This is the first in a series of articles about the 3 main distribution channels present within ecommerce. We will be taking a look at Direct-to-Consumer (DTC), Wholesale, and Marketplaces, as well as how the Supply Chain within each of these channels looks.
To kick things off, we’re taking a look at DTC. What it is, why it’s vital and how you can implement it for your brand in 2020.
It’s becoming clear; eCommerce 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.
The direct-to-consumer (or D2C, or DTC) landscape heated up in 2019. You saw the ads and read the articles about retail darlings like Dollar Shave Club, Deciem, Glossier, Reformation, Casper, and Warby Parker; 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?
A quick scan of the D2C landscape
- Whilst eCommerce 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.
- Last year, 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.
- Nike follows luxury goods companies like Birkenstock (2017), and LVMH Moët Hennessy – Louis Vuitton Société Européenne
- 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 2019.
- 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
It seems like the direct-to-consumer model is showing no sign of a slowdown. Let’s look at the key benefits of this model for eCommerce enterprises to understand what’s powering the DTC movement.
It’s all about gaining greater autonomy and control over your customer experience:
1.DTC means 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 eCommerce 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.
So, what to do with all that data? In the spirit of reducing churn risk, a direct-to-consumer model also gives brands the benefit of owning the entire customer experience and adding value on this basis.
Rather than ceding your customer relationships to an intermediary and relying on them to protect and promote your brand, you can 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 – a way for marketers to seamlessly personalize important journey points like check-out and keeping 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 eCommerce 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 middlemen = 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.
Founded in 2009 in the Netherlands, Paazl is a fast-growing SaaS company that focuses on making e-commerce delivery convenient. We built a data-driven algorithm based on real-time carrier data from over 50 international and local carriers. It benefits e-commerce brands and retailers by optimising cross-border logistics and personalising delivery options. This allows them to visualise time and locations in the checkout page so their consumers can pick when and where they want their items to be delivered. Paazl handles over 20 million shipments yearly, around the globe. Paazl partners include G-Star RAW, Under Armour, Rituals, and Hunkemöller.
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