not in place when companies begin selling on indirect channels. If sellers are manually checking sites to check images, prices, inventory, etc., they are often recording their findings in solutions that are not purpose built to generate insights and take action. Additionally, many organizations lack a product information management (PIM) system today, or the PIM system is poorly implemented or underutilized, which leads to the distribution of inaccurate product data.
The lack of D2C digital commerce means a lack of true customer relationships. Companies that sell through marketplaces and retailers are typically forced to play by their rules, and their rules dictate that they own the customer relationship. This means sellers are reliant on their partnerships with these companies for customer feedback and product feedback. Additionally, sellers typically have very limited abilities to market directly to customers and develop an ongoing relationship with them.
Companies often choose to start selling online in their home geography, or nearby regions, only. This makes sense when getting started, due to the complexities in digital commerce technology, operations, shipping and logistics, but obviously limits the total addressable market for a product.
The gap between the current and future states of D2C digital commerce is wide for many companies, especially for those that have not made any sort of investment in digital presences. Even for those with online presences that might even have some digital commerce capabilities, there is still a gap. This gap has the potential to widen even for mature companies as channels proliferate, new technologies emerge and customer expectations change. Regardless of maturity, the portfolio of solutions required to deliver superior customer experiences in digital commerce is vast, especially when determining the right mix of technology to use for direct channel sales.
The sources of current- and future-state disconnect are as follows:
Many brands and manufacturers receive pressure from their retail or distribution partners to avoid D2C efforts. For many companies, this pressure has reduced over the last several years, as the D2C trend has become more popular. For multichannel retailers, for example, more and more of the brands they sell have developed D2C presences, so it’s difficult for them to realistically pressure the remaining brands to avoid D2C. Additionally, many companies used the pandemic as a way to navigate around these pressures, stating that they had no choice but to pursue D2C efforts when retailer stores were closed.
Many companies lack the expertise and resources required for operational and strategic aspects of end-to-end digital commerce. Many manufacturers lack merchandising capabilities and performance marketing skills and mindsets. Customer service or ongoing customer engagement processes are also often inadequate. If they do exist, they are often geared toward answering product questions in relation to sales that happen through channel partners. But they lack resources who are prepared to help with questions about online transactions — questions about order status, refunds, shipping options, returns, etc.
In many organizations, the teams that focus on specific channels are siloed. For example, one team will manage a specific relationship with a retailer, another team will manage the content-only website, and yet another team will manage the product feeds that are sent to Amazon. These teams will often not share data and coordinate their efforts. This is exacerbated in larger CPG companies that have separate teams for each brand, often due to acquisitions over time.
For companies that sell on indirect channels today, their manual processes often limit their ability to optimize product listings. Even if they have deployed a PIM, channel integration application and DSA application (most have not deployed all three), the three solutions are typically disconnected. When the DSA application generates insights, there is no automatic alert or link to the PIM system enabling product data or listings to be updated, resyndicated and rechecked.
Despite the emergence of multitenant SaaS digital commerce platforms such as Shopify, BigCommerce, VTEX and Shopware, which make it very easy for brands to sell online, many have not yet deployed such solutions for D2C digital commerce. This lack of a D2C commerce site causes customers to instead use retail sites or marketplaces, which are not owned by the brand.
Migration from the current state to the future state will vary depending on the maturity of the organization and the current technology in place. The size of the organization and the number of brands and products will also play a role in determining the specific migration plan.
This section outlines the actions needed. Application leaders should use this as guidance to create their own roadmap of the most critical actions and priorities required to meet their organizational needs. Revisit your strategy regularly to recalibrate and adjust for changing channels and evolving technology.
Timeline indicates when to begin.
In addition to understanding which products to sell online, consider which products should have additional personalization. Product personalization can provide greater insight to the consumer, but can also determine future products to be sold in mass production.
Identify what type of information to show to customers. This not only includes what is legally required, but what will show shared values with a “value-driven” consumer. This could include traceability and sustainability from the initial source to how the company treats suppliers, employees and the environment.
As stated above, subscriptions can be a key differentiator for direct channels. Brands and manufacturers pursuing D2C should also determine which products are a good fit for subscription offerings by analyzing data around order frequency, pricing and product switching frequency by customers.
“Build it and they will come” attitudes toward digital commerce will result in failed projects. Instead, organizations should develop a cohesive digital commerce strategy and ultimately decide what they’re really trying to optimize. Is digital commerce meant to generate a new revenue stream, create a relationship with customers, or generate customer and product feedback? Even if the answer is “all of the above,” it’s important to determine what success looks like before beginning. Remember that the KPIs and customer experience strategies for direct and indirect channels will need to be unique. While designing the customer experience is possible on direct channels, indirect channels may not offer this ability. Similarly, direct channels will offer more opportunities for engaging with customers and gathering feedback. At the same time, indirect channels do not require participants to determine the right architecture, nor do organizations need to build as much to sell in indirect channels.
