Request Demo

Manufacturers D2C Best Practice - Part 1: Why Sell Direct?

As the banking crisis unfolded around us, we held our  "Manufacturer Direct to Consumer Sales" industry round table event in the grand Kings Chamber of the old ABN Bank Building in Amsterdam. We were delighted to welcome 20 direct-to-consumer executives from some of the biggest names in direct sales to debate some of the issues in D2C (Direct to Consumer) sales, which included Philips, Sony, Nokia, plus other major brands who are in various stages of direct ecommerce evolution.Hot issues at this event:
  1. Why sell direct? How to sell direct without upsetting existing channels
  2. How to give magical experiences to consumers
I'll cover some of the issues in the next few posts, but in this post I want to look at why a company would sell direct. Let's establish a baseline:

Definition of "Manufacturers D2C" (direct to consumer sales) v1.0 Oct-2008:

A large brand/manufacturer offering a direct relationship to a segment of customers by transacting, delivering and offering post-sales service on all or part of its product portfolio
  • By Telephone
  • By Internet
  • By flagship branded store

State of Art

Some examples of successful D2C commerce include: Dell, Apple, Sony (SonyStyle), Philips, Nike, Logitech, Nespresso, Nokia, Panasonic and Bose. Examples differ across geography - the US is usually the first-mover, Northern Europe strong follower, Southern Europe slower.Quantities of sales differ (and it's hard to get broken out figures): we speculate that the average D2C gross revenue accounts for around 1% - 3% of the total manufacturers turnover. However some companies are much higher: 50%+ with Apple due to combination of shop and ecommerce), and Dell at 85%+.


On the surface, it appears that selling direct should be just about setting up a web-site and selling to consumers. However, if that were the case, all manufacturers would be selling directly.There are some blocks that prevent many major brands from selling D2C. The major ones are:
  • Fear of channel conflict - setting up an online shop can be seen as challenge existing channel partners - the manufacturer appears to be competing with own partners
  • Learning to become a retailer - successfully selling directly requires different skills to that of selling to resellers - a philosophy of dealing with multiple small problems (logistics, finance, web) needs to be adopted
  • Technology barrier - a good website can be expensive to produce, and it needs extensive back-end systems to make work
  • Differentiation - what value can a manufacturer offer by selling direct?
Some stories were shared by the group included major retailers threatening to delist products if a manufacturer sold direct (echoed by several attendees); a investment of nearly $50m was made over the years by one major company on their e-commerce solution, internal politics in another manufacturer continue to threaten the success of the direct sales division.If it is so hard to set up a direct sales organisation, then why bother to do it?

Why Sell Direct?

