Digital Transformation

Direct e-commerce business case?

Written by
Mads Krogh Petersen

What is the potential of a direct sales model via the digital channels? And what is the process of deciding on the “how” of Direct to Consumer e-commerce (DTC) given the complications of investment requirements, the need to build new competencies, channel conflict risks with existing distribution network and channel partners and facing the intense clutter and agile competitors in the digital ecosystem?

The fundamentals — Revenue potential & costs

A critical part of understanding the potential is to understand the existing e-commerce sales in a given category and the growth trajectory.

Take the example of Over the Counter drugs (OTC) which is a laggard in terms of e-commerce adoption due to the category’s unique characteristics which I have described elsewhere. Only 2% of OTC sales takes place through e-commerce representing USD 2.5 billion. So the baseline is low, however it is safe to conclude that e-commerce sales will grow over the coming years e.g. given Amazon’s OTC initiative Basic Care and positive experiences from OTC e-commerce in Germany. In other words, an e-commerce revenue potential is present even in this arguably “worst case” category.

Whereas the presence of a revenue potential is somewhat obvious given the fact that we increasing live our lives online and therefore will continue to buy more things online, it is much less obvious whether this potential can be captured profitably. E-commerce infrastructure investment, operations costs, fulfillment costs and obviously COGS are key cost drivers and determinants in the business case for the direct sales model. These costs have been mapped in the detail and calculated with significantly precision in the e-commerce projects where Vertic has taken part. Accordingly, the revenue potential and cost implications can be collected into a preliminary business case.

Branding & Marketing may break the business case

But we inevitably need to add another key variable to complete the business case. In most markets, products are increasingly commoditised. This means that consumers are likely to already getting their needs addressed and to their satisfaction. Thus, even though our product may be relevant to the audience, consumers will not be actively searching for our product. In other words, we need to differentiate our value proposition to the consumers and we do this through the disciplines of Branding & Marketing applying a Share of Life™ mindset. And the opportunities and costs related to branding and marketing in order to drive differentiation in the minds and souls of consumers may validate or undermine our preliminary business case.

So what are the steps in defining a differentiated and relevant brand and what is the cost structure in terms of establishing and nurturing the brand in the digital world in order to drive demand for the e-commerce?

Vertic probiotics e-commerce

So, can we cut out a space in the e-commerce market for our hypothetical probiotics product?

Unfortuntately, at a glance, it appears Probiotics is a highly competitive marketplace in the online space…

And there are over 6000 probiotics products on Amazon.co.uk.

And the market seemingly have many highly-rated and established players.

So launching an e-commerce platform in a cluttered and, at face level, saturated market, would not, ceteris paribus, drive sales of our product. Arguably, the challenging task is not (only) building the platform and develop relevant logistics, but rather to consider how we can get people to…

  • Feel our product is relevant — both practically and at a values level
  • Look for our product specifically
  • Buy it despite the fact it may have fewer ratings
  • Talk about it to others and buy it again

At Vertic, we have a 8 stage process to decide on how to launch and sell a new product online from a branding and marketing perspective. This is basis on which the brand can target and define a relevant market share of e-commerce market and the associated branding and marketing cost necessary to capture a given profitable market share. Let us have quick look at each stage.

Product & Category Research

Most Healthcare companies in OTC claim to a Leader in Science Science based, and so is Vertic, but what are the specifics of the product’s efficacy and safety which is compelling?

In order to understand, at scale (big data), how people behave online when it comes to probiotics we employ Vertic’s digital brand IQ methodology. This sets a context for us and allows us to understand more about the population that is currently aware of probiotics. Later activities seek to understand the attitudes, behaviors and motivators of unaware consumers who have an interest or potential interest in gut health.

Competitive landscape

Using the output of the digital brand IQ competitive research, we identify the probiotics brands with the largest share of voice in social media and online stores such as Amazon. We then conduct a deep-dive expert analysis into these identified brands in order to understand specific positioning, messaging and tactics employed by the competition. We also look at blogs, online store reviews, search results pages in order to analyze the general landscape and get a broad view of the competitive context

Using the output of the digital brand IQ competitive research, we would have identified the probiotics brands with the largest share of voice in social media and online stores such as Amazon. We can then conduct a deep-dive expert analysis into these identified brands in order to understand specific positioning, messaging and tactics employed by the competition. We would also look at blogs, online store reviews, search results pages in order to analyze the general landscape and get a broad view of the competitive context.


