Five key insights for eCommerce leaders to maximise value out of D2C

Delhi: In a recent report ‘D2C advantage toolkit’, MMA India and Publicis Commerce have listed five key insights on how brands can maximise the ROI of D2C eCommerce investments.

It states that D2C brands must have a clear proposition, all D2C businesses must aim for growth at all costs, should offer differentiated experiences, have impactful creatives and a stronghold of first-party data.

Clarity of proposition

D2C business leaders must start with a clear business proposition. Successful D2C businesses zero in on and deliver their unique proposition to consumers, whether it's related to the product, experiences, or operations. In many ways, a D2C venture is akin to launching another brand, and there must be a consumer need gap that we are leveraging.

For example, Mamaearth has created a niche in the beauty segment by offering products with natural and toxin-free ingredients. The brand positioning is organised around this proposition and the same is reflected in their tagline “Goodness Inside”. 

Successful businesses consistently adopted below two approaches to obtain clarity in their D2C proposition:

Razor sharp focus on consumer behaviour

Successful D2C brands spend an inordinate amount of time and effort understanding consumer behaviour. To understand consumer behaviour these businesses not only focus on in-person interactions (such as focused group research, and day-in-life-of analysis) but also analyse digital buying behaviour through analytics.

Rapid test and learn

Furthermore, D2C businesses adopt a rapid test-and-learn approach to zero in on the unique proposition of their brand and messaging.

North Star metrics

No D2C business can survive for long unless it acquires a critical size. Therefore, all D2C businesses aim for growth at all costs. However, what differentiates successful businesses from the rest is the focus on unit economics from the very beginning.

MMA has listed four key parameters to measure profitable growth:

Sales growth
Sales growth appears as a North Star metric in most businesses. Sales growth is a function of traffic, conversion rate and average order value.

Customer acquisition cost
Represents the average sales, marketing, and promotional costs to acquire a new customer. Successful D2C businesses manage to reduce CAC consistently as they grow in size.

Customer lifetime value
Customer loyalty, engagement, churn rate, etc influence the LTV metrics. Usually, healthy D2C businesses aim for LTV in the range of 3X of customer acquisition cost (CAC).

Unit economics
Unit economics is best reflected by the ratio of operating margin and number of units sold. While computing operating margins, businesses must consider marketing and promotion along with the Cost of Goods Sold (COGS).

Successful D2C businesses, not only set the right North Star metrics but also organise entire governance around them. Governance can be manifested through organisation structure, incentives, etc to measure (and reward achievement of) the North Star metrics. This way, the entire organisation is aligned and works in unison to achieve the stated growth objectives.

Differentiated experience

Successful D2C businesses consistently analyze end-to-end consumer journeys, identify breakages/ pain points, and devise ways to address those. They consistently test and iterate to improve customer journeys.

The latest innovations in artificial intelligence, augmented/virtual reality, and live video are opening up newer avenues to deliver seamless customer experience in digital. 

Areas where the role of D2C squarely fits in, and meaningfully adds tangible value are –

Data-backed consumer experiences

• Content or experience D2C as the logical destination for paid media interventions, especially for the mid-funnel campaign objectives. Takes away the need for using expensive 3P landing destinations. 
• As the destination for personalised brand experiences that lead with commerce, ranging from topical, seasonal, and festive experiences. These experiences complement the thematic brand interventions and are a great opportunity to recruit and retain new brand (NTB) consumers. 
•  As a logical commerce destination for branded and non-branded content ‘demand spaces’, ones that aim to channel larger category intent (searches) into a brand’s digital ecosystem. 
• The D2C can act as the petri dish of several consumer journey-based experiments in the ever-evolving areas like - UI, UX, SEO, CRO, deeper media, and content, helping an organization to become digital/data first. 
• Last but not least, an owned commerce destination makes for a great opportunity to collect and enrich good quality first-party data (FPD), which is invaluable in the post-cookie era. 

Enriched first-party data (FPD) exhibits 3X more match rates with large publisher platform data (> 60%) and also enables to delivery of 2X more efficiencies in media campaigns. Hence a D2C is almost central to the audience retention and growth strategies for an organisation. This also helps in creating consumer intent-based ‘smart cohorts’.

A complementary companion to third-party eComm and OmniChannel platforms

• KVI (Key value items) war – KVIs are typically the bestselling and hence most discovered SKUs on e-commerce platforms. They drive the larger volume and value of the third-party eComm business for most organisations, however overshadow the longer tail of the range, sales, and hence availability which forms a vicious cycle. 
• Owned D2C platforms can potentially become the hub for the larger depth and width of a product portfolio. A focused strategy can potentially drive trial and demand generation for the otherwise undiscovered/expensive to discover range on third-party eComm, thereby driving a cost-effective and complementary strategy of creating consumer pull. This strategy can help new/niche brands save on high platform margins, especially when the scale is small.
• Invaluable insights from commerce journeys - D2C consumer journeys can provide deeper insights into market-basket and assortment, real/virtual product combos, promos, sampling ideas, etc., which can inform the category management and media strategies for third-party eCommerce/OmniChannel platforms and hence solve for more profitable TOTs (Terms of Trade).

Impactful creatives

Quality creative assets go a long way, not just in building mental availability but also in conversion. Successful D2C businesses develop consistent creatives across languages, cultural nuances, demographics, seasonality etc. They consistently run A/B tests to zero in on the best creative that engages customers and leads to improved conversion. 

While technology has progressed to enable Dynamic Creative Optimisation (DCO) at scale, the foundation of DCO is built on consistently high-quality creatives aligned with overall brand positioning. Successful D2C businesses focus on consistency and quality of creatives while maximising value from newer techniques such as DCO.

First-party data

Brands have started to invest in composable customer data platforms (CDP) to collect and enrich first-party consumer data. Such investments in CDP require time and careful planning, however in the long run the investment pays off to improved targeting and conversion.

To enhance data post-acquisition, advertisers can leverage campaign data to refresh First-Party Data (FPD) with newer audience attributes. Data platform managers establish a loop between the data lake and the campaign using tags for signal exchange. Additionally, using customer data attributes like recency, frequency, and monetary value contributes to FPD, especially in categories with higher repeat purchases or aiming to maximise Lifetime Value (LTV).

Data Clean Rooms (DCRs) facilitate data collaboration and enrichment. In this tech platform, two parties share FPD, enriching only matched users sent back to the enterprise buying enrichment, ensuring privacy. The value of a partner is determined by the quality of data and the number of complementary attributes. Factors like audience size and the frequency of data set updates are crucial considerations.

First-party data has the potential to deliver ~4%+ lift in the overall D2C revenue. Therefore, D2C brands must have a structured roadmap to collect, manage, and use first-party data in scaling their D2C business.