Each manufacturer that has taken the leap into Direct Sales seems to have a mix of reasons.Experience, and a poll of the room brought out these points:
  1. Balancing the Power Retailers Oligopoly: A few powerful retailers control market, and brands struggle to show "added value", typically products displayed price low-to-high or on aisle ends. This may mean that products are delayed to market as stocks are run down; brand image can be eroded or commoditised.
    [caption id="attachment_165" align="alignnone" width="300" caption="Power Retailers Oligopoly: A few powerful retailers control the major share of the market"]
Power Retailers Oligopoly: A few powerful retailers control the a major share of market[/caption] Customers now expect, or demand web interaction: Each manufacturer invests heavily in a "catalogue site" (usually without prices) which details locations of resellers, service information. Increasingly a proportion of customers expect to be able to buy - in one survey quoted more than 57% of customers expect to be able to buy direct. Marketing test bed for new products: Early adopters can be key to a successful new product introduction, and getting products out without channel logistic delays can boost this. Source of unfiltered customer feedback: Asked in the right way, customers will tell exactly what they think of products, service and support without the "noise" or filtering of a channel partner. Creating "Net Promoters": Two manufacturers identified that their primary mission is to give an excellent experience and create customers who will recommend the product or service to others.Customer choice and marketing value are the key motivators for major brands. Profit was noted as a secondary driver, if at all. Most operations seem to be at break-even, or just above - but the value comes from "nearly-free" marketing.Contributors spoke of the marketing benefits:
  • Learning about customers: The online customer was a very different profile to the one predicted by the consumer research. The vision was of a young, hip customer - reality was retired person who was highly demanding but a loyal spender (note: especially relevant ro build on these relationships in times of recession).
  • Customer feedback: Verbatim comments from customers helped more than one  product manager (battery life was poor in one; product killed, unexpected uses for another; product marketing changed and sales increased in all channels).
  • Pre-sales: Companies found that they could take several hundred advance orders for products before general sale. This helped convince retailers of a products success (and later helped them predict eventual full sales over the lifecycle)
  • Niche products: Small quantities of hard-to-find products or limited editions were sold out. Later marketers asked further questions of consumers who had chosen for example pink or orange variants
Profit can also be interesting (but generally not at first). Margins are continually being eroded in Consumer Electronics. Selling direct allows a degree of control and retention of margin. The delegates agreed that in general direct sales can capture higher prices than the channel due to a combination of premium products and lower discounts. When all costs and contributions are taken into account, selling direct can be even more attractive. It's easy to forget retailers "soft-margin", training costs, restocking, support and marketing taxes... In one case, just 1% of total sales sold direct resulted in 10% of total profit.


Most of the sites discussed had a similar path of growth, all generally designed to appease fears of retailers.
  1. Non-threatening sales of spare-parts and accessories ("test the water", test logistics)
  2. Sales of "dog" products that retailers can't sell
  3. Return products or excess (sometimes on less visible channels like eBay)
  4. Sales of new products (but at uncompetitively high prices)
  5. Sales of full range. Regular prices. Some interesting offers
  6. Exclusive products - Direct only: Variants of colours or specs
  7. "Superstore" - complementary products (Apple sells 3rd party accessories, SonyStyle US sells DVDs, phones, gaes etc from Sony companies)
  8. New Services - extended warranties, installation, software, downloads (Apple iTunes is the pinnacle of the this currently)
As the manufacturer moves up a level, channel conflict can become more problematic. Additional competencies and technical abilities are also required.  There is a shortage of skilled people in this sector - it's not just a technical competence but marketing and retailing skills are also needed.

Which initiatives succeed?

The critical success factor stressed in all cases was Executive-Level Commitment to direct sales.Without this, a direct sales initiative is almost doomed to fail (or at least languish in the 1 - 4 numbers above). The sites that have succeeded have been where top execs have set out a strategy to sell direct, and communicated it widely through the organisation and the channel.Once that happens, it's possible for the organisation (and retailers) to see that D2C sales can benefit the channel as well as the company.In addition, the organisations that were most heavily committed to customer service had faster growth than others, and could use customer feedback to help all aspects of the organisation - from support, through marketing and channel management. Three of the organisations present were strongly committed to using the Net Promoter Score to measure customer sentiment.


  • To succeed in manufacturer D2C sales a clear manifesto is needed.
  • Commitment from top of company
  • Customer and marketing focus key to eventual sales success
  • Communication of reasons internally and to channel is essential

What next?

In part 2 we'll look at the "How" of D2C sales - share some best practices and look at what works.


If you work in a manufacturer and wish to know more, I recommend you join the LinkedIn group of professionals "Manufacturer D2C e-commerce Europe" - the group is limited to managers and execs who work for major-brand, wishing to sell direct. News of future events are posted here, forums for sharing best practice, plus some presentations are available.Strategy plan for manufacturers: I have a bare bones plan that can help a brand structure a plan for a start-up (or failing) D2C initiative. Let me know if interested and I can send.Magical Experiences Manufacturer D2C

Next Up: The 77 Essential e-Commerce Metrics

Get The Most Comprehensive B2B NPS and CX Benchmarks Report on The Planet

Get the eBook

Might we also interest you in...