Direct to consumer (DTC) used to be a limited term that described a group of disruptor companies who delivered a unique product – something larger companies didn’t offer – and sold it through their own website. For the past decade, it’s been a powerful micro-economy, with massive amounts of investment flowing in, typically through VCs and PE firms, and a growth-first mindset that’s been highly successful.
But as the space became more saturated, the unicorn dreams have faded and reality has set in, particularly around the size of their exits and the struggle for sustainable, long-term growth of the business.
From the consumer POV, though, DTCs are still hot. Intent to purchase DTC brands is rising, with over half (52%) of consumers saying that 1 in 5 of their 2021 purchases will be DTC brands. Why? Because the belief is that they are a higher quality product at a lower price point than traditional competitors (44%) and that DTC are the authority of what’s cool and on trend (23%). Perception is driving purchasing.
But the pressure is mounting. What was innovative in 2010 is now table stakes. Furthermore, legacy brands are now taking lessons from DTC pioneers and have launched their own lines, such as P&G’s Native Deodorant, Target’s Welly bandages and EvenFlo’s Gold smart car seat. Brands are investing in their own web properties as an ecommerce channel, such as PepsiCo’s PantryShop.com and Snacks.com and Nike’s “Consumer Direct Offense” strategy.
Many Amazon-first or Amazon-centric brands are also taking what they’ve learned (product attributes, pricing strategies, customer feedback) from that marketplace and using those insights to build, innovate and commercialize a product that will then be offered DTC only.
It’s now clear that every brand is a DTC… if they want to be. We’ve gathered the five core principles that have driven success in the past, and that we believe will continue to serve as the playbook for the future, whether you are the new kid on the block or an established Fortune 500 looking to capture future market share.
Customer Experience is Paramount
In just six months (March-November 2020), brand loyalty dropped from 65% to 49%, according to an Omnicom Media Group study. As people struggled with job losses and lower income, they defected to cheaper products, and the disrupted supply chain pushed others to switch brands when the products they wanted weren’t immediately available.
Even before this drop, brand loyalty was on the decline, generationally. Millennials and Gen Z simply don’t have the same levels as their parents (Gen X) and grandparents (Boomers). To keep customers coming back, your DTC site must include some sort of loyalty mechanics, so that they don’t go to Amazon after their one-time discount.
But it’s not just about price. As part of reimagining loyalty, brands must think about new ways to deliver meaningful and memorable customer experiences. It’s not about how much you paid, it’s about the value of the item for the price paid. No one ever says, “I paid ten dollars for this toothbrush.” They say, “I got this amazing toothbrush for $10.” The item and the service comes first, and the price is simply what they paid for the experience that was delivered. As such, DTCs must create value that includes how it makes the customer feel (e.g., smart, confident, joyful, excited) and that can’t be achieved in a store or alternative online channel.
That differentiated experience brings the value above and beyond the price – and will keep them coming back, creating that very trust and loyalty of yesteryear that all brands desire.
3 Keys to Product Differentiation
In addition to a superb and unique customer experience from discovery to purchase, the ideal DTC product itself must give the customer a reason to buy from you vs. the many other options available to them.
There are three distinct characteristics of products that win in DTC: Truly Unique, Truly Hard to Find, and “Shy to Buy.” The latter is particularly compelling; can you imagine how many people would pass up a nice bottle of Poo-Pourri at their local pharmacy in fear they’d run into someone they knew while checking out? What about a GoGirl? Didn’t think so.
The beautiful part about product differentiation is that it doesn’t have to mean offering entirely different products on your site vs. Amazon. We worked with one of our clients, for instance, to understand its Amazon business and how to differentiate products on DTC. In this way, they could curate a different assortment on their website in a way that didn’t cannibalize their Amazon assortment, thus ensuring they were complementary to each other.
Mobile & Social: Not an Afterthought
Many successful DTC and digitally-native brands have taken a mobile-first approach; that’s not necessary for all brands. But be careful not to neglect the role of mobile in enabling convenience, research (price, reviews, claims, quality, etc.) and be sure to take advantage of the transparency and simplicity you can offer in mobile apps, both proprietary and 3rd-party.
DTCs also have always embraced the role of social, both established channels and those that are just emerging, in driving both awareness and traffic. A big consideration now is consumer adoption of social commerce, and it never hurts to look at China for inspiration and education. Social commerce sales are 10X higher in China than in the US. The sooner you can get into social commerce, and conversational commerce too for that matter, the better off you will be even just five years from now. Social commerce fills a consumer desire for discovery, and the experience can be more interesting and serendipitous than the functional role played by marketplaces.
The Tricky Business of Fulfillment
When building a DTC experience, think about the key components from an operations standpoint. Are you going to do fulfillment on your own, or through a partner? If the latter, always negotiate for privacy-sensitive CRM data sharing and be sure to provide the same level of fulfillment that Amazon offers, meeting benchmarks such as two-day shipping. The overall experience, too, must be seamless from a consumer experience standpoint, with the shining example being Amazon’s Certified Frustration Free packaging.
Other considerations: A branded box or QR code on the outside of the package, which pack sizing consumers want (vs. what is economical for you!), and how you will manage subscriptions. Discounting and promotions still remain strong drivers, whether it’s in a marketplace or directly with your customer.
Stay Connected, In More Ways Than One
The #1 thing to remember is that much of what has made emerging DTCs so successful is their agility, the vertically-integrated, streamlined ways they could do business, and their social platform prowess, especially in the early stages. When building a new business, you don’t have to deal with already established departmental structures and data sitting in silos. Communication and data-sharing across functions is easier when there are 10 people sitting in an office vs. thousands across the globe.
But even if you are coming from an established organization and are responsible for the DTC business, it’s not impossible to create those connections. Input from your counterparts on other channels, both online and offline, is essential in your collective understanding of consumer behavior. With a full view of how you as a brand are connecting with that consumer, you’ll get a complete understanding into how best to serve and delight on your website.
Whether it’s on your own site or app, on Amazon, or in the many other digital marketplaces, you need to not only be where your customers are, but know that they are natural explorers, seeking discovery and inspiration everywhere – not just in one spot. The role of DTC as a channel in a broader context remains critical for your overall business success.
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