Direct to Consumer: Why and how to implement DTC in 2021
Multichannel retail is struggling.
The margins are small. Foot traffic has decreased and there is a global pandemic wreaking havoc. Consumers are buying more things than ever online, and legacy brands are struggling to keep up. But there is a way, and you don’t have to be a digitally native brand to implement it successfully. Welcome to the world of direct to consumer e-commerce.
It’s becoming clear: e-Commerce could be driving retail middlemen towards irrelevance. But what are the benefits of adding a DTC channel to your proposition and how do you make that leap? We discuss the why and how behind successfully adding to a direct to consumer business model for enterprises.
A quick scan of the DTC landscape
The direct to consumer (aka D2C or DTC) landscape heated up in 2019. You saw the ads and read the articles about retail darlings like Dollar Shave Club, Deciem, Emma, and Daily Paper; brands that had disrupted traditional retail, cut out costs and acquired customers exclusively via their own channels.
In doing so, they also identified the unmet needs of modern consumers: a compelling brand identity coupled with a convenient, consistent experience.
But now it is not only a niche business case for digital-native brands to target millennials, skip distributors and build direct relationships with their customers – it is a survival need for household names too. How can we tell? Here is a list of some important notes:
- Whilst e-Commerce represents less than 5% of consumer goods sales, the direct to consumer movement accounts for 40% of the sales growth in the sector (Nielsen/ Rakuten). It means DTC entered 2019 punching well above its weight.
- Nike decided to dump Amazon in a bid to create “more direct, personal relationships” with their customers. In December 2019, they reported double-digit growth in their fiscal 2020 second-quarter earnings, beating analysts’ estimates.
- In doing so, Nike follows luxury goods companies like Birkenstock (2017), and LVMH Moët Hennessy.
- As such, major retail marketplaces are forced to compete. Amazon has upped the ante by increasing their share of private-label brands and scaling this side of their growth into 2020.
- More DTC brands are already crossing borders into physical retail, with the likes of Allbirds, Everlane and Reformation reimagining brick-and-mortar stores. It shows that owning the entire branded experience is in.
- There were also major C-suite shake ups in 2019 as Stuart Haselden, former COO of Lululemon, was welcomed as the CEO of direct to consumer luggage brand Away.
Key benefits of this DTC model in e-Commerce
Open up powerful feedback mechanisms
Create consistent experiences and efficient new sales channels
Unlock entirely new business models
1. Direct to consumer = more customer data
Brands that prioritize direct to consumer enjoy a large amount of detailed first-party data about their customers – from demographics to behavioural insights. Retailing your product range through Walmart or Amazon naturally leaves you with a large blind spot in the shape of purchase preferences and customer lifetime value.
Why did their visitors buy your product, will they buy again or will they choose your competitor on the next shelf, or carousel space, instead? You may never know. After all, if you can’t measure it, you can’t optimize it.
The proliferation of e-Commerce capabilities and direct data collection opportunities today means you can not only get a complete understanding of why your customers are ghosting you. You can prevent them from doing so.
No intermediaries needed.
The truth is, most legacy brands are used to looking at metrics like impressions, reach and frequency of visits. But engagement doesn’t necessarily translate to sales.
Brands must get used to the fact that the eCommerce data to collect for a watertight direct to consumer strategy delivers on the following KPIs:
- Repeat purchases
- Average order value
- The lifetime value of revenue
Then, brands can build the funnel around those metrics.
It’s a whole new approach to customer data that more traditional B2B/ B2C retailers may not have a history of embracing.
2. More data means owning (and personalizing) every part of the customer experience.
Ceding your customer relationships to an intermediary and relying on them to protect and promote your brand can be dangerous. DTC allows you to differentiate through every stage of the buyer journey by leading with your values. From targeted, eye-catching acquisition and hyper-personalized product carousels, through to friendly, efficient delivery and retention-focused follow-up efforts.
A two-way relationship is more valuable than a one-way impression. But this also means picking your battles.
You don’t have to go it totally alone. Working with the right technologies to minimize inefficiencies as you transition from wholesale to DTC becomes a must . This is a way for marketers to seamlessly personalize important journey points like check-out. And you keep a breadth of delivery options without costing the earth or your brand’s integrity.
Investing in the right personalization platforms for direct to consumer means understanding your legacy brand’s strengths (e.g. long-standing trust). It gives e-Commerce teams the control and digital capabilities they may have missed to focus on what really matters and put their best foot forward – easily testing, buffering and releasing new experiences.
3. No middleman = higher margins & profit
DTC brands streamline their supply chains, and as such enjoy highly competitive price points. No middlemen means no worries about undercutting distributor pricing.
Gaining a complete picture of what makes customers tick (and what doesn’t) makes way for launching and experimenting with new campaigns, customer incentives – even business models, and seeing the bottom-line benefits of this new end-to-end control.
When you don’t need to cut your margins to sustain a complex network of resellers, you can connect your pricing directly with your proposition. You can call the shots, slash costs and focus on a few owned channels that really matter.
Cult DTC beauty brand Deciem made headlines in November 2019 for its decision to close its stores and website on Black Friday to protest the rise of hyper-consumerism.
Instead of Cyber Week, the company offered a 23% discount on every product in its portfolio throughout November in a bid to encourage more considered purchases. Favoring transparency in everything they do from their ingredients and efficacy, to pricing and the last mile, Deciem has chosen to keep every aspect of their customer experience managed in-house.
Bucking the retail trend on their terms has paid off, with the New York Times reporting in April 2019 that Deciem was set to sell US $300 million worth of product across its brands this year.
Stay tuned for part 2 of this blog series, in which we will explore how you can implement DTC in your business.
Paazl is a leading shipping service provider (SSP) for brands & retailers in e-commerce. Its all-in-one, multi-carrier platform unburdens the delivery process across webshop, warehouse, customer service and returns. Paazl enables logistical flexibility, consumer loyalty, cost transparency and (inter)national growth. Customers include industry leaders such as G-Star Raw, Rituals, VanMoof, Tag Heuer, Leenbakker and Under Armour.