The Importance of Omnichannel Distribution
Casper: valued at $1.1 billion. Warby Parker: valued at over $1.75 billion. Allbirds: valued at $1.4 billion. Direct-to-consumer brands have seen massive valuations and profit margins over the past decade.
The direct-to-consumer distribution model appeals for a few reasons. Almost 40% of digital consumers visit a brand’s website prior to making an offline purchase. DTC provides brands with deep and valuable customer insights. And, DTC eliminates many of the supply chain costs that can weigh down profit margins.
However, brands that operate solely as DTC distributors are limiting their growth potential. “Ninety-eight percent of DTC brands are out of business, they just don’t know it yet,” Gary Vaynerchuk, founder and CEO of VaynerMedia told Harvard Business Review in March 2020. Distribution to other retail partners leads to broader consumer awareness and sales. While this paradigm is shifting rapidly with the pandemic, 87% of all consumer spending in the US still takes place offline.
This tutorial will take you through the basics of expanding your DTC brand into new digital platforms and physical retail spaces, giving you a more complete understanding of omnichannel distribution. We’ll guide you through the process of deciding when and where to expand your distribution, as well as focus specifically on the pros and cons of selling via Amazon.
What does omnichannel distribution mean?
Omnichannel distribution is necessary for most brands hoping to reach the next stage of growth. It’s a distribution strategy that puts your customer front-and-center, creating a unified experience across sales and marketing touchpoints. This approach takes learnings from DTC to expand your value proposition thoughtfully, using customer insight to inform how and where you choose to sell.
“The omnichannel strategy hinges on the idea that providing a seamless shopping experience in brick-and-mortar stores and through a variety of digital channels not only differentiates retailers from their peers, but also gives them a competitive edge over online-only retailers by leveraging their store assets,” write the experts at HBR. With omnichannel distribution, your customers can shop online, via mobile, and in-person at a pop-up or brick-and-mortar store – and get a unique, branded, and seamless experience across those channels.
A study by Business Insider found that shoppers who engaged with a company on multiple channels made a purchase more often. Omnichannel offers a way to control the brand experience while expanding opportunities for your customers to purchase your product. However, this strategy comes at a cost: how do you know when your brand is ready to make that investment?
Is your brand ready to go outside DTC?
There are a couple of reasons why it might be time for your brand to expand beyond direct-to-consumer distribution:
- Reach new customers. You might be still in the customer acquisition phase – which makes Amazon an extremely valuable partner. Learn more about strategies for acquiring customers in our customer acquisition tutorial.
- Safeguard against category creep. Casper, one of the first DTC mattress brands, quickly found itself in a field of competitors. In response, the company repositioned itself as a sleep company and launched a nightlight, pillow and dog beds and deployed an omnichannel distribution strategy.
- Gain new data. If you’re interested in expanding beyond a single hero product, you may need more data. Expanding to a retail partner with experience in a certain sector can help you learn which market need to address next.
- Solidify your brand. Surprise and delight customers with pop-up locations in retailers that can lend credibility to your brand, rather than dilute it. For instance: Rent the Runway’s partnership with W Hotels.
Omnichannel distribution can help you become a category leader and fuel your company to the next phase of growth. No distribution strategy would be complete without at least some consideration to the elephant in the room: Amazon.
The pros and cons of Amazon
Amazon is an important part of any omnichannel strategy, but there are a few things to watch out for when expanding to this platform.
Pro: access new consumers
Amazon absolutely dominates online shopping: sales on Amazon currently make up 49% of the e-commerce market. It’s the top destination for online shoppers, as more than 60% of all Americans have bought something via Amazon. Of US consumers earning more than $150,000, 70% are members of Amazon Prime. This is an extremely lucrative customer base that your brand can tap into strategically.
Pro: gain brand awareness
The numbers, again, don’t lie: one-third of consumers find brands on Amazon. This platform dominates discovery. More than half of retail customers begin their path to purchase with an Amazon search. And the platform’s reviews make it a trusted resource: 75% of shoppers say they look to Amazon for new products and brands to shop from.