As mentioned above, some companies that historically sold through retailers and distributors are cautious about digital commerce because they are pressured by their channel partners to avoid such a strategy. While this pressure has diminished, especially during the pandemic, for many organizations conversations with channel partners can still be contentious. In some cases, organizations may determine that the conversations are so contentious that heavy investment in D2C digital commerce is not possible. However, this doesn’t mean that there shouldn’t be any D2C digital commerce efforts, and there might be opportunities to offer D2C digital commerce that benefits everyone. For example, some manufacturers choose to route orders through distributors when selling directly. In these cases, the manufacturer still owns the customer relationship and reaps several benefits of D2C, such as the ability to control product information on its commerce sites. The distributor still manages the transactions and benefits from potentially increased orders. It will be important for brands and manufacturers pursuing D2C digital commerce to find ways to articulate the value of their D2C plans to their channel partners. For example, D2C digital commerce can generate better market insights and more tightly focused new product introductions to retail channels (because the products have already been “road-tested” on D2C channels). These aspects of D2C will ultimately benefit the retail and distribution partners.
In a B2C retail context, companies pursuing D2C digital commerce could consider “Where to Buy” solutions to route orders to retail partners (vendors such as PriceSpider, ChannelAdvisor and SmartCommerce have applications specifically designed for this purpose).
Although it is not the focus of this note, many organizations need to adjust their supply chain to accommodate D2C digital commerce, as they are currently only set up for bulk orders where they ship large amounts of products to business buyers.
Launching a D2C digital commerce site is significantly easier than it was five years ago. The growth of multitenant SaaS digital commerce platforms have not only made the process easier, but they have also empowered business users to launch and maintain commerce sites.
If executed correctly, a digital commerce site will be a highly beneficial form of D2C digital commerce — not only in terms of revenue, but also in terms of controlling product information and other benefits mentioned above, such as gathering customer information and developing relationships with customers. Launching a digital commerce site should be the highest priority for organizations pursuing D2C strategies. But they must also consider the long-term roadmap for their sites, knowing that they will likely not be able to rely on only one vendor forever. Companies must consider the entire ecosystem of digital commerce applications and make a conscious decision about which applications they will pursue initially, which they will add to their roadmap, and which they will choose not to pursue.
Digital commerce is typically not accomplished via a single channel. Instead, it’s important for companies to consider many channels to most effectively serve their customers. The number of channels available to consumers has proliferated in recent years, with new social networks, retail channels, vertically-specific marketplaces, and more. Developing a presence in every channel is not feasible, even for the largest companies with the most resources. Instead, companies pursuing D2C digital commerce should evaluate each channel to determine if their customers would value a digital commerce offering and then test the channel with a limited number of products.
Additionally, companies should develop channel readiness plans, in which they determine when they will invest in specific channels. For example, a company may decide not to pursue sales on TikTok, or another social network, today because its customers are not using the channel or the channel does not offer the functionality it needs to link back to its digital commerce site. Avoiding a channel in the short term is fine. But companies should have a specific plan in mind for what to do if their customers suddenly flock to a channel, or if the functionality on the channel changes to offer digital commerce in a manner that aligns with what their customers ultimately want.
Experimenting with sales in various channels, especially online marketplaces, can be done with minimal investment. Because the infrastructure and operations are managed by the marketplace operator, companies can easily try sales on existing marketplaces or social channels, even if they do so through manually listing products and checking the sites for orders. This is an advisable strategy for determining the value of a channel before increasing investment in channel integration, order management or DSA.
For channels that are long-term strategic investments, manual processes will eventually become insufficient. Instead, companies should invest in more robust product experience management (PXM) solutions, which represent an evolution beyond traditional PIM systems. PXM capabilities include automated rich content creation using natural language generation, AI-assisted rich content optimization and channel behavioral data, and DSA.
At the heart of the product content life cycle is product data. It is critically important to ensure the accuracy of product data in this phase, as the product data will quickly be available to, and used, in many different channels. Antiquated processes like using spreadsheets will need to evolve into more holistic processes leveraging product life cycle management (PLM) systems. PLM systems act as a system of record for product master data in product specifications, with plant-specific bill of materials. PXM/PIM systems reference this product data from the PLM system.
Within PXM solutions, companies will leverage capabilities for channel integration and DSA to form a “closed loop,” whereby they gather product insights, make changes to product data, resyndicate to indirect channels, and recheck insights to ensure their changes were successful. Companies will also leverage digital asset management (DAM) solutions for enhanced product content and order management system (OMS) capabilities for managing orders that are placed on indirect channels. They may also publish product data to data pools such as GS1. Importantly, individual, disconnected applications for each of the aforementioned areas — even if they are robust applications — will limit the ability of organizations to optimize their product listings on indirect channels (also known as their digital shelves).
In the future, data generated from PXM components will be combined with data from digital commerce platforms, POS data from physical stores and other sources to optimize performance in every channel. This rarely happens today, and if it does, it happens through manual export and import processes. But application leaders should prepare for more robust vendor tools in this area and consider all their indirect and direct channels that could provide valuable product data.
While it is logistically easier to sell into local geographies, due to proximity to warehouses and distribution centers, companies should pursue other geographies where there is demand for their products. Selling products on existing regional marketplaces is a simple, lower-risk way to gauge demand and set up shipping and logistic processes. The next step is to create D2C digital commerce sites that are localized for individual countries. Both of these steps can be outsourced to companies that specialize in managing processes for cross-border selling (examples include Digital River, Scalefast and Pattern).
Realistically, digital commerce moves too quickly for any tactics to be lower priority, where organizations wait at least three years before considering movement. If a digital commerce technology or strategy exists today and it’s worth doing, planning for movement in three years is pointless. Instead, organizations should accomplish the High and Medium priority items above and then reevaluate their future plans.
Longer term, organizations will need to adhere to the principles of C2U, mentioned above.
2019 Strategic Roadmap for Digital Commerce - 30 April 2019
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