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WHITE PAPERPRESENCE, INTELLIGENCEAND CONFLICT:OPPORTUNITIES AND CHALLENGES INDIRECT-TO-CONSUMER E-COMMERCEEXECUTIVE SUMMARYReaders of this document will learn why the advantages andopportunities provided by direct-to-consumer e-commerceoutweigh perceived risks and challenges. This document alsooutlines some best practices for going direct.CONTENTS1 GOING DIRECT: IT’S WORTH THE TRIP2 CONSIDERING THE RISKS AND CHALLENGES3 WEIGHING THE CONSIDERABLE REWARDS4 IDEAS, INSPIRATION AND BEST PRACTICES5 ABOUT DIGITAL RIVER

SECTION 1GOING DIRECT:IT’S WORTH THE TRIPOnline shopping is mainstream. Whether a consumer’s needs, wants or cravings run to books, gadgets, clothing, toys orauto parts, there’s a big-box store, luxury retailer, online-only retailer, flash site or auction site with a digital presence toserve them. Interestingly, manufacturers whose products are sold through these channels often hesitate to create theirown, branded, e-commerce website to connect directly to end users.If your company is considering the development of a branded online store, good. If your competitors aren’t doing italready, they will be. A 2012 survey of brand marketers indicated that 24% had an active direct-to-consumer channel and41% expected to sell directly to consumers within 12 months.1 Since a digital presence is cheaper and easier to launchthan a traditional store, much of this activity will be online.Going direct can provide your company with profound opportunities and benefits, including: a rich source of actionable business intelligence, enhanced consumer satisfaction, and increased sales throughout the channel.Risks and challenges of direct-to-consumer e-commerce also fall into three broad areas: channel conflict, insufficientresources dedicated to branding and marketing, and technical and operational issues like logistics and payments.Online share of total categorysales forecast for 2016:THE MARKETING CASE FOR A BRANDED SALES CHANNEL16%COMPUTER SOFTWARE12%COMPUTERS5%COSMETICS AND BEAUTY PRODUCTS73%60%9%CONSUMER ELECTRONICS(INCLUDING CELL PHONES)3%25%APPAREL, CLOTHING ACCESSORIES& FOOTWEAR3%14%Base: 4,358 US online adults (ages 18 )1Computers, software, and consumer electronics have the highest direct-to-consumer sales potential2

SECTION 2CONSIDERING THE RISKSAND CHALLENGESChannel conflictInsufficient resourcesTechnical mattersMany manufacturers assume thatselling directly to consumers willalienate channel partners. While itdepends on the product categoryand the quality of existing channelrelationships, this is often more aperceived challenge than an actualone. The way to counter theseconcerns, internally and externally,is to discuss how online stores candrive benefits throughout the channel.A survey by Levin Consulting in 2012indicates that online stores actuallydrive consumers to physical storesand channel partner sites. If pricingis a concern, you can assure partnersthat you will not undercut them, andthat you will share insights frompricing experiments with them.To gain the most practical benefit andmeet consumer expectations, youronline store needs a solid foundation.Sufficient resources should bededicated to building the fullestexpression of brand identity into youre-commerce presence. Look, feel,user experience, administrative tools,customer care strategy—all play intocreating success online. A marketingstrategy is also critical, to make surethat your web store is positioned tobecome the site of choice for researchabout your brand.Setting up an online store requiresattention to issues such as financialsystems and supply chain logistics.Certainly, going direct can be acomplex undertaking, but the longterm benefits are unquestionable.Outside e-commerce expertise isreadily available. As Gartner writes,“The ecosystem of service providers tosupport direct online sales of CGs hasmatured, making it more efficient toaggregate and ship these items withpoint-to-point solutions.”2WEIGHING THE OPPORTUNITIES VS. THE CHALLENGESCHALLENGESOPPORTUNITIESCHANNEL RELATIONSHIPSSUPPORTING THE BRANDSYSTEMS & OPERATIONSBUSINESS INTELLIGENCECONSUMER SATISFACTIONINCREASED SALES3

