With the pandemic changing the way we consume, the Direct-to-Consumer business model has become a trend-setting bandwagon that most businesses want to hop onto. However, the D2C model isn’t an easy one to crack, and involves being cognizant of numerous factors. Personalization, customer proximity, and product presentation are some of the integral aspects that companies should consider. What are the other aspects that can help companies successfully ride the D2C model? What are some of the challenges that companies will face in their transition into a D2C model?
In this conversation with Rajat Kohli, Partner at Zinnov, Sid Jatia, General Manager, Global Retail & Consumer Goods, Microsoft, shares his perspectives on how D2C models differ from B2B models, and what makes them vulnerable to change, and failure.
Rajat Kohli: Hello and welcome to an all new episode of the Zinnov podcast, Business Resilience Series. I’m Rajat Kohli, partner at Zinnov and I’ll be your host for today.
In, we saw companies lose relevance overnight when consumers lost access to them going into the global pandemic in the last 18 months. However, we have seen companies accelerate their digital transformation journeys at an otherwise unimaginable scale and speed.
Lot of companies that were not exclusively direct-to-consumer, in other words, D2C before changed their models. This pivot, not just kept their business afloat, but have helped them thrive in these trying times. The D2C market globally is at an inflection point and is expected to touch a massive growth in the next few years.
Digital channels have been enabling companies to cut out the middleman and reach customers directly. Today I have with me Sid Jatia, General Manager, Global Retail and Consumer Goods at Microsoft Corp, who will help us understand how traditionally non-D2C companies have been leveraging technology to future-proof their businesses among other things. And of course, hear from him on how Microsoft has been enabling its customers with this transition. Sid has 18+ years of valuable experience in retail and consumer goods industry, including more than 10 years in developing, executing, and managing evolving digital businesses, leading change through customer experience. In his current role, he leads strategy and investments for Microsoft’s Retail and Consumer Goods industries across products, business capabilities, partnerships, and M&A.
Welcome, Sid, it's a pleasure to have you here today.
Sid Jatia: Hi, good morning Rajat. Thanks for having me here and looking forward to the discussion.
Rajat Kohli: All right then, without any further ado, let's jump right into the discussion. I know this is a very interesting topic and everyone is eager to understand how the industry is moving.
You have been in the retail and the consumer goods industry for a long time. Can you shed some light on how the industry has transitioned over the years and what were some of the key breakthrough events that led to that transition?
Sid Jatia: Yeah, that's a really good question to start with, Rajat. I look back about 18 years.
I started working for Razorfish, which was back in the day one of the leading interactive agencies. And I remember one of the first sort of portfolio work I got to operate was Oreo and that was quite interesting, because if I look back at what we were doing 18 years back, we were building a consumer engagement website for Oreo.
And then I think about today, fast forward 18 years…the role of digital is so ingrained into how businesses are run versus a consumer engagement site… that’s sort of the macro theme. And I mean, I think as we start to peel the onion in terms of what are some step changes which have gone through in retail and consumer goods over 18 years, the ones which are dominant and very top-of-mind right now as we come out of COVID is rise of e-Commerce. We all know we've had some 20 years of growth in two years. We've had supply chain becoming a first-class citizen. It's no more back-office and front-office. The magic really happens at the cusp of the two together. And it's both, it's the personnel who are operating back-office today are part of the executive board. They're part of the conversation. But more importantly, they all are working together. So it's not an executional profile anymore. It's a strategic profile around how you operate companies. And we think about the world of direct-to-consumer. We'll talk more specifically in a few minutes there, but generally I just think those are some macro trends which have really formed the foundation for what new retail is in my mind.
Rajat Kohli: And I think so the next, the disruption that is happening is very specific as a direct-to-consumer. And it is seen as an emerging trend in the last few years and we are seeing some D2C native companies witnessing exponential growth. As per you, how do you see the future of D2C?
Sid Jatia: A lot of people would say the reason to go to direct-to-consumer is because you don't have to pay some exorbitant margins to retailers to drive your distribution. And I think all of us appreciate while the margin opportunity is probably real, direct-to-consumer is an extremely hard business to operate and run profitability.
So, I would almost put the margin motivations aside. I mean, the biggest reasons why CG companies are going direct-to-consumer is really that they want deep intelligence around their consumers, because you are only so good as the products you make. And if your products are going to be more relevant to your consumer, the better company you are. the better sell through you’ll have.
And how do you make better product? It's by better consumer intelligence. And how do you get better consumer intelligence? It's by consumer proximity. So D2C really allows for direct connection to the consumer, not only in terms of what are the products they are considering, what are the products they use? What's the life cycle of use? None of those patterns are typically obvious to consumer goods companies. Those are typically intermediated through syndicated data partners or through retailers. So that's really the major motivations by companies that are trying to go direct-to-consumer.
