Disruptive forces

D2C is an exciting arena. New business models and consumer propositions are emerging at a record pace. However, some macro themes threaten to undermine businesses’ efforts, unless they are factored into the D2C planning.

Consumers want sustainability, but few are willing to pay for it

Our research showed that only 23% of online shoppers go out of their way to make ethical choices and are prepared to pay more to do so. For the majority of consumers, products and services with environmental or ethical benefits are seen as positive, but these factors influence purchasing decisions far less than price, convenience and speed.

How environmental and ethical issues impact shopping behaviour

% of all online shoppers agreeing with statement

There is, however, hope for the future. Younger consumers pay much more attention to the environmental and social impact of products and services. The graph below reveals a stark generational divide, showing how sustainability could overtake price and convenience as top consumer concerns within the next decade.

Younger online shoppers are much more likely to think about environmental/ethical issues early in the purchase decision

Furthermore, younger consumers increasingly expect businesses to break down the cost of a product, showing the selling price + environmental cost (eg, carbon footprint) + societal cost (eg, local economic impact) + personal cost (eg, health).

Our perspective is that businesses looking to adopt a long-term D2C strategy must consider how sustainability will be inherent to the product, rather than a side benefit or selling point. Many businesses already on the D2C journey are discovering how hard it is to make operational processes and supplier ecosystems more sustainable. In many cases, redesigning from the ground up is cheaper and more likely to deliver a sustainable proposition.

Looking to the future, sustainability will be a cost of doing business. The only question is whether businesses pay less now or more later. Maintaining the status quo won’t be a viable option.

Businesses and consumers are missing a trick here. By viewing sustainability as a cost, they miss the opportunity to drive value through increased revenues (new customers, channels etc.) and profitability (by challenging inefficiencies in current products/services). Businesses that are leading the way in supply chain transparency are proactively responding to demands from consumers, communities and the planet. They’re achieving impressive results. For instance, LEON earned widespread praise for launching the UK’s first range of carbon-neutral burgers and fries. What’s more, Logitech has committed to making its gaming gear carbon-neutral.

Waste – a defining subject of our time

The noughties saw the rise of the residual value economy. For instance, recycling has transformed from an industry-focused on waste-handling into a seedbed for investment and innovation. Supply chains are beginning to adapt, as proactive businesses develop circular flows and increasingly consider waste not as an inevitable by-product but as a revenue opportunity.

Despite this progress, waste remains a major global problem. It will be a defining societal issue of the next ten years.

D2C propositions need to adapt. Currently, they require much more packaging and generate more waste compared to traditional retail purchases. According to a recent estimate by environmental group Oceana, plastic packaging waste from Amazon alone is “roughly equivalent to a delivery van’s worth of plastic being dumped into rivers, lakes and oceans every 70 minutes.”

There’s a particularly strong focus on single-use plastics and their environmental impact. Public awareness is at an all-time high, thanks largely to documentaries such as David Attenborough’s Blue Planet II. Businesses must adapt, or risk getting left behind.

Inequalities in investment are holding back D2C globally

The UK is at the forefront of the transition to digitally-enabled consumer propositions. It offers a North star for D2C in less-mature markets. However, it’s important to note that the UK’s high population density and spending power are a major boost for eCommerce and D2C, as they keep the costs of serving demand low. Furthermore, the UK has enjoyed disproportionate investment in eCommerce infrastructure.

The global inequalities in D2C investment are highlighted in a recent piece of research from Pitchbook and WIND Ventures. The study found that globally more than $11 billion has been invested in last-mile logistics in the past five years. But only $1 billion of that (9%) has been invested in Latin America. That amount is barely going to scratch the surface in an untapped market that’s home to more than 660 million (8.3% of the global population).

Given the huge untapped market potential for D2C propositions, we expect that gaps in infrastructure investment will close in the next few years. However, companies should factor them in as a timing consideration as they plan their D2C propositions.