21-Sep-2021

Benefits to manufacturers offered by direct-to-consumer (D2C) selling and what customers appreciate about it

Direct-to-consumer – the direct route to customers

Direct-to-consumer – Direktvertrieb statt Onlinehandel

   

In this article, you’ll learn:

Shampoo delivered straight to homes from the manufacturer instead of a (online) drugstore – a trend originating in the US that will change the world of retail forever. It is not just since the coronavirus pandemic that customers and companies alike have recognized the benefits of selling products directly to end consumers.

For men standing cluelessly in the shampoo aisle, Fabiola François-Poncet together with her team have developed a new brand in the hair care segment: M:ID. The abbreviation stands for Men ID. “We wanted to turn men’s hair care on its head,” explains Fabiola, who is responsible for developing innovations for Henkel’s Beauty Care division as part of the Fritz Beauty Lab team. The brand slogan reveals the business model behind the initiative: “Get Germany’s first personalized scalp and hair care products delivered straight to your door.” Customers complete an online survey, known as the Product Advisor, that asks questions about hair structure, requirements and problems relating to hair and scalp care. The customer then receives a personalized recommendation. Not only is the customer recommended a shampoo, they also receive a small set tailored to their hair, which is delivered directly to their home with no middleman. No need to visit the shampoo aisle. This is the idea behind direct-to-consumer brands like M:ID, which have seen huge uptake in the past year – due also to the coronavirus pandemic.

Retail vs. direct-to-consumer

Direct-to-consumer brands market and sell their products directly to consumers via their own online presence, without retailers acting as intermediaries.

The D2C boom and its significance to companies

According to the German Retail Federation, online trade grew in Germany by 21 percent in 2020, during the pandemic, compared to the previous year. Traditional retail sectors that rely on passing trade, on the other hand, had a harder time, particularly due to having to close during lockdowns. However, online business was stronger than ever. Direct-to-consumer brands that market and sell their products directly to consumers via their own online presence have particularly benefited from the booming online trade and the change in consumer habits. “Henkel too has intensified its investment in the D2C business,” explains Esther Kumpan-Bahrami. Esther heads the “Fritz‘s Beauty Lab“ founded in 2020, the name of which was inspired by company founder Fritz Henkel. Fritz‘s Beauty Lab is truly a “laboratory,” she explains: “It is a testing and learning environment that is ultimately intended to accelerate the development of new products and brands.” Direct-to-consumer brand M:ID is one of the first innovations.


M:ID is the first direct-to-consumer brand conceptualized by Henkel itself.

Esther Kumpan-Bahrami, Founder & Head of Fritz Beauty Lab

   

Henkel’s market environment is becoming ever more competitive and faster paced. To keep up, we have created an agile ‘speedboat’ with the Fritz Beauty Lab that quickly seizes on new innovations.

Henkel’s market environment is becoming ever more competitive and the speed of innovation witnessed has increased significantly, explains Esther. “To keep up, we have created an agile ‘speedboat’ with the Fritz Beauty Lab that quickly seizes on new innovations.” Laundry & Home Care also has such an innovation laboratory with Love Nature GmbH. The incubator teams working here identify emerging trends and develop business concepts based on them with the aim of exploiting additional growth potential. Speed and agility are key to this. The teams consequently operate like entrepreneurs within the company. Independent and rapid processes on the one hand and access to Henkel’s global resources on the other help employees of the think tanks develop successful brand and sales strategies. This combination offers a clear competitive advantage.

How ideas become direct-to-consumer brands

Digital sales channels and direct access to consumers are by no means new to Henkel Beauty Care. With eSalon, for instance, Henkel has been specifically targeting end consumers since 2019. It provides online advice on suitable hair colorations with specifically blended shades sent directly to consumers’ homes. A further example of the expansion of digital D2C platforms is the acquisition of Invincible Brands, a Berlin-based start-up and its three D2C brands HelloBody, Banana Beauty and Mermaid+Me, in July 2020. With M:ID, Henkel continues to expand its D2C activities in the Beauty Care sector. The special feature: M:ID is the first direct-to-consumer brand conceptualized by Henkel itself. But how do such brands actually come into being and how do they find their way to customers? Fabiola explains this using the new St. Biomé brand, the latest idea from the Fritz Beauty Lab, which clearly shows how D2C brands are distinct from traditional brands.