Opportunity spaces

Based on an expert analysis, we would identify key trends that could apply to Vertic Probiotics. Given that it is a very competitive market, we would seek to identify a broad range of possibly applicable trends.


In this example, we deep dive into the trend and “opportunity area of “The Importance of Poop”, for now, deciding against “Biohacking” and “Subscription selling in nutrition”.

So what what if Vertic Probiotics was to own the concept of poop in probiotics?

•We could stand out in digestive health discussions

•Lots of content creation opportunities / tracking app opportunities

•We could attach the brand to something that happens multiple times a day

•We could encourage people to track and therefore think about digestive health — even when nothing is wrong

•We could be seen as authentic and human — values that are important to many of our audience and values not catered for by the competition.

Does Vertic actually want to own the concept of poop in probiotics? We don’t know…

We need to understand customer preferences in further detail. And digital survey is a cost effective and efficient option to understand variables such as:

  • Demographics
  • Knowledge & Belief
  • Needs & Interests
  • Values
  • Visual preferences
  • Buying & Browsing behavior

What could a survey tell us? We might see two significant profiles emerge. This gives us themes to focus on in the next phase.

Profile A

Women who don’t know about probiotics yet, but care a lot about the negative effects of antibiotics. They are pro-science and are regularly use antibiotics. Their values are about caring and authenticity and they hate all of the ”fake-news” style marketing around supplements.. They like to buy medicines and supplements online.

Validated Themes To Explore:

  • New to probiotics
  • Positioning: Recover from Antibiotics
  • Authenticity –anti pseudo science / MLM style
  • Buy online when needed

Profile B

Men and women who know about probiotics and want a regular solution to maintain gut health, but are tired of all of the scammy marketing they see online. Would like a simple solution to manage their gut health and find the idea of tracking their poo intriguing and interesting and would even use an app to do it. They have heard about the microbiome and how that factors into their health. They are highly interested in subscription services.

Validated Themes To Explore:

  • Knowledgeable about probiotics and underlying principles (e.g. microbiome)
  • Want ongoing digestive health support
  • Very tired of “scammy marketing” — looking for a new authentic approach
  • Want simplicity
  • Like the concept of tracking their faeces (in principle)
  • Would consider subscription

Based on validation from the survey, we can use a big data approach — with digital brand IQ — to understand key search terms, conversations, themes, channels and influencers around our specific themes. Deep-diving into topics which were validated such as recovery from antibiotics

Personas

The persona captures everything about your ideal consumer. It is the common document that both humanizes our target audience and provides big-data-validated rules for how to communicate and provide brand-differentiating value to them. Personas should guide the CMO but also the most junior designer within a partner agency.


Against the personas, we are now able to start working with the brand. Let us remind ourselves why Branding is so important.

1. Customer recognition

People should know who you are at a glance

2. Competitive edge

Brand positioning will allow you to define and occupy a niche in the market

3. Sets a focused direction for the business

The brand is a tool for measurement & management — a steering wheel for everything you do

4. Customer loyalty, shared values & emotional connection

People form true connections only on an emotional level. Being just useful isn’t enough.

5. Easy introduction of new products

Relevance, authority and connection means people are interested in new things you have to offer

6. Enhanced credibility

Focused brands that occupy a clear niche and are emotionally resonant engender trust

Based on the research, all of the brand’s various interrelated elements can be defined, documented, and implemented. Metrics can also be put in place to track and optimize the brand’s expression over time — ensuring it is true to itself as well as being relevant to consumers in an ever shifting marketplace.


Now, we understand the brand position, the addressable market with this position, the behavior of the consumers in case including the channels within which they operation. On the back of this, we can define the marketing plan and budget accordingly.

Finally, we have an understanding of the revenue potential and the full cost structure necessary to capture the market share and thus a complete basis for calculating the business case.

Get in  Touch

Mads Krogh Petersen

President and Co-Founder

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