Rajat Kohli: Well, that's very interesting. And just to add, we've seen that many traditional brands as you already highlighted… As per you, what are some of the interesting channels that these companies are adopting to go to a D2C model? And how do you see the various channels evolving?
Sid Jatia: Yeah, so the channels is an interesting concept and many people when you talk direct-to-consumer, the first thing they go to is e-Commerce, it's putting products on your website and selling it.
And I think where you're trying to take this conversation and I do appreciate that sort of push, which is direct-to-consumer is almost channel agnostic. It is about getting close to your consumer, whether it's in a physical store and running your owned and operated stores, whether it's about running e-commerce, whether it's running on Amazon or Zalando or whatever that might be.
The point really is when you sell through 3Ps, like Amazon's Zalando Tmall, Alibaba, all of the big conglomerates, data aggregators. The question really becomes is that a direct-to-consumer strategy anymore? And I think that the jury's out there, like it's sort of direct-to-consumer, because people, when they buy brand.
But you could argue that a lot of times people don't care about the product they are buying from a brand perspective, it's about convenience and immediacy. So, I think that's really the dictating factor, like direct-to-consumer. The important aspect is connection into the consumer and visibility into consumer pattern.
And if you can, if you can get that, and all respect to our competition, but there is very limited visibility into consumers, in terms of consumer propensity when you are selling through large 3P marketplaces. So, I mean, but it's also a necessarily evil for a lot of brands because they know demand sits on these large platforms and consumers are kind of coached to buy from these marketplaces. So I think that sort of drives up the reason. So to sum it up, the channels are owned and operated stores, 3P marketplaces. The most fascinating emerging channel for direct-to-consumer is things like out-of-home. So think about self-service kiosks. Think about things like Uber and DoorDash. So there is an opportunity with a lot of consumer goods companies around the world going direct for distribution through these last mile providers. Now that begs the question, where is the retailer? Has Uber and DoorDash become the retailer?
So I think there's interesting sort of phenomenon happening in terms of distribution. And the point really is, channel doesn't matter. You have to be where your customer is, and that's what great D2C is.
Rajat Kohli: That's interesting. And as you highlighted these examples, the likes of Uber, DoorDash, I think the technology will also play an important role.
And as we see the advance technologies with the help of the sensors, the drones, even the AI, I think so a combination of all of this will provide a better experience to the consumer also.
Sid Jatia: Yeah. Now you you're. Right. A lot of intelligence is predicated on technology and technology is not just web analytics. Technology is ambient sensors. It's IoT. It's about all sorts of these data input mechanisms which exist and both brands and consumers have to be aware of where's that sort of delicate balance of give and get. Brands can't ask for more than consumers are willing to give. So there's also responsibility on technology to really drive that handshake between consumers and brands, especially in the direct-to-consumer setting.
We were all going through what's right and wrong, privacy; we're trying to understand consumer ownership of data. So all of that are incredibly important concepts for brands to get right when they think about direct-to-consumer.
Rajat Kohli: And if you look at the other side, what are some of the challenges that these companies are facing to go to the D2C model?
Sid Jatia: That's actually my favorite question. So I'll say while everybody's fascinated by direct-to-consumer. It is a really, really hard business.
So what makes it super challenging overall? I would say, it’s the clarity of what product you should sell on direct-to-consumer? It's still a sketchy science. Most people are guesstimating it and they're feeling their way through it. There's opportunity to make sense of that. You've got a lot of talent, which was built on on the shelf marketing talent. And now you're starting to think of our demand generation in terms of social media management and things like that. Again, very different scale which you have to start to build within your teams. Traditional category management world in most CPG companies is starting to give room to how people should think about, like merchandising in terms of product presentations on-site and stuff, which didn't really matter because ultimately if your wholesaler was going to buy more and more of your product, all you cared was like your sample room was in shape. And after that, product presentation didn’t matter. Product presentation mattered in marketing campaigns, again talking about a little bit of my experience at Under Armor or another specialty apparel, product presentation and old sale only matters from the lens of the retailer.
The expectation of our CGs is that you just build a great product and you sustain great campaign. So now when you start to go direct-to-consumer, product presentation matters. And just simple thing, those two words is a huge sign and there's a huge skillset gap in most companies around that.