Con: lose customer data
Amazon is worse than physical retailers when it comes to sharing their data. “Amazon keeps their data and controls the relationship; the brands know very little about these customers and have no way to contact them to upsell them,” described one expert at Harvard Business Review. Best case: expect to miss out on the opportunity to learn about your new customers when you sell through Amazon. Worst case: Amazon is known for taking data on your customers and product and using it to build its own private-label competitor.
Con: dilutes brand equity
Customers are loyal to Amazon, not to the brands they’re buying through the e-commerce giant. It’s critical that DTC companies focus on building a robust and recognizable brand before moving onto Amazon. Differentiate your brand from the beginning to promote long-term growth and profitability. Otherwise, Amazon will eat your brand alive.
Con: forced to rethink pricing
Many DTC companies must offer discounted pricing or special promotions on Amazon to compete with the many retailers listed on this platform. Amazon is a crowded marketplace, and if you want clicks, you may have to compete on price rather than reputation. This is a bad option for premium brands.
Checklist: additional considerations for selling on Amazon
As you think through potential omnichannel distribution options, these questions can help your DTC business optimize its Amazon strategy. Use this checklist to assess your readiness for omnichannel distribution.
- Is direct-to-consumer your primary discovery channel, and is Amazon for bulk refill?
- Do you use Amazon to quickly and easily launch SKUs and test performance before expanding to other channels?
- Can you generate trials on Amazon that lead to a repeat purchase via your website?
- Will you price items the same across all channels?
- Is Amazon your discount channel?
- Is it in the customer’s best interest to only be able to buy DTC?
- Does the customer have a regular ordering habit and established logistics with Amazon that would make that a better experience?
- Seller vs. Vendor Central?
- Is there already diverted material on Amazon?
- Are your competitors on Amazon?
- Will you have to pay to play on Amazon based on competitive presence?
Outside Amazon: where to distribute
Amazon is the obvious juggernaut when it comes to online retail. If the cons of offering your brand on Amazon weigh too heavily, there are other options. These include retail partnerships, like Sephora, Target, or Costco. It could mean joining a multi-product subscription box service, such as SnackCrate or Birchbox. It could mean looking at curated shops such as Story [acquired by Macy’s] Some brands choose to open a retail pop-up location in key markets to drive discovery and trial. Key to expanding to any of these options is knowing your customer and building on your existing DTC experience.
Case study: Madison Reed
Madison Reed is an at-home hair care and hair color company that got its start selling home hair-coloring kits online in 2014. Madison Reed was founded on the insight that women lacked a simple, at-home hair color option that uses ingredients without harsh chemicals – and comes with a budget-friendly price tag.
At the core of its DTC offering is the brand’s proprietary 14-step questionnaire that emulates what a professional stylist would ask a client before coloring. When the time came to think about expanding, listing their full product line on Amazon just didn’t make sense. The brand offered touch-up kits but kept the personalized touch of the questionnaire unique to their website.
Founder Amy Emmett told the US Chamber of Commerce that her decision to take Madison Reed into the offline world stemmed from the realization that many customers still crave the “in-person comfort factor.” The brand started with nine “Color Bar” locations where customers could try the products. The Color Bars don’t offer haircuts, just color. These venues provide faster, more affordable hair color than salons, and give customers the opportunity to try and purchase Madison Reed products on the spot. Madison Reed announced it would open 600 new stores by 2024, and partnered with Ulta Beauty to sell their home hair kits in all 1,200 stores in April 2019.
Madison Reed’s offline expansion complemented their digital omnichannel efforts. “In addition to its questionnaire, the company took technology two steps further: by incorporating an artificial intelligence (AI)-powered chatbot; and an augmented reality (AR) feature. Madi, its color-matching chatbot, can be accessed through text message and Facebook message,’” said one Chamber of Commerce report. Madison Reed’s omnichannel distribution exemplifies how to leverage different channels to provide value, while still keeping DTC at the core of their business.
Omnichannel distribution is all about customer experience. Expand strategically to platforms and spaces where you can provide distinct, unique, and delightful ways to shop. Amazon is great for boosting sales and reaching customers, but you lose many of the benefits of operating purely as a DTC model (customer data, for instance). There’s no one-size-fits-all answer, but now you’re better equipped to evaluate your distribution options.