As Harry’s, Dollar Shave Club, Glossier, and Smile Direct Club, and many others, pioneer the direct-to-consumer (D2C) industry, demonstrating a business model more conducive to customer loyalty, how can FMCG brands keep up and build lasting customer relationships?
What is D2C?
D2C, or direct-to-customer, is a business model focused on selling a product or service directly to the end customer, typically online, cutting out any intermediaries such as supermarkets. The D2C sales strategy stands in stark contrast to the traditional means of product distribution, which involves a so-called middleman - a wholesaler - to whom brands, from Pampers and Fairy to Heinz and Uncle Ben’s, sell their products in bulk.
What makes the D2C ecommerce strategy so unique and appealing is the level of control brands have over the whole customer experience (CX). Unlike FMCG (fast-moving consumer goods) brands selling through intermediaries, their digitally native D2C counterparts get the benefit of a whole lot of customer data.
The D2C model allows brands to collect first-party data on their consumers; data which then offers endless possibilities. From getting a complex picture of who their customers are, and being able to make informed business decisions, to customizing products according to their customers’ preferences, data and analytics truly are the crux of D2C’s success and appeal. Harry’s, a grooming supplies brand and one of the pioneers of D2C, has created its products by crowdsourcing customer preference data from its shoppers.
One of the key benefits of D2C marketing is also greater control over brand identity. Brands selling through third-party retailers run the risk of getting subsumed by hundreds of other brands sold by the same retailer, which is why in order to stand out they often have to invest large amounts of money in mass advertising, such as billboards, TV, and radio. D2C brands, on the other hand, enjoy deeper digital connections with consumers and command over their brand messaging at very little cost; providing ample opportunity to build customer loyalty.
Given all that the direct-to-customer model has to offer, it’s no wonder many businesses are pivoting to the D2C model. And while we have brands such as Harry’s, Glossier, Warby Parker, and Everlane, all of whom are D2C natives, we’re also increasingly seeing big, established brands launching direct-to-customer offerings.
Examples include Nike shutting down many of its wholesale partnerships including Amazon and Macy’s; PepsiCo’s efforts to establish direct-to-customer channels, by launching an online store featuring all of its soft drinks; in addition to big brands acquiring D2C digital natives.
As such, in 2021, U.S. D2C ecommerce sales - among both digitally native and established businesses - produced earnings of $111.54 bn, accounting fot 14% of all retail ecommerce sales (eMarketer).
“Well-known brands are looking to cut back on wholesale to increase their margins, provide more control over distribution, and create an element of exclusivity.”
~ Suzy DavidKhanian
What is managing D2C marketing like?
While the direct-to-customer model may look like an opportunity all brands wanting to build true customer loyalty should go after, transitioning to the model isn’t necessarily a walk in the park.
During the pandemic, when the thought of venturing into a supermarket struck fear into our hearts, many established brands began experimenting with the D2C model to keep their sales up. As Tim Bond, head of insight at the Data & Marketing Association, states: “coronavirus triggered many brands to reasses their existing routes to market”, following which behemoths such as Nestle, Heinz, and PepsiCo, among others, made a stab at D2C marketing.
Coupled with the much-discussed success of digitally native D2C brands, it may be tempting for a business to turn their backs on wholesale and strike out on our own. After all, the chance to finally get closer to our customers, build a loyal following, and communicate with them directly is all any brand could want.
However, pivoting to D2C ecommerce is no bed of roses, and it comes with its own set of challenges. The most significant one being to do with economics. While it may seem like cutting out the middleman would be an instant saving, there are other factors to consider, namely the cost of customer acquisition, getting consumers online and meeting their expectations.
As Amazon sets a gold standard for ecommerce with their quick and cost-efficient deliveries, consumers have come to expect nothing less. That’s why it’s crucial to not only have the logistics, technology and the payments in place to provide seamless experiences and operate at scale, but also ensure that the value proposition is imaginative enough for the consumer to want to bother in the first place.
