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Why CPGs Should Have a Direct-to-Consumer Option

Why CPGs Should Have a Direct-to-Consumer Option

There is no one-size-fits-all approach in the world of consumer packaged goods. It is a wide industry that defies convenient generalization. Still, with the right product-market fit and a focus on the core psychological elements necessary for a successful subscription, a direct-to-consumer approach can help CPGs make up for lost business as a result of shifting media consumption and shopping habits.

Grocery AisleIn light of increased competition from Amazon’s Prime and Subscribe and Save programs along with society’s decreasing focus on TV media and in-store endcaps, both traditional CPGs and newcomers to the scene can benefit from an increased focus on direct connections and relationships with customers. And the direct-to-consumer model — physical subscriptions and memberships, specifically — is a key way to build those relationships.

Adjusting to the Winds of Change

There are still opportunities in cases involving CPGs with products all about replenishment, but it’s more likely that large retailers such as Amazon and Walmart will beat out the competition for simple “subscribe and save” programs with their scale, pricing, and efficiency.

Instead, CPGs must focus on combining education, experience, exclusivity, and a sense of belonging on top of the obvious elements of replenishment and value. Commodities such as Morton Salt or Arm & Hammer baking soda aren’t very exciting, but if you can teach customers about new ways to use these products and create a narrative around them, you’ll be well on your way to establishing a viable direct-to-consumer channel for a product category you might not naturally think about.

In addition, established CPGs need to evolve their business models: Mainstream advertising and brand-building designed around in-store placement will no longer be enough. That doesn’t mean abandoning those channels completely, just that consumers today expect more. Many brands that face headwinds are naturally inclined to buckle down and focus on their core business instead of investing in the future, especially if they need to keep up with Wall Street’s quarterly expectations.

If CPGs continue to give all of the long-tail and brand sales to Amazon, they’ll eventually lose out. Over time, Amazon will create private labels in all kinds of product categories that make the CPG brand less visible unless they choose to invest heavily in Amazon’s ad spending. Today, batteries, diapers, basic apparel, and even dog food all have Amazon private labels with which CPGs are forced to contend and compete in a direct-to-consumer channel that is not necessarily in their wheelhouse.

Direct-to-Consumer Differentiation

ToothbrushWrapping a meaningful narrative around an existing product that solves a customer pain point is the best way to drive direct-to-consumer sales of a CPG. In the oral care space containing products such as toothpaste, mouthwash, floss, scrapers, whitening products, and gum, new brands such as Quip and Hello have emerged to shake up the existing market. These companies offer convenient subscriptions to items people use every day, and they capitalize on the fact that big players such as Colgate and Crest haven’t invested in creating meaningful connections with their customers.

Other direct-to-consumer CPG brands include Dollar Shave Club, Harry’s, and Billie, which has recently emerged to target the female consumer. Brands such as Cora are also doing a great job in the feminine hygiene space.

Not all CPGs that try a direct-to-consumer model are successful. The most common reason for failure? Touting value as the sole reason consumers should sign up for a subscription. Value and savings are important, but they can’t be the only driver. After all, if the same product is available at Amazon, Walmart, or Costco, there’s no real reason for customers to join.

Depending on the product in question, a direct-to-consumer model can be a very viable way for CPGs to step boldly into the future. The nature of retail is changing, and the brands that stick stubbornly to the way they’ve always done things are likely to lose out as consumer interest migrates elsewhere. To maintain relevance in a crowded marketplace, CPGs need to create meaningful connections with their customers, and the direct-to-consumer business model is the ideal way to do it.

Written by Georg Richter (Founder and CEO of OceanX)
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