Phase 1: Hypothesis

The first phase is the “hypothesis” stage and has the function of an innovation funnel. This phase involves discovering “unchartered waters,” market niches with significant growth potential for existing and innovative brands such as St. Biomé. When the incubator team identifies hidden potential, the innovation funnel is set in motion. The Beauty Care Incubator team starts with promising ideas – inspired by current trends, keyword analyses and social media listening. “Pivotal to St. Biomé was the fact that we saw huge demand around skin issues and skin complaints during the first year of coronavirus,” says Fabiola. Microbiome was the main area of interest. As with intestinal flora, the skin also has a microbiome, a type of protective layer, that keeps good and bad bacteria balanced. External factors such as stress lead to an imbalance and thus to skin problems. The idea for a new brand was quickly born: Care products that strengthen the microbiome and restore skin balance.

Phase 2: Ideation

Ideation follows hypothesis. The idea is made tangible and brought to life through a product concept. St. Biomé products have been developed by a team of natural scientists and skin experts. “The post-biotic technology contained in all of our care creams enhances the defensive and self-healing powers of our skin, thus helping it to help itself“, explains Fabiola. The product concept also includes points such as the design or the name. However, initial blueprints are rarely final, since they are coordinated with consumers in the next step. The key to the success of D2C brands is direct contact with customers. “Via social media and social marketing, a community is built around the brand that is intended to help create the brand and the products,” explains Fabiola.

Fabiola Maria François-Poncet, Senior Manager International Incubator bei Henkel | Founder of M:ID & St. Biomé

   

For example, we place ads on social media to encourage consumers to provide feedback on all relevant product and marketing elements as early as the development process. We then adapt our strategy for market entry on this basis.

Phase 3: Validation

In the third phase of market development, known as validation, consumers are surveyed on the findings made in the concept phase. “For example, we place ads on social media to encourage consumers to provide feedback on all relevant product and marketing elements as early as the development process. We then adapt our strategy for market entry on this basis.” Potential customers complete a survey scrutinizing various factors such as brand name, product appearance or brand vision. A prototype is then tested via “online sprints” lasting between 24 and 72 hours.

Direct-to-consumer-Marke St. Biomé

The new D2C brand St. Biomé offers care products that strengthen the microbiome and restore skin balance.

Phase 4: Market launch

After validation, a “Minimum Viable Product” (MVP) is produced, i.e. an initial, minimally functioning version to be directly tested in the market. If the MVP proves successful, it is offered to a wider market. A hybrid model was trialed at St. Biomé: The brand was marketed on social networks following a direct-to-consumer logic, but was simultaneously only available online at Amazon. This allowed various target groups to be addressed. The product shop also allows us to learn what expectations customers have and whether these are being met. When new products are designed, for instance, there is a product preview first. When customers click on this, developers can assume that they are interested. In the initial period, the price is not yet shown. “If this were visible and customers didn’t add the product to their online shopping basket, this would indicate that the product is probably overpriced. We would then need to make changes,“ explains Fabiola.

Phase 5: Optimization & growth

In the final phase, the product is optimized on the basis of consumer feedback – a continual process. “Never done,” is how Fabiola describes the motto of direct-to-consumer business. “We are always looking at our smartphones to see, for instance, how sales have fared. We’re conducting analyses daily and optimizing daily.” Everything can be tested – products, categories, sales channels and much more – and this is exactly what Fabiola and her team do. This is because the basis for the success of direct-to-consumer brands is data and using it strategically.

Fabiola Maria François-Poncet, Senior Manager International Incubator bei Henkel | Founder of M:ID & St. Biomé

   

We’re conducting analyses daily and optimizing daily.

Direct-to-consumer – direct sales as a competitive edge

“The transition from idea to product takes an average of six to eight months,” explains Esther. Normally it can take two to three times longer. “We are able to launch products in just a few months.” There are many reasons for this. One is the multi-functional team, which includes colleagues from all areas and sectors such as R&D, production, logistics, packaging and purchasing. “Similarly important are our short decision-making channels and the focus on just one country and/or sales channel, but also the MVP approach,” explains Esther. That is the strength of the Fritz Beauty Lab – collaborative working facilitates better results and agile processes ensure acceleration. D2C is an additional sales channel for Henkel, creating not just added value for consumers, but also driving forward the innovative spirit and digital transformation of the company. As a result, expertise in the areas of performance marketing and analysis is also channeled into core operations, ensuring that target groups are addressed more effectively and understood more quickly. 

Esther Kumpan-Bahrami, Founder & Head of Fritz Beauty Lab

   

“We see ourselves as pioneers who develop and test innovative brands and marketing strategies.

   
“The expertise that we generate is, of course, also important for our traditional retail operations and strengthens cooperation with trade partners,” remarks Esther. It is not just about unique expertise for brand development. In Fritz´s Beauty Lab, new business models are also tested and future trends ascertained. “We see ourselves as pioneers who develop and test innovative brands and marketing strategies.“ And the next D2C brand is already waiting in the wings: A sleep line named “kaloon.” One of the products is an anti-aging cream with active sleep formula. Clearly a product customers are already looking for.

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