History repeats itself in the history of trade. How to have a healthy business with corresponding financial gains?
From direct sales to the dominance of discounts
In the first two decades after the revolution, most trading companies focused on a simple distribution model, so-called direct selling. But then came the massive expansion of chain stores. Under the pressure of turnover growth, trading companies allowed the chains to embark on a very unhealthy path of building share. In today’s optics, a very convenient way of generating turnover.
The consequences of the obsession with discounts
The result of such a business over the last 40 years has been up to a 70% share of sales in discounts (the so-called share of action), ignorance of the end customer, and a very difficult to achieve need to generate healthy margins. Most companies regret or acknowledge this self-created development as wrong. They look with envy at Western markets where the share of shares is not nearly as high as in the Czech or Slovak Republic. We are thus completely different from our nearest neighbours, Germany or Austria, for example.
Repetition of errors in the digital environment
“With the advent of e-commerce, we seem to be repeating the same mistake. Businesses are starting to make massive use of large e-com marketplaces and product placement in the online environment. But this is specific in that it is based on lowest prices and high traffic. This is the same principle that inexorably leads to an increase in sales only in discounts,” opened the topic Petr Nejedlý, CEO of outsourcing company NAUT GROUP s.r.o., which specializes in services in retail, e-commerce, logistics and warehousing.
Return to direct sales: The DTC model as a solution
However, there seems to be a parallel between the aforementioned early days in building direct distribution and today’s so-called DTC – Direct to consumer. The business model, which instead focuses on offering goods directly to customers, bypasses retailers and wholesalers, not only through own-brand stores but especially in the highly used online environment. The most striking example of success using the DTC business model is undoubtedly Apple, which had a market value in excess of $3 trillion in 2022. Often just mentioning the word “Apple” is enough and probably everyone can recall exactly what their branded stores and websites look like, even though you can buy their products nowadays outside of the brand’s official channels. And this is no coincidence. In fact, it’s always been a brilliant strategy to manage the customer journey from start to finish.
Brand power for big brands – Inspiration for the DTC model
“The cult power of some brands would probably never exist without the direct selling model. It’s a unique tool for entrepreneurs. That’s why we at NAUT specialise in full-service outsourcing in the DTC model, where most businesses are established in the modern and traditional marketplace, not online. Business companies often do not have the knowledge, experience, processes, systems or people to do direct sales themselves,” says Petr Nejedlý.
It is remarkable to see how many established brands have switched to DTC, including market giants Philips, Dyson, Bosch, Miele, Nike, Levi’s, Under Armour and Tefal. Companies have started to favour their own e-stores, as they see the old sales model as an opportunity to increase their margins and establish closer contact with customers.
“Direct selling seems to be the only way to really get to know and understand your customers. It is also the only way for companies to offer the same in return. If you know the market environment, you can see that creating a community that stays loyal to a brand is not possible any other way. It is irrelevant whether it is brick-and-mortar stores or those in the online environment. But there is also another unbeatable advantage attached to DTC and that is the ability to retarget your customers to other products,” explains Nejedlý.
Apple is not the only company that successfully operates this model, on the contrary, it is one of many. In Europe alone, the DTC e-commerce model grew by 23% between 2021 and 2022. In addition, 57% of multinationals worldwide are making significant financial investments in the direct selling model. Customers clearly like the competitive pricing, fast personalization, customer-centricity and easy accessibility. This is how companies maintain healthy margins that they don’t have to leave to chains and resellers, who have no way of knowing who they are actually selling to. Globally, the number of customers using the DTC model is at 64%, up 15% from 2019.
The road to a healthy business
“I see direct sales as a return to a healthy business where we really knew our customers, knew how to work with them and develop them because we were able to make better profits. I am sure that this is one of the ways to reduce our share in the Czech Republic and Slovakia,” said Petr Nejedlý.