According to McKinsey, a number of different criteria need to be met to ensure success in the D2C ecosystem. These include:
- Go hard or go home: If you’re going to do D2C, you have to make sure that you really do D2C. Half-hearted attempts and disjointed team dynamics just won’t do. You need to make sure that it’s “all hands on deck,” and everyone is equally committed to making the venture successful. Getting a solid strategy in place, setting practical KPIs, and ensuring everyone knows their role (and has one) will be crucial.
- Invest ahead: Kicking off an ecommerce business is likely to demand a significant investment of resources, some of which you will not be able to anticipate. That’s why it’s best to “over-invest”, and equip your business with the right technology and talent in advance, so there are no surprises down the road.
- The right kind of people: Speaking of talent, a D2C business looking to succeed will need the very best, and ideally the kind of talent that thrives when it comes to all things digital. Whether promoting within the organization, anchoring leadership hires from other organizations boasting the right mix of skills, or procuring talent when acquiring D2C start-ups or scale-ups.
- Customer Experience (CX): The key factor that makes direct-to-consumer ventures so popular is how well they lend themselves to forging meaningful customer relationships based on a deeper understanding of customer needs. As such, any aspiring D2C business needs to actively leverage the data at their disposal to create loyalty-building customer experiences.
- Customer lifetime value: Customer loyalty is a core component of a D2C business’s success. That’s why providing a combination of great product/service and an engaging loyalty program delivering value beyond the transactional should be a key priority.
While D2C offers a wide range of advantages, namely first-hand customer data, more control over branding and potentially higher revenue, these benefits need to be stacked up against some of the disadvantages of the direct-to-consumer model. These include higher operating costs, no profitability guarantee, as well as the fact that consumers are returning to major retailers now that the pandemic is petering out.
Which brings us to the next point.
How can FMCG brands build customer loyalty?
Now that we’ve gone over all that the D2C business model has to offer, particularly with regards to customer loyalty, let’s take a look at FMCG brands who don’t have the benefit of a direct relationship with consumers.
Given that the average supermarket shelves are filled with upwards of 40,000 different items, and consumers typically shop at multiple retailers, FMCG businesses are forced to vye for customer loyalty with countless other brands. So, what can these businesses do to open up a communication channel between themselves and potential customers, and build lasting relationships without having to rely on their intermediaries?
The answer lies in digital loyalty programs.
A well-executed, user-friendly loyalty program offering a range of attractive rewards can help FMCG brands take control of their customer relationships, and set themselves apart from the sea of other brands sold at the third-party retailer.
Loyalty programs not only allow FMCG businesses to regain control of their brand messaging, but they also grant them access to the same data that native D2C brands benefit from. As a result, it’s then possible to personalize the range of offerings offered and make customers feel heard, which is the cornerstone of customer loyalty.
Below, we take a look at some examples of D2C loyalty programs implemented by FMCG brands.
Examples of successful D2C loyalty programs
Founded in 1961, Pampers is a leading global provider of baby and toddler products such as diapers, baby wipes, and training pants. Pampers is a subsidiary of P&G (Procter and Gamble), a well-known consumers goods company responsible for household brands such as Gilette, Ariel, Head & Shoulders, and Oral-B, to name a few.
Pampers is a 10-billion-dollar brand, while its products are manufactured in 25 countries in sold in more than 100 countries globally, at major retailers and small kiosks alike.
Not being a direct-to-consumer brand, in 2017, Pampers launched a loyalty program app, Pampers Rewards, to maintain its brand loyalty as private-label brands pop up around the world.
The loyalty program can be accessed, by downloading the Pampers Club App. The app has replaced the brand’s old app, which came with no loyalty features.
Consumers earn points for purchasing Pampers products, such as diapers and wipes that have special codes on the inside, which can be scanned via the app. To start with, new members get 100 points and another 50 points for scanning their first code.
The points can be redeemed for coupons, personalized gifts, discount codes, baby toys, magazine subscriptions and making donations.
Under the tab “Rewards” within the Pampers Club App, loyalty program members can find a catalog featuring different rewards they can choose to spend their points on, such as a range of various diapers and other baby products.
The app is available for both Android and iOS users. Upon signing up, customers provide basic information such as first name, email address and password. The app also asks for permission to store data on in-app activity as well as activity across other apps to best tailor their offerings, which customers are free to agree to or decline.
