BrazilHow to prepare an organisation for B2C direct sales
Seeking to build a personal relationship with its clients and breaking free from the grip of all mighty marketplaces, a growing number of consumer brands are building direct to consumer sales channels.
Research from consulting firm Magnus Red in collaboration with European digital commerce platform ShoppingTomorrow shows that there are four reasons as to why consumer brands would aim at building a direct sales channel. Obviously, it allows them to build a direct relationship with the consumer, which can be beneficial for the margins earned on products.
Just as important, it allows brands to establish and collect consumer data, which down the line can help them get to know their clients and better serve their needs. Using data analysis, brands can them differentiate between their audience, and personalise and tailor their offerings to meet diverse demands.
Establishing a direct sales channel also provides brands more autonomy in reaching new customers in greenfield geographies, and reducing their dependence on other internal and external channels. Meanwhile, building an online direct channel enables brands to tap into the booming global e-commerce market.
While the possibilities for direct sales are greater than ever today, success is far from guaranteed. One of the key pre-requisites for organisations is preparing and aligning their internal operation. Experts at Magnus Red share seven factors which should be considered and how leaders can prepare.
Logistics and stock
The switch to direct online sales usually has a number of important implications for a brand’s logistics processes. Consumer supplies are larger in number, but much smaller in terms of sales unit. This usually requires a separate method of storage and handling. Consumer expectations about delivery time are high. Enabling faster delivery times requires daily transport in smaller quantities. Super-fast delivery is not always necessary for every type of product and delivery reliability is often of greater importance.
Brands are advised to allow the organisation of e-fulfillment processes to grow step by step with the order volume. The first step could be to set up a separate B2C room for consumer supplies within a large DC. This is where you store supplies of fast-movers in consumer units, but you can use a two-stage model for goods with a low turnover rate.
When such a product is ordered, you pick it from the large DC in the B2B delivery unit and break it into consumer units. You deliver the ordered quantity and store the remaining consumer units in the B2C part of the warehouse. This does require that consumer units within B2B packaging are numbered and scannable separately.
As volumes increase, there is a need to prioritise inventory for online orders over B2B resupply. Some companies use a “priority rule” in restocking or an administrative safety stock that may be used for picking for B2C orders. Within the safety stock, marketplaces sometimes take precedence over their own webshop to prevent Service Level Agreements from being met with the marketplace. It can then be decided to keep a completely separate B2C stock, which is often also necessary if the e-fulfillment is outsourced to a third party.
The major advantage of this is that everything meant for online sales is already stored in consumer units and the availability of the online inventory does not conflict with that of B2B channel inventory. The disadvantage is that this creates a certain inflexibility in stock and therefore a greater chance of excess stock.
Some fashion retailers use a mixed model. With the first delivery of a new collection, the B2B channel (retailers), stores and the online warehouse are supplied based on a forecast. However, part of the stock is destined for subsequent delivery and kept centrally. This is stored in B2C units and can then be allocated to both the B2B channel and its own stores, webshop and/or marketplaces. It helps if retail packaging is already suitable for shipping to consumers.
As volumes increase, effects on workers will also increase. During the weekends, work has usually ceased in B2B warehouses, while most online consumer orders are usually placed. So take into account a peak load on Monday in B2C logistics. As volumes grow or promised delivery times decrease, evening and weekend shifts may become necessary. This may conflict with the applicable collective labour agreement or employment contracts.
A multitude of logistical models is created in collaboration with marketplaces and other third parties. To be able to deliver complete orders to consumers quickly, platforms often use the consignment model. In doing so, brands continue to own inventory that they place with a partner, for example in a physical store or distribution center. Because the brand remains the owner of this stock, sales partners do not run the risk of being left with unsold stock.
The disadvantage for the brands is that this stock is more difficult to use for other channels. Brands that opt for consignment must make good agreements. Insight into the available stock at partners and timely retrieval of stock are important points of attention. Also take a good look at how risks such as fire, damage and theft are covered.
Another common model is that of drop shipping. This model lends itself well to articles with a low turnover rate. A third party sells the item, but it’s delivered to the consumer by the brand itself. The advantage of this is that the stock can be used for different channels, as long as there is a timely update of the available stock to the sales partners. It can also be interesting because it would enable adding marketing material to orders from this third party.
Returns
Returns and warranty requests are an aspect of the logistics process that should not be underestimated. The number of returns is significant, especially for online fashion purchases. Make a realistic estimate of the percentage of sales orders you expect to be returned and how this can be minimised. Ways to prevent returns include complete product descriptions, photos, videos and size pointers.
