Composable architecture unlocks the direct-to-consumer model
DTC is a notoriously difficult business model. Composable architecture improves brands' control of data, maximising their chances of success.
By Paul Tomlinson, Published 11.10.2023
One of the most-discussed marketing trends of recent years has been direct-to-consumer (DTC) commerce. It’s generated a lot of news – as trends do – and spawned a number of exciting businesses.
What is less widely discussed, however, is how difficult it is to succeed with the DTC business model. Alongside the success stories, such as Nike and Dollar Shave Club, sit a large number of less-reported failures.
The core technical challenge of DTC is that you are responsible for a far greater share of the product journey, from manufacturing to customer. You therefore have more opportunities to optimise the customer experience and ROI – but more to think about, and far greater exposure to risk when something goes wrong.
DTC is also typically an expensive business model, since all the direct costs fall to the brand, whereas inventory management, fulfilment and customer service are otherwise carried out by retailers. Inventory management, in particular, is a major challenge, where a large proportion of retail margins are won and lost.
And, importantly, customers generally prefer buying from retailers because it’s more convenient.
Overcoming these challenges, and succeeding as in DTC commerce, depends on two things:
- excellent control of the customer data, in order to deliver a brand experience that more than compensates for the lost convenience of the retailer
- control and visibility throughout the demand chain and supply chain, in order to ensure successful customer experiences and keep operational costs to a minimum.
A brand’s ability to meet these objectives depends heavily on the nature of its commerce architecture.
As I’ve explained previously, composable architecture is a technology approach which gives the brand the greatest possible visibility and control of data in their businesses, and of how that data is exchanged between connected martech systems.
You can read up on composability in more detail in our full ebook. The purpose of this article is to set out the specific software modules which are pivotal in DTC commerce, and to explain the importance of selecting composable, best-in-class solutions for each module.
The solutions we’ll cover here are the:
- PIM (product information management)
- fulfilment, demand & supply chain solutions
- the ecommerce platform
- …and personalisation tools.
A successful DTC initiative will not necessarily depend on adopting these as a separate solutions all at once. It will, however, depend on being able to select and upgrade each component in response to your evolving business needs – which will be easier, the greater the degree of composability in your commerce stack.
Product Information Management (PIM) enables DTC commerce
Retailers have historically taken responsibility for conveying product information to consumers in ecommerce settings. Brands cannot sell direct, however, without getting this data organised and exposed in the customer experience, since it fundamentally determines buying decisions. This story from Joshua Hudson of Pivotree, an ecommerce consultancy, is a useful illustration of how effective management of product data unlocks DTC commerce.
Historically, product information management has been a manual process, often partly relying on flat Excel files – which brands would have used internally and also distributed to retailers. The retailer then took responsibility for getting that information organised and online. Brands and retailers alike, however, are now migrating towards composable PIM.
Bruce Wright, VP Sales at PIM vendor Pimberly, gives the example of Monsoon – a clothing brand and retailer, which already sold direct, but needed to rationalise this data in order to extend its DTC capability.
“They had multiple different spreadsheets for all the same products. The merchandising team, the procurement team, the international team, the marketing team – all these teams had their version of the product, because they all had their own KPIs. So often, the information that went out onto the website wasn’t quite right, and that would cause them problems.”
In Monsoon’s case, the adoption of a composable PIM was triggered by a need to create a single source of truth for all products. This, in turn, enabled the company to expand into the US market much more easily than would otherwise have been possible.
This was because a single SKU, sold on both sides of the Atlantic, would often require different product information in order to address the specifics of US ecommerce. This required a PIM which could maintain a single source of truth on one SKU, but with multiple additional layers of data which only applied in certain marketing contexts.
Similar challenges, explains Wright, might also appear when selling via marketplaces such as Amazon which might stipulate a certain number of characters per product description, or require certain types of images. A brand may also require multi-layered product information for marketing localisation and personalisation, so that different images, descriptions or regulatory information can be exposed in the customer experience depending on the context of sale.
Legacy ERPs would contain a basic PIM, but in a far more basic form. This legacy ERP would also lack the benefits of API-first architecture, whereby data can be easily exchanged with different customer experiences and other connected systems.
Realistically, no startup DTC brand would start out with a legacy ERP. An established brand going direct, however, would be able to harness major benefits from a composable PIM, beyond DTC marketing, including the ability to integrate with supply & demand chain systems.