“Pampers understands that parents have a lot going on - and we’re always looking for ways to make their lives a little easier. That’s why we’re offering parents a new, simplified Pampers Rewards program. It’s a way for them get more out of every shopping trip.”
~ Andrea Zahumensky North America Baby Care, P&G
MSI, one of Open Loyalty’s clients, is a world leader in gaming, content creation and productivity solutions, with a global presence that spans over 120 countries. The company is a provider of highly acclaimed laptops, monitors, graphics cards, motherboards, servers, robotic appliances, and many other products.
MSI is an example of a brand that has decided to opt for the hybrid model, i.e. selling directly to customers through their own online store, as well as marketing its goods through third-party resellers.
In an attempt to deepen their customer relationships and brand loyalty, MSI decided to put out a loyalty program - MSI Rewards. With Open Loyalty’s help, they implemented a multi-tier loyalty engine that created a direct communication channel between them and their customers.
The MSI Reward Program is multi-tier and points-based. Upon signing up, members automatically receive 25 points; another 100 points for downloading the MyMSI app; in addition for bonus points being awarded for actions such as signing up for their newsletter, taking their surveys, or connecting with social networks. All of these allow MSI to learn more about their users and begin to build a user profile based on all of the provided information, which can then be used to tailor their offerings and further optimize the loyalty program.
MSI Reward Program Explainer | MSI (a video explaining the way the MSI rewards program works)
Once a member has purchased one of MSI’s products, they register it within the app by scanning a code. Depending on the item and item value, the customer is awarded points. The program is divided into four tiers:
- Bronze (0-199 points)
- Silver (200-999 points)
- Gold (1,000-1,999 points)
- Platinum (2,000+ points)
All tiers enjoy benefits such as birthday rewards and access to bonus points events, but the higher the tier, the more exciting the benefits. For example, silver, gold and platinum members can unlock exclusive rewards and receive partner awards. Platinum members also get access to invite-only events.
The points can be redeemed on things such as game vouchers, health and fitness memberships, and curated MSI wallpapers.
Royal Canin, founded in 1968, is a global leader in pet health and nutrition, and a manufacturer of cat and dog food. Having been formed by a veterinary, the brand’s mission has always been to offer the most complimentary nutritional solutions for pets, tailored to breeds, life-stage and medical conditions.
Royal Canin products are typically sold at veterinary clinics, pet shops and some large supermarkets. The brand doesn’t operate under a D2C model. As such, the pet food manufacturer created a loyalty program, Royal Canin Club, to engage with pet owners and learn more about changing customer needs.
The way the rewards program works is quite simple. It’s points based, while points can be collected, by scanning the bar code of every product purchased in store. When signing up, customers receive complimentary 400 points and a welcome voucher.
Every 1 point is equivalent to 1 penny, so every 100 points can be redeemed for £1 off a new purchase. The points are exchanged for vouchers, which come in denominations of £3 (300 points), £5 (500 points), £100 (1,000 points), £15 (1,500 points), £20 (2,000 points) and £30 (3,000 points).
All the magic happens within the app where customers can claim their points, exchange them for vouchers and rewards; learn about pet care tips, as well as find out about the latest Royal Canin promotions.
Introduced in 1978, Huggies is yet another provider of disposable diapers and baby wipes seeking to build a D2C connection through the use of a loyalty program. The brand is owned by Kimberly-Clark, a conglomerate known for other consumer products such as Andrex, and Kotex.
In getting its rewards program off the ground, Huggies partnered with Fetch, an app where many different brands get their customers to scan their receipts in return for gift vouchers. Therefore, in order to collect Huggies points, users need to do the following:
- Download the Fetch app, by scanning the QR code on Huggies’ website
- Create a Fetch Rewards account
- Join Huggies® Rewards+ within the Fetch app and enrol
Following purchases of Huggies products, customers scan their receipts and receive points according to their total spend. E.g. $150 spend is equivalent to 5,000 Fetch Rewards points and a $5 gift card; $550 spend is equal to 15,000 points and a $15 gift card.
