Direct-to-Consumer—or D2C/DTC as it is commonly known—has revolutionized the retail space. Think of direct-to-consumer retail brands as superheroes with 'multi-tasking' as their superpower—creating, marketing, selling, and shipping products all by themselves.
The Ultimate Guide to Direct-to-Consumer Retail:
So What Does "Direct-to-Consumer" Actually Mean?
Let's start by giving an analogy of direct-to-consumer sales to understand this concept better. Consider the stock market as an example. Previously, investors had to invest their money through a stockbroker. Today, with the advent of online trading platforms, investors don't need to take the broker route anymore.
Direct-to-consumer brands work in a similar capacity. They cut out the middle man by directly connecting with customers and don't rely on traditional forms of 'selling' through retailers. This type of merchandising strategy is becoming wildly popular.
Despite major setbacks caused by COVID-19, direct-to-consumer companies like HelloFresh were able to successfully capitalize on disruptions and position themselves for long-term growth, according to research by CBInsights.
Further research by McKinsey states that brands such as PepsiCo and Kraft Heinz successfully launched new DTC programs during the pandemic. The study also claims that Nike was able to grow its digital sales by 36% in the first quarter of 2020 by going digital.
Why Go for the DTC Approach?
The DTC approach is ideal for brands that like to be in the 'driver's seat,' navigating every aspect of a typical consumer lifecycle—from manufacturing the product to shipping it to the buyer. This approach offers a multitude of benefits for brands that like to be in control at all times. These advantages include:
- Lower costs and increased profits: As per Deloitte, direct-to-consumer brands can foster direct relationships with customers, boosting engagement rates and conversions in the process. Additionally, brands don't have to out-spend their competitors for better in-store positioning or negotiate pricing (and share profits) with retailers for products that already have paper-thin margins. All these efforts reduce costs and pad up the bottom line.
- Freedom to experiment with distribution models: Whether DTC brands want to ship directly to the buyer, partner with a celebrity to do product drops, or open a pop-up shop, the DTC approach opens up the playing field to a great extent. Brands can mix it up and experiment with distribution models to scale up sales.
- Higher customer acceptance: According to research, 55% of consumers prefer to buy directly from brands instead of purchasing from multi-brand retailers. Brands communicate an authentic story that shoppers relate to. Clearly, direct-to-consumer selling finds many takers in the market. Additionally, the research also suggests that 50% of consumers prefer visiting the brand's website than that of a retailer as it offers more comprehensive information and guides.
- End-to-end control over products and marketing: For brands that are sticklers about North Star metrics such as quality customer service, vivid story-telling, and perfectly built/packaged products, the DTC approach is a godsend as it puts the brand in control and reinforces the fact that the onus for customer excellence, quality, and service lies solely with the brand. The brand can work towards optimizing its manufacturing, logistics, marketing, and customer support operations with greater agility and flexibility and in a truly customer-centric manner, as they control the operations.
All in all, the DTC approach ensures that the brand's identity does not get lost in a sea of competitors vying for shelf space in a retailer. Additionally, brands can aspire to drive hyper-personalization by investing the required time and effort to understand their customer base inside out.
So the real question becomes:
Why Do DTC Brands Need to Know their Audience in the First Place?
The success of any DTC methodology largely depends on how well the brand understands its customer base. After all, to establish a 'direct' relationship with the customer, the brand must understand the customer's motivations, pain points, goals, demographics, interests, personality traits, causes, and so on. In simpler words, customer centricity is instrumental to DTC success.
Brands should be able to generate deep customer insights by leveraging robust data and analytics stacks. The idea is to collect and ingest data from multiple sources in real-time and build a common data lake. This data can then be studied to extract actionable insights related to:
- Customer interaction preferences and channels of choice
- Key purchase drivers
- Customer satisfaction levels
- Potential signs of customer churn (especially for subscription box companies)
By collating all this information, consumer DTC brands can build a comprehensive and accurate buyer persona. Here's a good example of a buyer persona that we recently found: 'Brandi Tyler,' a customer who wants to switch to online channels to shop for the right shoes.
The writing is on the wall: Before brands can jump onto the DTC bandwagon, it is essential that they do their homework and research about their target audience to the T. They need to understand who the customer is and why is it that the users would want to purchase products directly from the brand.
By profiling the customers, the DTC brand can drive data-driven decisions. Not understanding what works (and doesn't work) for the customer is similar to shooting with a blindfold on—it's absolutely pointless. Also, as Facebook tightens up its ad policies thanks to the arm-twisting by Apple and the increased clamor for privacy, it's not going to be easy for brands to rely on third-party data. Robust internal data and analytics stacks have become table stakes.
How to Succeed in DTC Retail? Top Tips, Hacks, and Strategies
Wondering about how to interact with customers in retail via more digital, direct means? Keep reading. In this section, we will list tried-and-tested tips to level up your DTC strategy:
- Ask the right questions to build a customer-centric DTC strategy: The first ask of a strategic DTC strategy is to devise a plan that answers the following important questions:
- Who is the brand's ideal target audience, and what do their interests look like? What are their pains and aspirations? What emotions does the brand appeal to?
- How can the brand make the customers feel more valued, heard, and appreciated?
- How can the brand engage with customers on a deeper, more intimate, and targeted level, without being intrusive? How can the brand build a community of followers and align its values with that of its core consumers?
- How can the brand leverage the existing user base to convert them into brand ambassadors?
- How can the brand gather valuable, real-time customer feedback to launch new products that add meaning to the customer's life?