Inriver, Salsify and PIMCore are other examples of composable PIM solutions. These tools typically can also automate many of the manual processes involved in managing product data, such as data entry and data validation.
Fulfilment, demand chain & supply chain: where DTC sinks or swims
Whereas ‘indirect’ brands supply a relatively small number of retailers, or retailers’ warehouses, DTC brands become responsible for order fulfilment and delivery to consumers. This means operating fulfilment centres, managing relationships with delivery companies, etc.
This is a hugely competitive area in modern retail because timely and accurate delivery, in ecommerce, is the leading factor in the quality of customer experience for many customers. This is due to the exceptionally high bar set by Amazon, which has triggered a martech arms race as brands try to meet the current competitive standard.
On the demand side: DTC brands must also master the balancing act of inventory management and demand planning. The game is to hold the lowest possible stock levels, to keep costs low, whilst keeping enough stock, in enough places, to enable them to excel at fulfilment and delivery.
When demand, supply and fulfilment data are harmonised, brands can excel at things such as:
- preventing the placing of orders which can’t be fulfilled, or be fulfilled to a high standard
- being able to provide accurate delivery times, to individual customer addresses, at the point of order
- giving the customer (and customer service team) access to live, accurate order statuses
- collaborating more effectively with delivery companies, so that they have access to the information needed to better serve your business.
This harmonisation occurs by synchronising data at the source of demand (in most cases the ecommerce CMS), with your order management system (OMS) and your inventory management system.
In a legacy ERP, these modules are all part of the bundled solution – neatly synchronised in whatever limited ways the ERP vendor had been able to anticipate, and with an enterprise price-tag.
Brands without enterprise budgets, however – or brands with enterprise budgets, but with big technological ambitions, such as selling in marketplaces and social networks, are turning to more adaptable and capable technology.
Enterprise brands going direct would likely need to adopt a composable ecommerce platform (see below), in which case, they could likely benefit equally from the supply and demand chain tools bundled in with these solutions. BigCommerce, Swell and Crystallize (and also Shopify) include very effective supply & demand chain modules – and thanks to API first architecture, they would enable the brand to integrate with new marketing touchpoints fairly easily.
But brands may also choose to upgrade individual components in the stack. Composable vendors in the space include Fluent Commerce (an order management system [OMS] vendor) and Unleashed (an inventory solution).
Supply chain & fulfilment is also a key area for data analytics and AI (see below), since this technology can be deployed to identify patterns across disparate datasets, spot inefficiencies, and catch problems before they occur. A leading AI-powered inventory solution is Invent Analytics. The vendor claims to be able to generate 1.5-5% improved profitability at any enterprise currently relying on legacy demand planning software – which could be millions of dollars a month at an enterprise brand.
But even in non-AI contexts, maintaining precision control of the product journey, from supply chain through to customer, is highly restricted with legacy ecommerce systems.
Composable commerce solutions
The core modules of an ecommerce platform are:
- the back end (the webstore administration platform)
- the commerce front-end (i.e. your web shop, or shopping app, and content publishing tools).
Traditional ecommerce platforms bundled up these services with all the other services needed to run a webstore. The largest and best-known bundled ecommerce vendors are Salesforce, Adobe, Magento and SAP.
In these legacy platforms, the back-end was only designed to exchange data with a single customer experience: the web shop. Yet as mentioned, modern ecommerce often entails selling via social media, apps and marketplaces – and new touchpoints are proliferating at pace.
In an attempt to keep up, brands have gradually integrated individual pieces of software with these systems, with SAP & co. charging punitive fees for each individual custom integration. This has left brands heavily invested in what’s known as ‘technical debt’, and development times remain glacial – whilst ecommerce evolution only accelerates.
Established brands going direct, therefore, will generally need to migrate to a composable back end. This also allows all the other martech solutions required for direct selling to be quickly and affordably integrated, tested, and replaced if they’re found unsuitable, or if the relevant campaign ends.
Interesting case studies include Audi, which adopted commercetools in order to be able to sell via its cars, and Tiffany & Co, the jewellery brand, which replatformed to BigCommerce as part of its DTC shift.
The decision to adopt a composable ecommerce system is often a major investment. Commercetools’ platform fees, for instance, can easily run to several hundred thousand dollars a year – which is usually out to the reach of a DTC startup.
Shopify, which specialises in serving SMEs with lower budgets, is also used successfully by some enterprises. It needs to be understood, though, that Shopify is not a true composable solution.
