March 22, 2021 How Manufacturers Can Circumvent DTC Challenges

Manufacturers that successfully launch into direct-to-consumer (DTC) must find ways to eliminate key challenges.

The COVID-19 pandemic has accelerated eCommerce sales across the board. As consumers’ online shopping demands have increased, orders from distributors and retail stores have dropped, leading some manufacturers to begin exploring new sales strategies. One strategy is adding a direct-to-consumer (DTC) sales channel, meaning that manufacturers ship their products directly to consumers, skipping traditional retail stores and cutting out the middleman. DTC was once only in the retailers’ domain but the growth of eCommerce means now more than ever, manufacturers are jumping aboard and finding ways to reach consumers directly, increasing margins.

Selling directly to consumers is promising but often seen as difficult, with high overhead cost. Manufacturers going DTC were also, traditionally, seen as betraying retail partners. 20 years into the eCommerce boom, with retailers closing each year, DTC channels for manufacturers are commonplace. The shifts in consumer behavior during the 2020 pandemic have only accelerated this trend.

DTC offers the potential for benefits like the insight from customer data, ownership of the customer relationships, more control over product, better customer engagement and opportunities to price segment the market. Pivoting to DTC isn’t always as easy as it seems. Most manufacturers simply aren’t set up for DTC, and there are several challenges and costs faced when selling directly through common eCommerce channels such as Amazon, Walmart, or from their own websites. If you’re looking to take the DTC plunge, it’s important to understand the key challenges that manufacturers face and identify ways to overcome them.

Quick Lead Times and Rush Orders Disturb Operations

There is a huge operational shift when going DTC because manufacturers are now shipping to hundreds or thousands of customers instead of fewer large orders. With increased order volume and drop-shipping requirements, manufacturers often have trouble meeting demand and keeping up with what’s in stock. Especially if selling directly through an online marketplace like Amazon or eBay, manufacturers have to get orders out the door with quick lead times (Amazon Prime, anyone?). With so many orders that need to be filled immediately, warehouse operational disturbances occur. An ideal eCommerce process would allow manufacturers to shift order processing to less busy days and implement load balancing to prevent overwhelming the warehouse.

Unlimited Returns Add Additional Pressure to Manufacturers

Another massive stress on the warehouse comes from returns. While it’s great that more products are being sold online, this also means more returns and more pressure on manufacturers. Just as today’s consumers expect quick delivery, they also expect free, unlimited returns. Amazon has made free returns the norm, which adds significant pressure to manufacturers selling on their platform and those selling directly from their sites that need to keep up with consumer expectations. Unfortunately, all of those returned products mean space taken up in the warehouse and tied up revenue. Sometimes, products come back damaged, which means lost revenue that the manufacturer can’t ever get back.

A Whole New Selling Process is Hard to Manage

The DTC selling process itself can be an obstacle for manufacturers who are entering the space. Managing an eCommerce channel like Amazon or eBay can come with high overhead in labor and direct cost and it’s important to understand the fees associated with selling on these legacy channels. Most eCommerce channels have different requirements that they set, and it can be challenging to keep up if selling on multiple platforms, not to mention become a full-time job even if you’re selling just a few products. Selling DTC would ideally be a process where manufacturers would source orders through an eCommerce channel but not be bound to overly complex listing mechanisms or require hiring or training staff with unique, specialized, channel-specific knowledge to simply acquire new orders.

Identifying New Digital Channels for DTC Success

It’s the perfect time for manufacturers to embrace DTC, but they must find ways to avoid these common challenges and the strict requirements that come with online marketplaces like Amazon and eBay. To make DTC easier and clear excess inventory without legacy marketplace costs, manufacturers should consider working with a third-party channel or deal broker that can help them avoid these pitfalls. An eCommerce channel can help manufacturers price segment the market, improve cash flow and maximize revenue but manufacturers need to source options that minimize new customer acquisition cost while allowing them to own the customer relationship and offer the best price possible. Through a deal-broker, manufacturers can set up digital product listings and are sent orders that they can handle their own way, instead of dealing with the stringent requirements of channels like Amazon that keep sellers quarantined from the customer and impose their own proprietary requirements and costs.

Steven Hong is a business leader with deep expertise in e-commerce, culture building, and technology. He is a serial entrepreneur and has launched many ventures, his most recent being Discount Bandit, a new kind of online shopping experience.

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