Direct to Consumers in the World of Alexa

DTC-as-a-Concept

Direct-to-consumer (DTC) selling is as old as the first mail order catalog by Aaron Montgomery Ward in August 1872. The trend has spiraled and in the past decade there has been a frenzy of activities by over 400 brands to exclusively sell to customers (without intermediaries). Classic example being Dollar Shave Club’s 2011 launch got it a 16%-unit share of the men’s razor market and its acquisition by Unilever in 2016 for $1B after multiple VC fundings of over $160M.

According to a Forrester Research, the US online DTC market is set to reach $43.3B in 2022 from $22.6B in 2018 largely led by Gen Y & Millennials (19-34 age group) who prefer:

• ·Convenience with customization
• ·Connected customers for sharing experience and
• ·Try before you buy even if it comes at a cost

Battle for Brand Recognition

However, this age of customers the battle of the brand is getting triangulated between CPGs, retailer’s own private lines and digital start-ups selling directly to customers.  Examples of these newcomers include:

• · Designer eyewear brands Warby Parker and Mister Spex
• · Mattress brand Casper
• ·       Men’s grooming brand The Man Company
• ·       Cool girl’s brand Reformation
• ·       Fresh press juices by Raw Pressery
• ·       ReadyRefresh beverages

All focus on providing value to customers through DTC at a cost however their success can be measured by their increasing market penetration and brand recall.

AI as the Differentiator

Although CPGs realize that their retailers remain the most influential touchpoint on the path to purchase however with the rise of AI Platforms & Assistants it’s time to up the game:

1.     Amazon Alexa through Echo (25M sold till 2018)

2.     Google Assistant through Google Home Cylinders & Pixel Phones (400M devices till 2018)  

3.     Apple Siri through HomePod

4.     Microsoft’s Cortona

5.     Samsung’s acquisition of Viv (an intelligent assistant company founded by Siri’s creators), to advance its Bixby AI assistant platform

6.     Tencent WeChat’s Xiaowei

7.     Mobvoi’s Chumenwenwen and Microsoft’s Xiaoice in China (Over 40M registered users)

As per HBR, AI will transform how companies connect with their customers, they will become the primary channel through which people get information, goods, and services, and marketing will turn into a battle for their attention. This will result in Consumers’ allegiance to shift from trusted brands to a trusted AI platform which would be omnipresent with them - at home, cars and mobile devices. The platform will gather & deliver information and the assistant would be the interface with home systems, appliances & other machines. The more the consumers use the platform would be better to understand their habits & preferences, meet their needs – thereby increasing the CSAT levels.  

The Transformation

As the AI platform becomes powerful it would become the single channel for marketing to influence and sales & distribution to fulfil. This would present a new challenge to CPGs, bigger than the Walmart clout as AI platforms would be in a better position to communicate with its users, share consumer preferences to CPGs, price & promotions and manage the consumer relationship itself. As an example, AI Platform might use the inquiries for product suggestions: Imagine asking how to clean tea stains from your table cloth and you might get response with suggested products. Although Amazon says they do not have plans to add advertising to Alexa but CNBC as reported it as “Experiments in the works”.      

What next for CPG

It’s estimated that CPGs invest more than $500B annually in trade funds to maintain their share of retailer’s shelves. However, there has been a commitment of funds to DTC sales across CPGs with the likes of:

·       Nestle generating 5% of its sales from its DTC channel

·       Kraft Heinz and Kimberly-Clark increasing sales significantly through the Amazon Dash program

·       Adidas and Nike dependence on retailer Foot Locker dropping in August 2017 as it enjoyed DTC success

·       L’Oréal generating €2.1B revenues in 2017 with 30 brand DTC eCommerce channels

So now what for CPGs, the answer is to onboard the journey to DTC commerce by integrating with these AI platforms. It is a holistic process which involves focus on:

1.     Business to Consumer- B2C

a.      To publish product information & availability in search feeds

b.     To engage with customers for feedback to calibrate promotions

2.     Business to Enterprise- B2E

a.      Capture order details with price

b.     Order management for execution

3.     Business to Business- B2B

a.      Product availability details

b.     For order fulfilment

Focus needs to be on delivering value to customers through a platform approach.

In my next blog would detail on various use cases possibility in the CPG value chain focusing on Customers.