Things are always evolving in retail and business models are no exception.
As more and more retailers began to transition successfully into omnichannel retail, there was a new problem. More sales channels meant more sales, but they also meant more expenses in terms of upkeep and more significantly, marketing.
Direct To Consumer retail, or DTC (or D2C) in short, is a way to solve some of these problems. DTC selling allows brands to own their narrative, reach out to consumers directly and create their own unique experience.
What Is Direct To Consumer Retail?
Today, we have a new breed of disruptors in the market. These are brands that understand the power of taking charge of their own narrative. They do everything differently- right from sourcing their own products to shipping them out and communicating accordingly. These brands are as vertically integrated as it gets. These are DTC brands, also known as DNVBs or Digitally Native Vertical Brands.
They’re called digitally native because their main channel of sale is an online medium, often their own website. Sometimes, they open offline stores or pop-ups to complete the brand experience. DollarShaveClub, Casper, Bonobos, and Glossier are just some of the many examples of brands that use Direct To Consumer Retail as their primary strategy.
How, then, do we define Direct To Consumer Retail?
Direct To Consumer retail is the practice of building, marketing, selling and shipping your own product on your own terms by doing away with the middlemen, and taking charge of customer experience in the process.
Why Is Direct To Consumer Retail So Significant Today?
Customer experience is the crux of selling today. Given the multitude of options at their disposal, customers are unlikely to buy from brands that have nothing to show for except their product. Doug Stephens- The Retail Prophet has this to say about experience in today’s context.
The key, I think is not to treat STORY as a novelty within Macy’s but more as a core operating premise. Experience isn’t just the icing on the cake. Experience is the whole cake. https://t.co/hfKVejHtUV
— Doug Stephens (@RetailProphet) April 10, 2019
Today’s audience is very heterogeneous. At Shoptalk 2019, Deloitte made a presentation titled ‘The Consumer Is Changing: Perhaps Not How You Think‘. Several retailers understand that consumers today have very different preferences when compared to earlier generations. What is hard to see, though, is what exactly these changes are.
Customers are becoming a very heterogeneous group that cannot be characterized based on demographics alone. Personal preferences are a huge influence on shopping behaviors today as opposed to earlier trends of following the flock.
DTC brands were born out of the need to serve these consumers, and serve them better. What’s more, they understand that such a customer is as likely to be on Amazon as they’re to look for new products through Kickstarter campaigns.
In other words, DTC brands are the millennials among retailers, and they are keenly aware of what, and how, millennials and Gen Z shoppers behave. One look at the DollarShaveClub promo video and you know who it is meant for.
Top 5 Trends In Direct To Consumer Retail
What does DTC selling look like? We set out to observe some common patterns in this method to try and make sense of how you can adapt them to your business.
In no particular order, here are the five trends we see.
A DTC Ecosystem is Developing
As with any new trend, a community is beginning to cluster around Direct To Consumer retail. Until now, the synergies look good. A whole community of influencers is beginning to thrive again after a period of lull. Indeed, word of mouth marketing is the main focus area for direct to consumer selling, so more such retailers are turning to influencers.
But that’s not all.
Influencer clusters are moving away from standard platforms like Instagram. Instead, we see the brands themselves building communities rich with content and opinions. Glossier’s Into The Gloss blog is a strong example of what brands can do when they crowdsource the right kind of content.
The key feature here is ownership. Brands want to own their relationship with the customers. Social media is a rented property. Brands now want to create similar platforms and nurture their own audience from the ground up than depending on algorithms that might eventually turn on them.
The biggest categories are not what you think
In DTC selling, it might seem like shoes, apparel and accessories would be the biggest money-makers. To be sure, all of these products are being sold in DTC formats.
But the real disruptors are the sellers of mattresses, razors, health and wellness subscriptions, kitchen subscriptions and more.
The monthly subscription model is very interesting to study. Come to think of it, we all have a monthly list of things we need in the kitchen but until now, we’ve scrambled around in the Targets of the world to get what we want.
Now, here are brands promising to deliver everything from herbs to knives and choppers home on a monthly basis. To a busy person, this solution just makes sense.
In doing so, some brands are also leveraging on a metric that has been elusive so far. By getting them into a monthly subscription program, they are increasing each customer’s Lifetime Value. Once someone subscribes and likes a service, it is very unlikely that they will stop. The result- bucks, every month, in a planned manner.
Branded retail is gaining prominence
So much for stores closing down and losing prominence, then. If anything, a lot of brands that have been selling online using a DTC strategy are now looking for ways to make their brand stand out even better. Turns out, using offline channels like pop-up shops and features within other stores is a great way to do so.
Simply put, a good retail experience is the most powerful advertising, ever. Moreover, retail stores can bring in the bulk audience and influence them all in one go.
One of the bigger brands going DTC currently is Nike. Their NY flagship store is every sneaker-beaver’s dream come true. From customizing your own pair to trying shoes out on a custom-built track, this really is a shoe experience.
Tech is a powerful tool
With so much going on, it is that much more important to manage the backend very efficiently. DollarShaveClub’s website crashed when its video went viral. Now, imagine if they had no way of actually procuring that much inventory! That would be a marketing disaster.
As Direct To Consumer retail brands figure out how best to take the next few steps, technology is beginning to shape their decisions. AI and machine learning to make forecasting decisions are very important today, particularly for brands looking to keep their costs low.
The same goes for seamless inventory management. As they vertically integrate every process in-house, a powerful system can help manage inventory better, supervise order processing and keep things seamless at the backend.