So all of these complexity, and now you're still very experimental in terms of your sales volume and D2C, if you're especially new to this side of the world, right? And now you've got small sales volume and you've got high operational costs and quickly that starts to lose steam for many brands trying to experiment their way, because they're like, ‘oh, we thought it's going to be high margin. How come we aren't making money in the short-term?’ So there is a journey to optimize, optimize, optimize. There's journey to really share costs across channels and really think about connection across all of these, ultimately to get to a sustainable business which is truly a creative to your P&L and it's a creative to your overall strategy. So, you know, I gave you a fairly high level answer, but there's just tons of which is very complex and challenging in D2C.
Rajat Kohli: Of all these challenges, I'm very curious to know a little bit about Microsoft's blueprint for enabling D2C for their customers. Can we expect the tech giants, the hyperscalers to launch something like a pre-built customize offerings for D2C, something like a D2C accelerator pack or translate the D2C for brands? Would you'd like to shed some light on.
Sid Jatia: Yeah. We have a very deep bench when it comes to a direct-to-consumer product entity. As you know, within the world of dynamics, we've got dynamics marketing, we've got dynamics commerce, we’ve got dynamic supply chain. So while as a hyperscaler we are focused on making sure that Azure is the number one cloud in terms of value to our customers. We are also very focused on making things simpler for our customers and that's where really the dynamics end-to-end suite in terms of demand gen to logistics is really exciting for customers who are either trying to go and experiment in that journey or are established player looking to consolidate and optimize their stuff.
It's worth digging in there and seeing because there's software born on the cloud, which is a bit different than software which was born legacy and there are different principles and how that software drives around. You know for people interested they can they a dig in and find out, but that's an exciting prospect to have a fully vertical-integrated product suite.
Rajat Kohli: As an industry veteran, if you were asked for a playbook or a success recipe for a company just entering into the D2C, what would that be?
Sid Jatia: I think it would start with really thinking about your consumer and your assortment. The mechanics of how you stand up channels, how you operationalize them, there's tons of efficiency you could work through. And there's tons of great start-ups doing interesting things. There's tons of hyperscalers doing interesting things, but as a category manager if you don't know what you are trying to do in terms of, is it a unique customer you're trying to get to, consumer more so than customer, is it that you believe there's your product assortment which you want to get market intelligence? Is that the reason you're going direct-to-consumer? And I think that's where is the channel strategy. If you have a really tight channel strategy across your wholesale and direct channels, I think you'll be fine. So I would just say, get maniacally focused on getting that right before you start experimenting and operationalizing of channels
Rajat Kohli: Any suggestion or the part of the playbook which talks about the data, how they think about the data in the coming time as part of the playbook?
Sid Jatia: Yeah, it's not a choice, it's a necessity. So the big brands and enterprises have investments across, you know, really seeing their data and resources. But again, going back to that commercial manager, commercial director, category manager, that person has to get really tuned into the insights and intelligence across their category.
From the chief data scientist or whoever your data lead is, because the data lead's job is to facilitate the best insights to the right business units. But as a business unit lead, really understanding skew rationalization plan, understanding consumer behavior and propensity to churn and buy, like those are areas you got to get programmatic and it all sits on the shoulders of data.
Rajat Kohli: Interesting. I think so. I agree. Data is one of the key aspects as a gold mine for any industry, especially in the retail CG which is more focused on the consumer side. Now on a lighter note said, are you a D2C person or an e-commerce person?
Sid Jatia: It is not too different. Things like e-commerce is a subset of direct-to-consumer, but, you could say e-commerce is also a broader concept which goes beyond D2C and goes into other industries and retail. So it's kind of like apples and oranges. I mean, obviously I've spent large parts of my professional career in e-commerce and direct-to-consumer votes.
So I love them equally. And I'm fascinated by what both will bring in terms of serving customers. I'm fascinated about the role I will play in making direct-to-consumer more relevant for our customers. And as a consumer, I'm a big shopper. I'm probably one of the few sort of, you know, male colleagues who really get excited about shopping and going to the mall still.
So I hope and pray this not going anywhere, and it only gets better for the shopping experience.
Rajat Kohli: This is very insightful. Thank you so much, Sid. This has been a truly insightful conversation. I learned a lot. It really offered valuable, broader perspectives on the functioning of the D2C modernizing.
So the way you started the definition of D2C, that was super helpful for all of us, especially in relation to the technology and the digital transformation. I'm sure our listeners agree with me as well. And they have a lot of new ideas and food-for-thought to take away from this interesting conversation.
Once again, thank you so much for taking out the time to have this conversation with us.
Sid Jatia: Thank you, Rajat. It was fun talking to you as well.
Rajat Kohli: Thank you, everyone for tuning into this episode of the Zinnov podcast, Business Resilience Series. We'll be back soon with another episode with another leader, till then take care and stay safe. Thank you.
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