SECTION 3WEIGH THEREWARDSActionable businessintelligenceGoing direct provides anunmatched source of insightsand understanding, unfiltered bya retailer lens. By analyzing whatvisitors to your site research and buy,you will gain a deeper understanding,sooner, of what your customerswant. You’ll be able to respond toshifts in the marketplace quickly andconfidently. For example, a luxurybrand, such as a leather goodscompany or clothing manufacturer,can use online store data to trackwhich styles and colors are trending.Not only can their factories anddesigners act on that information,traditional retailers can be kept inthe loop and provided with insightsto help them stay in step withevolving tastes and trends in theirregion. If direct and traditionalcustomers differ in their tastes,that, too, is valuable information forforecasting physical store sales.Enhanced customersatisfactionConsumers today are empowered.They want relationships, and goingdirect is the ideal way for yourbrand to build those relationships.Empowered consumers also seekreliable information. Detailed productdescriptions, comparison tools, storelocator functionality, the ability topost reviews—all build satisfactionand connection with your brand andprovide consumers with more andbetter information. Busy consumersalso appreciate the convenience.Customer care is important not onlyfor customer satisfaction, but forproviding operational intelligence.An online store will provide you withinsights about returns and defectiveproducts, as well as top sellers.Use those insights to tailor yourproduct mix and manufacturingto help ensure optimal return.Increased salesthroughout the channelConsumers increasingly buy onlineand increasingly buy directlyfrom manufacturers. A credible,information-rich manufacturersite will drive sales throughout thechannel, as consumers researchtheir purchases in advance. It willalso extend your reach to areaswithout a channel presence.Robust “where to buy” functionalitywill support increased sales.Consumers want instantgratification and choices: to buydirect, find the retail store nearestthem, link to an online retailerthey’re comfortable with, or findanother source for the product ifthe manufacturer’s site is sold out.You will directly capture someincremental sales, but your onlinepresence is more important for itsrole in capturing consumer insights.Going direct also provides a wayfor customers to find your productsin the event that one of your majorchannel partners closes its doors,whether that’s a big-box store, aregional department store, an onlinesuperstore, or a major wholesaler.By analyzing whatvisitors to your siteresearch and buy,you will gain a deeperunderstanding, sooner,of what your customerswant. You’ll be able torespond to shifts in themarketplace quicklyand confidently.4

SECTION 4IDEAS, INSPIRATIONAND BEST PRACTICESUse your online store as alaboratory. It gives your organizationthe freedom and control toexperiment with pricing, promotions,exclusives and special offers. Takepre-orders on the site to gaugedemand for new products. Sharewhat works and what doesn’twith your channel partners.commerce platforms provide youwith the functionality to createprivate shopping experiences thatare not searchable on the internet.You can leverage a private shoppingsite to create community amonga targeted set of shoppers, offerspecial discounts and exclusiveproducts. A narrow approach is aneasy way to make a profit and builda happy community of customers.Offer a complete catalogShare the wealthYou are uniquely positioned todeliver the full footprint of yourproduct line. Your online store cancarry accessories, unusual itemsand hard-to-find replacement partsto satisfy all your prospective buyers,whether or not they live in areasserved by well-stocked channelpartners. This may be an especiallysuccessful tactic if your primarymarket is a small but passionategroup of hobbyists or fans.The positive outcomes of wellexecuted direct-to-consumere-commerce are themselves toolsfor eliminating channel conflict andimproving channel relationships. Forexample, an easy-to-use, up-todate store locator tool will informyour visitors about your channelpartners’ locations of service.Analysis of the store locator tool’suse can provide actionable insightson regional variations in trends andinterests. You might even discoverthat a given region is under-servedby bricks and mortar. With thevariety of new intelligence at yourdisposal, you will have much toshare with your channel partners.LearnTarget a nicheIf going direct permits a narrowfocus on specific, passionate marketsegments, identify what those arein your business. For example, bookpublishers have begun creatingniche sites for devotees of specificseries and authors. Today’s leadingThe positive outcomesof well-executed onlinestores are themselvestools for eliminatingchannel conflict andimproving channelrelationships.5

SECTION 5ABOUT DIGITAL RIVERE-commerce is constantly changing. Instead of managing youronline store in-house, leverage the expertise of a full-servicepartner. A company like Digital River offers a full range ofcommerce-as-a-service solutions and a flexible, cloud basedplatform, designed to help you grow your online businesses andserve your customers across the globe—without the time, cost andrisk of managing an on-premise solution.Digital River, a leading provider of global e-commerce solutions,helps companies of all sizes build and manage their onlinebusinesses, maximize online revenue, reduce costs andminimize risk. Founded in 1994, the company is headquartered inMinneapolis with offices across the United States, Asia, Europeand South America.Contact us today to show youhow Digital River can helpbuild an effective direct-toconsumer presence online.Einfo@digitalriver.comUSUK 1 (952) 253-1234 44 (0) 845-603-5070www.digitalriver.comSources1“The Marketing Case For a Branded Sales Channel”, Forrester Research, Inc., February 1, 2013.2Gartner, “Predicts 2014: New Realities Will Drive New Growth Opportunities in Consumer Goods Manufacturing,” Dale Hagemeyer, Don Scheibenreif, Michael Shanler, December 2, 2013. 2014 Digital River, Inc. All rights reserved. Unauthorized duplication prohibited. Trademarks andservice marks of other companies used in this document are the property of their respective owners.6

PRESENCE, INTELLIGENCE AND CONFLICT: OPPORTUNITIES AND CHALLENGES IN DIRECT-TO-CONSUMER E-COMMERCE WHITE PAPER CONTENTS Readers of this document will learn why the advantages and opportunities provided by direct-to-consumer e-commerce outweigh perceived risks and challenges. This document also outlines some best practices for going direct.