Make sure that the entire logistics chain, from warehouse to service department, is ready for the return flow. Consumers have a right of return and expect a quick refund after a return. This requires a different way of working when compared to the B2B approach, in which the financial department usually only performs a manual refund after several checks and approvals.
In a B2C environment, a stronger automated process is usually required. First of all, this requires that customer orders, returns and refunds are managed in one system. Secondly, for each individual item it should be clear what to refund when discounts and promotions apply to the sales order goods.
Marketing and content
Having a B2C sales channel means starting performance marketing in addition to brand marketing. This requires a different way of thinking, by asking what the business case is of a marketing campaign rather than verifying whether there is still budget left. When the channel strategy is mainly focused on digital channels, knowledge of digital marketing is crucial for success. Usually it’s advisable to hire an expert for this and to see if there are possibilities to train people internally.
Direct sales often require more content. This is not only the case for your own webshop, but also when selling through a marketplace. Think of high quality product photos, consistent with the design of the rest of the site and other (digital) channels. In addition, online consumers do not only compare strongly on price, but also on quality. Therefore, consider using ratings & reviews. A good product review can convince online consumers to buy your product.
Customer service
Direct customer contact requires much more attention own customer service department than with B2B sales. Make sure that your brand’s service department is ready for direct sales, to prevent the level of service from falling short of customer expectations. Customer service employees can expect many new questions that were previously answered by sales partners. By mapping them in advance and publishing them in an FAQ online, many questions can be prevented.
Take into account the desired opening hours for customer service (often also in the evening), the fact that consumers want to speak in their own language and that customers often use other channels such as chat. These additions may also increase the service level to B2B partners, if they are allowed to use this customer service as well. Inventorise whether upscaling will be necessary and remember that outsourcing often removes an important learning effect for your own organisation.
In addition, try to surprise customers in a positive way so that customers become fans and return for more. Additional training of your customer service employees may be required to do this.
Customer service employees can also be used for direct sales, for example by making an offer for a replacement product during repair agreements. Direct replacement can be a successful proposition, especially for products that customers can’t do without for a long time. In addition, there may be interesting opportunities for selling accessories.
Data Management
The most important data processing question that brands should ask themselves is what type of consumer data they want to collect and for what purpose. Collected consumer data can make a major contribution to improving segmentation and a personalised experience. Effective marketing starts by getting to know your consumers.
The introduction of GDPR in 2018 has significantly increased the rights of consumers on the one hand and the responsibilities for companies that process personal data on the other. It is crucial for companies to set up their data management in such a way that data is processed in a transparent and secure manner. Under GDPR, consumers have the right to request and view their own data, or to have their data deleted. Companies that cannot comply with this minimally risk reputation damage and possibly a hefty fine from regulators.
IT landscape
Opening direct sales channels usually requires changes to the IT landscape of a brand. New systems are often required. Online sales require a webshop application. A CRM system or Customer Data Platform is indispensable in a successful direct-to-consumer strategy. Many B2B companies are not geared to consumers and consumer marketing yet. A product information system is required to manage all product data in the different channels, along with extensive product features and image materials.
Direct sales often requires integrations with new partners, such as with marketplaces, payment service providers and logistics service providers. Most of these parties offer standard links (APIs), to which the consumer brand must adhere.
B2B software is usually set up differently from B2C software. For example, it usually isn’t desirable to treat every consumer as a customer/debtor in your ERP system; prices for consumers include VAT, and warehouse systems cannot always deal with a mix of bulk packaging (for retail customers) and consumer units. Also, a B2B invoice does not always meet the requirements of a consumer.
The above aspects make it necessary to make a proper design of the ‘omnichannel’ IT architecture, in which it can be ensured that all new B2C processes are sufficiently supported. The design of the B2C customer journey serves as a starting point. Here, touchpoints, content and processes are coordinated and then translated into the IT architecture. It can make sense for brands to select systems in which both flows are supported well.
Organisation
In order to allow direct sales to grow quickly and flexibly, it’s recommended to start by setting it up as a separate organisational unit (internal startup). This prevents potential growth from being hindered by existing patterns, requirements and restrictions. In time, however, it will have to re-integrate with the existing operation and channels, and will probably become an integral part of an omnichannel organisation.
Changes to human resources are also advised. Making the transition to direct sales a success requires a lot of extra time and effort from employees. Your existing sales staff will have to become ambassadors for the direct channel.
By adapting the remuneration structure to the new business operations and agreeing on clear evaluation criteria in advance, companies ensure that employees who dedicate themselves diligently to the cause are also recognised for it. This promotes involvement and prevents employees from becoming demotivated.
