For merchants, the digital age has brought with it the age of the channel conflict.
Not all that long ago, consumers bought everything in physical stores, even department stores, where shelves were stocked with all manner of competing products. Very few brands had “direct” stores, where each and every item had a specific imprint.
Now, all major and most small retail brands have direct relationships with their consumers through online channels, arguably infinite in scope, where individuals sign up, pay and sometimes leave cards on file in a “set it and forget it” mindset.
It’s a fragmented experience, to say the least, where managing a plethora of subscriptions or channels tied to every part of life — buying groceries, getting glasses, getting in shape and watching movies — can become unwieldy. In short, life becomes a series of interactions with scores of platforms, each of which is jostling for its share of the consumer’s wallet.
For the firms that have been brand-building in physical stores, getting critical mass in brick-and-mortar locations and then selling direct is nothing new, but it can create tension between channels. After all, the consumer who buys online is cannibalizing (or disintermediating) one channel for another.
Vindicia Chief Financial Officer and Chief Operating Officer Roy Barak told Karen Webster that the solution is subscription commerce, leveraging the data and consumer experience gleaned from all channels to give the customer what they want, when they want.
“Subscription is a subset of what most brands strive for,” he said. “And that’s a recurring relationship with a consumer … they have basically created another touchpoint and another sales channel with the consumer. They no longer go to a big-box store or an aggregator website online.”
The advantages for the merchant are recurring revenues, greater control over distribution and a longer lifetime value of a customer relationship.
The August Subscription Commerce Tracker bears out that sentiment. The subscription economy, which is currently worth $650 billion, is estimated to reach $1.5 trillion by 2025.
As for disintermediation, Barak maintained, we’re seeing that impact with the big-box stores. Many of those larger firms have not been as successful as their digital-first competitors in becoming digital platforms. They’ve been hedging against the loss of foot traffic that has been hastened by (but not solely due to) the pandemic.
“It’s been a diversification for market share purposes — a defensive move for the improvement of your core offering, which is the product that you eventually sell,” said Barak.
For digital-first and digital-only firms fashioning their direct-to-consumer (D2C) approaches, recurring revenues can be sparked in a variety of ways. Companies can establish extreme brand loyalty that results in sporadic, one-time purchases timed far apart (luxury or big-ticket items) on an as-needed basis. On the other side of the spectrum, brand loyalty can drive subscriptions, cementing the “everything shipped to the home” economy. And for the consumer, there are D2C subscriptions offered and purchased through brands or intermediaries.
There are several ways in which D2C brands go to market. Perhaps they were pure-plays that started out online, without subscriptions — but they now offer them. Perhaps they’ve crossed channels into the physical realm. Maybe they’ve even crossed channels into other marketplaces — either physical or digital. There have even been big-box stores or huge conglomerates buying D2C brands (Unilever buying Dollar Shave Club is an example).
That latter strategy has some traction, Barak noted, because “when you go into a big-box store — or even when you go to an aggregator website — you tend to look at and buy the brand you know. You don’t buy the big-box brand.”
As Barak told Webster, subscription commerce is still evolving and remains “quite a volatile landscape.” But as supply chains remained snarled, there’s value in taking more control of the fulfillment side of the process without relying on distributors.
Barak noted that the brand-focused and the D2C company must do far more to cement customer loyalty than just enabling payments (or recurring payments) or being available on an eCommerce site. In the bid to stop churn, they must craft an optimal consumer relationship. These firms also need to think about how to change their marketing and customer acquisition approaches.
Many of these firms need to embrace push marketing or “double down” on digital marketing — and even partnerships.
As Barak said: “The only success is when the purchase itself happens. Therefore, there’s no hidden incentive to advertise just for the sake of advertising.”
Against that backdrop, he noted, hybrid models are taking shape.
“We are seeing the rise of other aggregators or resellers in the space, where companies or brand owners that are complementary to one another can actually resell or partner to bundle various offerings without relying on a larger intermediary,” said Barak.
He offered the hypothetical scenario in which a consumer can subscribe to an online fitness class, but that provider can — by linking with other firms — also sell supplements, yoga mats and other ancillary products.
“They can send me a lot of things that they do not offer on their own,” he continued. “And by doing that, they’ve reinforced their direct-to-consumer experience with me, my relationship with [the fitness class provider], and the relationships that all parties have together.”
Other companies that have been able to bundle a slew of interconnected and complementary offerings and monetize them, he said, include online travel companies, which enable everything from booking flights and hotels to finding kayaking tours.
Looking Toward the Holy Grail — and the Data
The key leaders in those “cross offerings,” said Barak, are digital-first brands and offerings, including streaming firms — although plenty of non-streaming firms are examining D2C, bundles and different reseller channels.
Perhaps not surprisingly, data is the key to building a robust, multichannel, and perhaps even multipartner strategy. As firms go D2C, they begin to build a knowledge base about their consumer that they otherwise might have gleaned through intermediaries or aggregators. These D2C firms gain a deeper understanding of consumers, identities and buying habits, and thus can create a personalized approach to building that recurring revenue relationship.
Barak said there’s a “holy grail” to pursue, where digital-first and physical-first brands come together to peddle their offerings jointly to the consumer as lifestyle choices. There’s at least some activity toward that model, as Amazon seller aggregators are gaining traction, creating intermediaries and consumer-packaged goods (CPG) networks.
That model bumps up against the D2C model, but as Barak noted, “We’re still in the early stages of that dynamic. The market will balance out.”