- Embrace the 'less is more' ethos and focus on selling fewer products: If DTC brands want to get people's attention, a wise strategy would be to create fewer products while focusing on quality and collecting feedback from early adopters to make changes as needed. The idea is to keep tweaking the product till it's near perfect. This is exactly what Casper did – it sold $100M worth of mattresses by limiting the customer choice, offering just one bed model in the beginning at an affordable price. What's more, the brand offered to deliver the mattress straight to the customer's home. In two years' time, the brand achieved $100M in sales. With one product on display, it could "find the level of firmness that would be the most comfortable to the largest possible market:"
- Keep an eye out on social media to optimize marketing spend and drive content innovation: Way back in 2011, BarkBox began noticing unboxing videos on Facebook where happy customers posted videos opening the boxes with their beloved dogs. The brand leveraged this as a marketing opportunity and created a dedicated page for Unboxings on YouTube:
This trending content strategy helped reduce the marketing spend, get 'social proof' for the brand, and leverage greater mindshare among the customers. In the world of increased CPAs and imperfect targeting, organic, word-of-mouth marketing is something DTC brands have to master.
- Laser-focusing on personalized customer experience is vital: At the risk of sounding like a broken record, it is important to deliver a hyper-personalized customer experience. Take the example of the startup, Care/Of:
In an effort to personalize the customer experience and pave the way for a seamless vitamin-buying experience, the brand asked customers who logged in for the first time to fill out critical details via a quiz. The customers had to input data such as age, gender, health issues, lifestyle habits, diet choices, and so on. Brand marketers are wary of asking customers to fill forms, but habit-forming, high-conviction/considered-purchase categories can do this without worrying about drop-offs.
Once this data is captured, the algorithms present a list of suitable personalized vitamin packs and save the customers' valuable time that would've gone into searching said products.
Brands can also experiment with new-age technology to make the experience faster, convenient, and simpler as Warby Parker did with its home try-on feature:
They also elevated the customer experience game by rolling out a Prescription Check app, which allows users to examine/evaluate their eyesight from the comfort of their homes:
The lesson? DTC brands should revisit the drawing board to understand the customer's key pain points and use technology to eliminate the issue at hand. A digitally-enabled product, sales, and marketing model is the future.
- Leverage influencer marketing to boost digital sales: Influencer marketing is here to stay. Consider how the brand Dirty Lemon partnered with fashion designer Pia Baroncini to boost sales on Instagram:
The brand also tried a unique strategy: It sold products only via text messages. By limiting the distribution strategy, the brand was able to create a sense of 'mystery' around the product and boost sales as well as recognition. This strategy helped it naturally create a demand for the product—a feat that is impossible to achieve without years of ad spending and consumer dependency. Brands with successful influencer programs even convert their key customers to be influencers. Dove was the OG of this back in the day. Micro-influencers with 1000s of followers on Insta, new-age fitness gurus on Youtube, chefs with niche audiences are all greatly democratized ways for even smaller brands to get influencer marketing going.
Key DTC Trends to Look Out for in 2022 (and Interesting Direct-to-Consumer Examples)
DTC as a concept gained traction 15 years ago. Since then, the DTC trends have kept evolving every year based on changing customer expectations and the dynamic retail landscape. Here are the top 5 DTC trends that will shape 2022:
- DTC brands will pivot to 'ethos' as a competitive differentiator: DTC is no longer about manufacturing and distribution. Instead, it has evolved to encompass the value-and-feel of one-on-one customer relationships. Let's consider Nike as an example. Nike embraces the DTC model with deceiving ease. The magic lies in exercising restraint when promoting itself to end customers. Instead of aggressively promoting the brand's product line, it focuses on establishing one-on-one customer relationships through emotionally-charged messaging on social media platforms such as Instagram, Twitter, YouTube, etc. (networks that a majority of its consumers frequent). Ben & Jerry's is great at this. But brands need to be conscious about a balance. The line between being culturally/topically aligned and being seen as woke is often blurry, and you cannot satisfy all your core customers.
- Omnichannel is the way to go as retail surges, even post-COVID: In the 'new normal,' retail brands will have to put their best foot forward and go omnichannel instead of solely relying on either in-store retail or a completely digital strategy. For brands that wish to scale, taking a cross-channel approach will serve their purpose better. For instance, take the use case of Schmidt's Naturals:
In addition to embracing DTC as an active channel, the brand started investing in Google, Facebook ads, and Amazon to increase recognition and revenues:
Here's what the Founder tweeted when talking about the wide array of channels chosen to maintain an uptick in sales:
- Customer retention will become the prime focus: Given the scale at which the eCommerce sector is evolving, brands cannot wait to calculate the 'lifetime' value of a customer. In today's real-world demand of increased cash flow, waiting a lifetime is neither economically feasible nor practically possible. Instead, brands will focus on customer acquisition costs or CAC to measure growth. Brands can unlock insights into customer retention by tracking key metrics such as first product purchased, time and seasonality of purchase, acquisition channel, campaign, offer, and finally, demographic characteristics by segment.
There are thousands of ways to drive an impactful DTC strategy. There's no set template or a one-size-fits-all approach that retail brands can leverage. The trick lies in experimenting with the latest trends and dynamic customer needs and coming up with powerful DTC strategies.
In essence, the biggest catch of a business-to-consumer sales model is instant gratification. On the business side, brands don't have to go through retailers to sell their products. Plus, brands can establish a direct line of communication with the end-user, cutting out all the noise in between. On the consumer side, customers can get their hands on their favorite products conveniently and immediately—a win-win for all.
This is why the DTC model can work wonders at launch as well as at scale as a channel strategy—but only if brands implement it knowing their stage and keeping the end customer in mind.