Amazon’s Alleged Use of Seller Data Strengthens the Case for CPG Brands to Go D-to-C

Amazon.com's alleged use of seller data to create competing products further highlights the growing need for CPG companies to implement direct-to-consumer (D-to-C) strategies and take back control over their own future.

The debate over whether to go D-to-C has raged across the CPG landscape for a number of years. Those CPG companies that have stood up their own D-to-C businesses cite the increase in brand autonomy, more control over how their product is sold (e.g., optimized pricing, packaging, shipping, and customer communications), direct access to first-party data, and the ability to shape and personalize the end-to-end consumer experience as some of the most obvious benefits. Those companies that have opted out of selling D-to-C have often done so for fear of upsetting their retail partners, including e-tailers like Amazon, or because they remain unconvinced that consumers would see the benefit of buying directly from the manufacturer.

However, COVID-19 is forcing CPG companies to rethink their channel strategies, including D-to-C and subscription models. With out-of-home sales channels scrambling to keep up with rising demand for daily essentials and consumers embracing social distancing as a way to slow down the spread of the virus, there has been a steep and marked shift away from brick-and-mortar shopping as consumers turn to the perceived relative safety of online shopping. According to Nielsen, during the period of the coronavirus lockdown, online shopping has spiked to as much as 34 percent in some markets, with online supermarket traffic increasing by more than 160 percent.

The viability of D-to-C for CPG companies will continue long after the current pandemic. A number of industry analysts forecast that D-to-C for CPG companies will grow to as much as 20 percent by 2024, up from 11 percent reported in 2020. With more and more consumers shopping online and with increasing competition coming from digital-native brands and retailers' own private-label brands, CPG companies need to evaluate D-to-C as an alternative route to market.

In addition to the direct business benefits of moving online, D-to-C helps CPG companies build consumer trust and loyalty. CPG companies that have invested in D-to-C have often enriched the online experience by providing consumers with relevant product content, information and services that enhance the overall value exchange between brand and consumer, deliver meaningful and engaging experiences in the process.

D-to-C gives a CPG brand more ownership of how it's perceived by the end consumer, allowing the business to shape the conversation and relationship. CPG brands that invest in D-to-C are able to use first-party data to enhance existing products, optimize pricing, develop and test out new products, personalize experiences and content, improve service levels, and engage in a one-to-one dialogue with the consumer.

The brands that have managed to pivot quickly and overcome inherent challenges around setup and fulfillment, organizational alignment, operations and customer service, have taken advantage of the opportunity and are now changing the traditional retail landscape and creating new revenue streams. Moreover, they're beginning to establish direct relationships with their customers, which has longer term benefits.

Selling on Amazon is still an important part of CPG companies’ strategies, as the marketplace is where many of their customers shop today and will continue to do so in the foreseeable future. However, in the next few years, expect to see more CPG companies selling D-to-C. This will include new emerging D-to-C channels such as voice assistants, wearables, and even connected cars and smart appliances. Furthermore, expect to see the emergence of alternative online marketplaces that bring together brands with a common purpose (e.g., sustainability, locally sourced, vegan only), and which provide brands with more control over the flow of data.

Dr. Scott Clarke is vice president, consumer product industry lead at Publicis Sapient, and works with Fortune 500 companies across the retail and consumer products industries to help them understand and respond to the opportunities and threats posed by digital disruption, helping transform companies into digital businesses.