DTC is ready to take on bigger companies
For very long, the strongest need for funding for any business has been to fund their advertising. As social media ads got more expensive, so did retail valuations. However, DNVBs may have just cracked the code to growing without the support of these media.
Also, they are very conscious of using their working capital on areas such as sound inventory management, fixing processes to ensure fast deliveries and the line, instead of spending on advertising alone. Because of their relatively smaller setup, they also are much more flexible than their larger competitors.
All of this could lead to a time of reckoning for larger brands that have been investing heavily on paid advertising. Can DNVBs begin to compete with some of them solely on price? Probably not. But, these brands are already beginning to cause quakes in the system with their radically new approach to selling itself.
How long will it be before customers begin to expect the same experience from all of their shopping trips?
How To Go Direct To Consumer- Your Cheat-Sheet For DTC Success
In this context, wouldn’t it be better to explore a Direct To Consumer Retail Strategy for your business?
The core of any DTC retail strategy is vertical integration. You can no longer source products from other suppliers and sell them to your customers. Instead, you need to take charge of production and manufacturing. Forecasting, inventory management, order fulfillment- they’re all up to you.
If that seems like too much work, that’s because it probably is. But the payoff, as several companies have demonstrated, is worth your while. The end goal is for you to have a continuous stream of customers who flock only to you to buy whatever you sell. You should be able to convert them and get them to keep buying without spending anything extra to attract eyeballs.
How do you achieve that?. Here’s a step-by-step guide to getting the DTC strategy right for your business.
Step 1: Think About Your Product
Most DTC brands have a common thread of product or service innovation running right through them. Consider Casper, for example. Their earliest idea was simple as it was singular- make one mattress that will work for everyone, and can be shipped even through USPS.
AllBirds, the unbranded sneaker revolution was born to address the need for wearing comfy sneakers to work that didn’t scream a brand name in everyone’s face.
Product design and disrupting how things have traditionally been done is a key first step in a good direct to consumer strategy. However, you need to consider if your product has enough potential to be viable under the DTC model. Usually, disrupting the norm is a feature of DTC retail, and you need to see if your product has this potential.
Step 2: Build Your DTC Strategy
For any retail strategy to succeed, you need to be able to scale. Once you have decided if your product is ideal for DTC retail, you need to figure out how to launch and market it. The channel of sale you choose now will determine how your business progresses further.
For products with sufficient visual appeal, you might want to consider using Instagram for promotion as well as sales. Subsequently, you can use consumer insights from this platform to build your own platform and incentivize buying on your website.
Also, think about which channel you will use for marketing and which one for sales if you choose to keep them separate. Some retailers want vertical integration from the start, like Glossier. Glossier is on social media where its customers share images with the brand, but most interaction actually happens on their own blog and forum.
Other retailers may have no qualms about using social media as the primary means of active promotion, including paid advertising.
You need to make these choices based on your current budgets, the product, and potential for success and your target audience.
Step 3: Launch Your Product With A Bang
It’s a crowded world out there. How do you get heard by the people who are most likely to buy from you?
Targeted marketing and guerrilla marketing strategies have marked the entry of DNVBs into our lives. People who sign up for razor waitlists (!) also like receiving free goodies for their loyalty, as Harry’s demonstrated. The Honest Company is literally successful because of one influencer- its founder, Jessica Alba.
While not all of us have A-list celebs on our boards, we can take a leaf out of their success pages and plan for virality. Reaching out to major publications in advance, generating buzz around the marketing campaign by paying influencers, etc. can all help make things tip to the side of fame.
Step 4: Put Customer Experience First
Marketing is only just the beginning of your efforts. DNVBs are traditionally characterized by lower inventory levels than that of a large retailer. Their success depends on getting the orders out as soon as possible. What this means is that such brands need to
- be upfront about how much time it is going to take to ship a product
- use a subscription model to get the orders in at least a week before they are due to be shipped
- manufacture products at lightning speed
All of the above would be great, too.
Beyond this, many founders of DNVBs are themselves present on social media and are easy to interact with. This makes people feel like they have an instant connection, and that they can reach out to someone if things go awry.
Step 5: Learn From The Experience And Tweak
Many retailers have gotten DTC right by following a similar strategy as we’ve discussed so far. The issue, of course, is that no one really talks about the failures along the way. As with all things retail, keep your ear very close to the ground.
Use customer feedback and reactions across platforms to tweak your experience. Remember that a customer may not always say what they feel, and may even be unlikely to say anything at all. If you find that feedback is missing and the sales aren’t rising either, reach out personally to your customers to understand what they don’t like.
Also, for a customer, DTC retail is just another way of buying. They do not choose a retailer because of their retail strategy. Ensure that you engage them in the buying journey and make their experience a memorable one, DTC or otherwise.
Before You Consider A DTC Strategy
Here are a few questions to ask yourself before you choose to sell directly to your customers.
- What value do you intend to gain out of this exercise?
- Most DTC brands are a clever combination of online retail, great service and the physical product itself. Do you have the tools and resources to make it happen?
- Is DTC just your launch strategy? Will you be moving to offline retail at some point? Do you see DTC as just one of the many channels you’ll be selling across?
- A DTC retail strategy is also ideal when you’re testing the waters in a new market. If this is what you’re doing, what metrics will you measure to gauge success?
- Does your product have the potential, and the profit margin, to help you turn a profit?
- Do you have the right inventory management solution to run your vertical integration model successfully?
- Do you have the budget for a good CRM system to help you deliver excellent service?
- Can you bring traffic to your website in a cost-effective manner? Do you have a sales strategy in place to achieve this?
What is your biggest driver for choosing a direct to consumer retail model? What gap areas do you think you need to address first? Tell us in the comments below.