Unlike the previous examples of brand loyalty programs, the Huggies rewards program isn’t housed within a native Huggies app. What’s more, the points collected through Huggies purchases can be exchanged for gift cards at a variety of retailers - from Amazon and GAP, to Walmart and Hotels.com.
Nevertheless, Huggies is able to gather data on its customers’ preferences and buying behavior, and forge a more direct relationship with their consumers, thus building loyalty.
Kellogg’s, or the Kellogg Company, is a highly successful U.S. manufacturer of cereal and convenience foods, with their most famous products being Corn Flakes, Rice Krispies, Pringles, and Froot Loops.
Kellogg’s products are made and sold in over 180 countries, and the company is listed on the New York Stock Exchange (NYSE). Its products, A non-D2C business, Kellogg’s spends millions of dollars on advertising each year, with a reported 790 million U.S. dollars spent in 2021.
However, Kellogg’s is now changing up its strategy, choosing to focus more on digital platforms as opposed to traditional advertising avenues. An example of this is the company’s loyalty app launch, Kellogg’s Family Rewards, featuring a token-based loyalty program.
Within the app, users can do things such as:
- Upload receipts and earn tokens
- Take polls or quizzes and earn extra tokens
- Take part in In-app activites
- Participate in monthly rewards draws
- Have the chance to get special offers & limited edition rewards
Every scanned receipt is equivalent to one token, and five tokens per month are needed to receive rewards, which are different every month. The program differs from many points-based loyalty schemes where points often accumulate for months, or users forget about them altogether. With Kellogg’s Family Rewards, users earn rewards every month (providing they scan five receipts), and their account balance is renewed.
“We are teaming up with several exceptional partners to offer some truly exciting rewards, including movie tickets, great toys, and books, digital rewards such as music and eBooks, gift cards, sports equipment, along with coupons off Kellogg products,” Larry Bruck, Kellogg senior vice president, Global Media, and Marketing (source)
Dating as far back as 1893 with the introduction of Johnson’s Baby Powder, Johnson’s Baby is an established U.S. manufacturer of baby cosmetics and skin care products. Its line of products, such as baby powder, body lotions, shampoos and wipes, is known and marketed globally.
The brand is a subsidiary of the multinational corporation, Johnson & Johnson, widely recognized for its contribution to the pharmaceutical industry.
Johnson’s Baby products are always sold through third-party retailers such as supermarkets, drugstores as well as smaller grocery stores. Again, that means their relationship with their consumers is mediated through the intermediaries that sell their products, which means Jonhson’s Baby competes with other similar brands, including the stores’ own native products.
That’s why Jonhson’s Baby, too, has launched its very own loyalty program to benefit from a direct relationship with consumers.
The program is points-based and very simple. All that members have to do is register for a Care Club account - which is what the scheme is called - using their name and their email address. It’s possible to connect your Google account at this point to make future sign-ins easier.
In order to earn points, customers scan their receipt, and the system then awards points according to the items purchased as well as the overall spend.
Points can then be redeemed for a number of different rewards from the Care Club catalog, for example, Amazon, Nike, Waltmart, and Starbucks gift cards, Venmo credit, discount coupons on certain items, and a few others.
As shown above, there is a whole lot that non-D2C brands can do to build lasting customer loyalty. At a time when innovation within the loyalty industry reaches great heights, companies who commit to building an attractive loyalty program that resonates with customers will likely reap its benefits.
It bears no repeating that a well-executed loyalty engine can boost user engagement, build brand awareness, and ultimately benefit serve the bottom line. A study by Nielsen tells us as much - it has found that 84% of consumers stated that they were more likely to do business with a company that has a loyalty program.
Of course, just having one for the sake of it isn’t enough. It’s important to select the right set of incentives, created personalized offers and rewards that make your audience feel seen, and stand out from the competition, by having clear brand values for people to identify with. Whether that’s through a commitment to sustainability, community support, or donations, let your customers feel that their money is going to good causes rather than just lining your pockets.
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To get some loyalty program inspiration, check out the Top 100 Loyalty Programs report, or peek into the future of the loyalty industry with our Loyalty Trends 2022 research.