We’ve already seen attempts at selling directly to the consumer by dive gear manufacturers and training agencies. So far, it hasn’t been a success for them. And it certainly has not helped the industry grow. We’re still shrinking. We will discuss why direct-to-consumer (D2C) attempts have failed and why direct to consumer is still part of the future of the dive industry.
Why Direct To Consumer?
The short answer is: Because it’s a win-win for the end-user and the brand. However, it’s usually bad for the traditional retailer left out of the equation (which has not been the case in the dive industry, as we’ll discuss below).
For anything to work in the business world, it must bring value to the end-user.
For The Consumer
As we discussed in the Octopus Strategy, customers typically expect to have access to all brands and all models in all sizes and all colors. They also expect to get it right away or, at the latest, “next day.”
Dive customers are not getting that from their local dive shop. Dive stores are small businesses. If you sell for $300K of dive gear per year, you certainly can’t afford $2M in inventory. In theory, they could still satisfy their client by ordering from their supplier. But it doesn’t work fast enough. When a dive store orders from a dive gear manufacturer, it takes time. The old distribution system (wholesaler to retailers) was not designed to be fast.
So, the client is likely to go online to see if he can get it tomorrow, somewhere else. So far, in the dive industry, it’s not a sure thing. He may find want he wants from one of the large online dive retailers. Yet, none of these online dive retailers carry the entire line of products for the brands they carry.
D2C implies that dive gear manufacturers would sell, themselves, directly to the consumer. Assuming they have all their products in stock, the consumer can get all models of that brand, in any color and size. That is value for the consumer.
For The Dive Gear Manufacturer
They are numerous reasons why a brand wants to sell directly to the consumer. And we see it in many other industries. For instance, you can buy Nike shoes at your local sporting goods store. And you can also buy them directly on Nike’s website.
Among the advantages for the scuba gear manufacturers, we see:
- Have your full line of products available to the consumer. No dive industry retailer has, in stock, an entire range of products from any brand they carry.
- Collect data to understand consumers better. You get to know the profile of the consumers buying your brand and what they want. Having such a complete vision of your consumer (how they buy and their online behaviors) is a rich source of data previously obtained exclusively by retailers
- Control the touchpoints and the consumer experience with your brand. This would be a huge one in the dive industry since we currently have no consistency in the quality of the experience.
- Consumers are already “shopping” on your website before heading to a retailer. Buying it on the spot is the next logical step.
- Profitability. We’ll come back to this topic, below.
If it’s good for the consumer and the dive gear manufacturers, why isn’t D2C more present in the dive industry? Let’s see.
D2C Efforts, So Far, in The Dive Industry
We’ve seen direct to consumer trials from training agencies and dive gear manufacturers. How was it done?
In all D2C cases that we are aware of, dive gear manufacturers and training agencies sent a significant percentage of the sale price to a local dive store. Usually, it’s the dive shop closest to the buyer’s address. In other cases, the client selects a dive shop. Either way, you see between 30% and 50% of the retail prices going to the dive store.
We understand that well-established brands with a network of retailers don’t want to lose their retailers. The way to keep them happy is by sending them an amount close to what they would have made in profits if they had made the sale at the retail level.
OK. Makes sense, right? No! Not really.
Every party involved in the chain bringing products or services to an end-user must provide value. It’s a basic business principle. In this case, the retailer does absolutely nothing and doesn’t bear any value to the transaction. Don’t get me wrong; when I owned and operated dive centers, I was happy to get that money for doing nothing. Sure. But to move the industry forward, we have to be ready to ask the tough questions.
The biggest problem with the dive gear manufacturer sending up to 50% of the selling price to a retailer not involved in the transaction, is financial.
In direct to consumer, sharing profits with a retailer who didn’t provide value to the consumer in that transaction, kills the economics of selling online.
Operating an eCommerce website is not free — especially if you rely on Facebook and Google Ads. When you send 30% to 50% of the retail price to a retailer, you end up with your average wholesaler margins. So how can you justify higher costs with your eCommerce direct-to-consumer operations?
On the other hand, if the dive gear brands were to be selling direct-to-consumer and keep all the proceeds, then they’ve increased their profitability since they keep both the wholesaler and retailer margins. It opens the door to the possibility of running an aggressive marketing campaign. We’ll come back to this.
