Thanks to Amazon, fast and free shipping is now the norm—and customer expectations are only getting higher. According to a 2018 report from PwC, “Transportation and logistics will need to focus on ‘digital fitness’, cost efficiency, asset productivity, and innovation if they want to meet the rapidly changing expectations of shoppers.”
It’s true that many DTC brands do have an Amazon strategy that leverages the platform as part of a larger omni-channel selling strategy, which helps them get site and product and build brand recognition. Even so, these brands still have to fulfill their individual brand promises within that larger ecosystem—and often times without access to important customer data that Amazon is unwilling to share. This challenge is one of many DTC retailers are facing around their bottom lines.
The reality is that with its resources, Amazon has the power to unseat competitors in their tracks—especially eCommerce brands in the realm of fast-rising direct to consumer (DTC) companies, competing for traffic and on the price frontier.
So how can DTC brands grow profit margins in the era of Amazon?
Creating reliable, convenient delivery experiences is a good place to start. Not only does it give shoppers the confidence they need to keep coming back, but it also creates a solid impression of the brand and what it stands for.
In this post, we’ll take a big-picture look at how DTC brands can grow profit margins and stay competitive in the age of Amazon, as well as a few brands seeing success doing just that.
Major DTC Challenges Around Growing Profit Margins
Before we get into the nuts and bolts of the how, let’s first look at some of the big challenges DTC companies are facing in the modern retail environment when it comes to growing profit margins. It turns out that Amazon isn’t the only obstacle in the way of growth.
Multiple Hats, Fewer Resources
In the world of DTC retail, resources are often in high demand (but low in supply). As a result, team members at these companies tend to wear multiple hats and work with less. However, this does have a ripple effect. Fewer resources means less forward stocking and inventory availability in distribution networks, and lower volume means tougher to negotiate great transportation rates.
High Expectations
For emerging brands entering the market, earning trust and establishing rapport with new customers is no small feat. The reason: customer expectations are higher than ever. Data shows 84% of consumers will not return to a retailer after just one failed delivery experience, while 92% say they would stop purchasing from a company after three or fewer poor experiences, according to Forbes.
The Weight of Reviews
Smaller DTC brands are competing with Amazon for positive reviews and word-of-mouth referrals. For brands with less name recognition, those reviews can carry more weight. For example: if customers have negative delivery experiences and the company doesn’t have the resources to manage it, the customer is more likely to leave a negative review. According to a recent Convey consumer survey, 89% expect to be able to provide negative feedback when they have a poor delivery experience and are more likely to want to want to privately contact the brand.
So what does this tell us? Two things:
- Negative reviews risk negative attention and are a crucial opportunity to gain visibility and take action on systematic problems as a brand scales.
- The less money a brand has to spend fixing negative experiences, the more money they have to invest in more revenue-driving aspects of the business.
These challenges are just the tip of the iceberg when it comes to finding success as a new brand—so what’s helping DTC retailers overcome these challenges?
Competing with Amazon: How DTC Brands Are Finding a Competitive Edge
In the era of Amazon, DTC brands are getting creative to stand out and find success within a crowded, noisy, and competitive marketplace. From referral-driving efforts to stellar delivery experiences, they’re finding ways to go above and beyond for customers.
These efforts include:
- Loyalty programs: Reward-based loyalty programs and incentives help reduce churn and encourage long-term relationships while also spurring new referrals.
- General CX improvements: Personalization and relevant experiences across channels help DTC brands offer unique, tailor-made interactions with customers no matter where they are.
- Positive delivery experiences: While the delivery experience aspect is often overlooked, it’s one that has a major impact on a customer’s perception and trust around a new brand (and can be a source of churn if not executed properly.)
The common theme here: An emphasis on customer-centric efforts that encourage long-term customer relationships, that drive referrals, and that boost retention. Ignoring these factors early on not only risks negative attention, but it jeopardizes a crucial opportunity for DTC brands to take action on systematic problems in their network as they scale.
So what do these tactics look like in action? What are DTC brands that are seeing success putting these strategies to work?
DTC Brand Grove Sees Success via Delivery Experience Management
Grove Collaborative, a fast-growing CPG brand, puts a strong focus on providing stellar CX to all of its customers. As part of those efforts, they were looking for a way to keep customers in the loop on their shipment/deliveries. Unfortunately, Zendesk didn’t provide a solution that met all of their needs, and they needed a new tool for delivery experience management.
When they switched to Convey in 2018, they were finally able to get real-time access to shipments and could share that info with customers, too. This also meant they were able to anticipate issues with a dedicated exception resolution team whose goal was to proactively address customer complaints around the most common causes of delivery issues.
The results of this program were dramatic: Within six months, Grove’s NPS score rose by 9.4%, and their CSAT by 1%. What’s more: They found that they could also save $65 per shipment by proactively handling damage claims and $23 per shipment by resolving incorrect addresses.
Overall, the focus Grove placed on improving the experience around the last mile has paid off, and continues to provide dividends. The increased efficiency these efforts provided meant they finally had time to dedicate to new CX initiatives like “Grove Guides”, a customer education program, which has increased customer AOVC by 50%.
Growing DTC Profit Margins: Delivering Positive Experiences from Start to Finish
When it comes to growing profit margins in the DTC world, the secret is in the experience. To compete with industry giants like Amazon, brands have to consider the purchase journey from start to finish (and beyond.)