Shopify customers can choose between:
- a bundled ecommerce platform, with both the commerce back-end and the customer experience/front end supplied as a single piece of software
- what it describes as a ‘headless’ ecommerce back-end – for brands which want the freedom to select their own CX/CMS solution.
Its core advantage is that it’s easier to operate with less developer support, since the various other services you need to run a business, such as marketing automation etc., are offered as bolt-on features.
In truth, however, the convenience of these ‘bolt-on features’ runs contrary to the agility, of composable architecture, in being able to select best-in-class services. The ‘saving’ on development costs, meanwhile, simply gets funnelled into Shopify’s relatively high fees. Indeed, there are good reasons that Audi didn’t choose Shopify to enable ecommerce in its cars.
A recent entrant to the UK market, but one that has been used widely in Asia for some time, is an ecommerce platform called Shopline.
Shopline seeks to blend the convenience of a bundled platform with the internal architecture of a composable solution. It has proved highly valuable in social commerce – which derives from the tendency of Asian consumers to shop in super apps – and which is a growing component of direct-to-consumer marketing.
As with every software module, the brand’s ideal ecommerce platform will depend on its budgets, ambitions, and appetite for ongoing development work.
The point is that composability is a key component of being able to sell DTC, with relative freedom and a high degree of control – rather than being beholden to the channels and processes anticipated by your platform vendor.
Marketing personalisation technology
The promise of a more personal experience is what part of what allows consumers look past the restricted choice and (usually) higher prices that come with buying direct.
The technology needed to succeed at marketing personalisation is described in full in our ebook (which you can download here), however, it’s important to recognise that the competitive standard of marketing personalisation remains fairly low.
In reality, therefore, the highest priority for most consumers is timely and accurate delivery. The ‘personal feel’, meanwhile, may be satisfied without any special technology – i.e., by the product being sustainable or differentiated on other preferential factors, or through attractive or exciting branding.
A brand that decides to go DTC, therefore, may be sufficiently served by the personalisation tools bundled in with its CRM, ecommerce and automation platforms, whilst it develops a truly competitive demand-and-supply chain.
Composability: beyond the buzzword
It is worth mentioning that there is a lot of self-interested PR around the composable trend, and not all of it is applicable to every business.
Composable solutions exist on a spectrum – whereby some services are more tightly bundled than others, depending on the business requirement. To quote Ajay Nair, a senior engineer at AWS, “Building an evolvable architectural software system is a strategy, not a religion”.
Furthermore, software customers value a certain degree of bundling of services, as this simplifies and reduces the work needed to achieve the necessary dataflows between martech modules.
In the words of David Meakin, Head of Partnerships & Solutions Engineering at Shopline…
“Composability is like striking an uncut diamond; each merchant will strike it in different ways based on their own priorities. Everyone needs some composability, no one tool does everything. But if you keep decomposing you end up with a shattered mess that provides no business value and causes a lot of headaches.”
For an enterprise, migrating from monolithic to fully composable architecture would be difficult and time-consuming. In many cases it would involve hiring and firing teams and revising business processes. In cases where brands do manage to sever ties with their legacy ERP, the payoff – though significant in the long-term – would take a couple of years to materialise.
For a small business: a full decomposed technical architecture, comprised of many different microservices, would prove simply unmanageable.
In any case, breaking off every single module into a separate microservice is not crucial for DTC commerce to succeed.
What is required is for brands to maximise their control and visibility of the data across product, the demand-and-supply chain, and the customer.
The specific tools that need be swapped or upgraded in order to achieve this will depend on various factors, including your most urgent priorities and the makeup of your existing tech stack. But crucially, migration towards composable architecture is the approach that gives brands the flexibility to make those choices.
As explained at the beginning of this article, DTC is a difficult and highly challenging business model. Success depends entirely on being able to face those challenges head-on – which may prove impossible if you’re overly dependent on a tightly-bundled commerce stack.
About Navigate B2B: SaaS marketing specialists
Navigate B2B is a content agency that specialises in highly differentiated, often technically complex businesses.
We collaborate with business and technology leaders to produce creative media, digital UX and thought leadership that engages and educates their target audience.
By hiring and training the cream of writing talent, we produce content that founders and technology leaders are proud to put their names to – enhancing your network and building your reputation, with the minimum demands on your time.
And with the rigorous marketing & reporting that you’d expect from a full-service agency, we ensure your content publishing efforts are driving sales, and helping you to achieve your wider business goals.
Visit NavigateB2B.com to find out more.