The D2C Case of DELL Computers
Bare with me. There’s a lesson to learn here.
The unique business model on which Dell grew his business was pretty simple: While all other personal-computer makers sold through retailers, Dell sold directly to end consumers. And the big kicker is financial. No retailer was taking a huge percentage of the retail price. Dell’s margin on a computer, assuming it is sold at the regular retail price, was significantly higher than all the other PC makers.
As a bonus, Dell also benefitted from all the reasons we’ve listed above in terms of understanding what consumers wanted and controlling your brand. On the Dell website, you could find all models in all possible configurations while typical PC retailers would rarely keep the top-of-the-line products — just like in the dive industry.
Why could Dell do that and not the other PC makers? Dell was a startup without a network of resellers. Meanwhile, all the other PC makers would radically disrupt their existing distribution channels and alienate the resellers, if they were to sell directly to the consumer like Dell. The other brands eventually jumped in, but only after Dell had a comfortable leading advantage.
Direct-to-consumer is best implemented by a startup without a network of resellers.
There’s a similarity between Dell and the dive industry — except for the innovative startup. We’re still waiting for one of those.
Who Could Implement D2C In The Dive Industry?
In the short-term, we can’t expect much from the current players. They are stuck with the same dilemma the other PC makers were facing when Dell arrived on the market with a D2C model. And there is no Dell, yet, in the dive industry. Therefore, the status quo seems fine for all the current players. Except that the industry is shrinking and consumers don’t get all the value they expect.
The best way to introduce innovation in any industry is with a startup starting with no old baggage. Since the dive industry is quite small (at the moment), it would be challenging to reach enough volume to design and produce everything. An alternative could be a current gear manufacturer starting a new brand on the side — like we discussed in the article on the consistency of the experience with better quality control.
Could a retailer implement D2C in the dive industry?
Well, by definition, direct-to-consumer is done by a brand. Retailers already sell online and in-store — and they sell numerous brands. It’s not D2C. But could it be?
An issue with dive gear brands selling direct to consumers is product assortment. When a client walks into a dive shop, he can leave with a complete set of gear, ready to go diving. That’s because the retailer can provide all the core gear from Brand X and, also, a bunch of additional accessories from Innovative Scuba (let’s say).
In other words, the dive gear manufacturers are missing products in their portfolio to be able to be a one-stop scuba diving shopping site. It’s not the case for a retailer.
How can we put all of these puzzle pieces together?
In the short-term, there’s not much that can be done. Disrupting the current distribution system cannot be done overnight.
In the medium-term, we have two main options:
- A current dive gear manufacturer starting a new brand, on the side, to sell D2C.
- A new integrated entity selling direct-to-consumer.
Imagine a chain of retailers, dive schools, and dive resorts, with a well-developed house brand. This is key to fixing our problem of a lack of a reliable brand in the dive industry. And beyond that, we could provide a new experience to divers, with lower costs and increase profitability.
What’s the advantage of a house brand?
There’s a lot of goodness coming from selling your own brand in your retail stores and on your eCommerce website. Look at Decathlon, a chain of European sporting goods stores. It is said that 80% of their sales are for their house brand.
Achieving such success with a house brand means a lot.
- You don’t have to respect any MAP (minimum advertised price) policy from your suppliers. You can do all the sale events you want.
- If you are matching the retail price of an equivalent product, you have the margins generally taken by the wholesaler and the retailer margins. It gives you more cash to spend on developing and promoting your brand.
- You collect data on consumers to better understand what they are looking for and how they like to shop.
- You control more touchpoints, and the complete experience consumers encounter with your brand, online and in-store.
- You can showcase your brand storytelling in your own voice.
I currently only know of one scuba diving retailer with a line of products under a house brand. At the moment, it is all for soft goods, wetsuits, fins, masks, snorkels, apparel, and the like.
To achieve what we are talking about in this article, you need a chain of local dive shops and dive resorts to have enough sales volume for justifying the development of a full line of products.
Another critical value brought by such a setup would be an ability to fix the inconsistency in the quality of the experience in the dive industry.
But What About After-Sale Service?
It’s an excellent question. Currently, after-sale service is mainly about annual maintenance, repairs, and recalls. The local dive shop typically handles it.
Is there a better way to handle after-sale service on scuba diving equipment? We’ll discuss this when tackling the idea of redefining the role of the dive center.