Direct-to-Consumer: Can Manufacturers Leapfrog Retailers?

One of the most significant consumer marketing trends over the last decade is that the product manufacturers have established direct relationships with their customers. No longer do they rely solely on retailers to market and sell their merchandise.

The increase of direct-to-consumer marketing by manufacturers means that retailers cannot be complacent because the consumer will be looking for the best deal. And if the manufacturer can offer a consistently lower price and high quality customer service, the merchant is at risk. The result is likely to be a sales shift to the manufacturer.

This is a healthy trend for manufacturers — they are much better at representing their products than retailers will ever be — but there have been growing pains with the advent of direct-to-consumer (DTC) marketing. Having grown up in a marketing world where it was all about branding via mass media, manufacturers have struggled to develop their direct marketing skills. Problem areas include, but are not limited to:

· Data capture and data management
· Customer analysis and segmentation
· Personalization of communications
· Results measurement

The lack of DTC marketing savvy and skills is causing manufacturers to lag behind their retail partners in online sales. Despite the economic advantage to the manufacturer to sell online vs. through retail, most manufacturers struggle to deliver more than 5% of their sales through e-commerce, while retailers are often above 15%.

So, how can manufacturers fill their skill gap? The answer is clear: steal from retail.

That’s right; shoplift strategies and skill sets from retailers who have been at this direct marketing game much longer. Hire their people and their direct marketing service providers. This is the fastest way to get smarter and better.

Infusing retail expertise into their direct-to-consumer efforts will accelerate four key marketing improvements:

1. Manufacturers will start organizing Web visit and e-commerce purchase history data into a marketing data mart designed to facilitate direct-to-consumer marketing

2. They will begin to develop analytic skills that yield increased insight into customer behaviors and preferences – as well as measuring marketing program effectiveness

3. They’ll develop new metrics that surpass traditional transactional and product measurements

4. Manufacturers will create more personalized and relevant marketing communications based on insights generated from customer analytics.

All of these improvement areas are important, but perhaps the most important is developing analytical skills and the appropriate metrics. Without the right metrics, the company will struggle to get beyond a promotional — and product — focused approach.

There are manufacturers who have been going DTC for a while, including durable goods makers and consumer electronics companies. Both of these types of companies capture customer information through warranty cards and online registration, and then use that information to communicate directly with customers. While successful, these programs can also present greater opportunity by surmounting two major challenges:

First, too few customers identify themselves. Improving the data capture strategy; deeper understanding of long-term customer value could justify larger incentives to register. Second, the Web sites are not geared for customers to easily get information on their registered/warrantied products. Valued customers are treated the same as non-customers.

Thought it may be frustrating for many manufacturers to “start from scratch, ” their clean slate can actually give them an edge. While manufacturers may perceive themselves to be trailing their retailing brethren, they have the advantage of being less encumbered by ineffective practices that are resistant to change simply because “it’s the way we do it. ” This difference in mindset may be what manufacturers need to leapfrog retailers with direct marketing best practices.

Andy Cutler ([email protected]) is chief strategy officer at Boston-based Mercury.