The direct-to-consumer (DTC) trend has been making headlines recently. It involves digitally native brands like Dollar Shave Club, Under Armour and Glossier that were born online and are now successfully shaking up the market and putting immense pressure on traditional wholesalers.
Understandably, a huge number of brands are now following the gold rush to deploy DTC and you risk being left behind. Nike, for example, has been reporting stellar results and announcing even stronger ambitions for a direct-to-consumer approach. According to Market Realist, its DTC channel contributed to 24% of the company’s revenue in 2016, up from 17% in 2013, and the company plans to grow it by a further 250% in the next five years, with revenue forecasted to reach $16 billion by 2020.
Aside from the pressure put on traditional wholesalers from digitally native brands, the other single most important reason behind the shift to DTC is the changing retail landscape and the fact that consumers aren’t shopping in the same way as before.
Recent changes in online consumer buying behavior indicate that shoppers are much more open to purchasing products directly from brand websites as they favor a rich brand experience and high quality customer service. In fact, according to a recent survey, 59% of shoppers prefer to do research on brand websites and 55% want to buy from brands directly.
Furthermore, at every point of the value chain, merchants are seeing their margins squeezed, while ecommerce giants like Amazon are dominating the market. There’s clearly a seismic shift happening within the industry, which is resulting in a number of benefits for brands that join the fray.
The benefits of going direct
There are many benefits of a DTC business model, but owning a rich brand experience from discovery to delivery is one of the most fundamental ones.
The direct-to-consumer model enables brands to control the entire end-to-end journey that consumers experience while interacting with the brand. This means owning every part of the relationship with the buyer through each of the pre-purchase, point-of-purchase and post-purchase phases.
It means that brands can foster close bonds with their customers, with a chance to offer the best online ‘shop window’ for their products in the sector, the most convenient payment methods, a wide range of delivery options, an optimal returns policy and excellent customer support.
As a result, it’s shifting consumer expectations, as the promise of wider product choices combined with 24/7 shopping and support become a reality – a reality which further erodes the appeal of physical retail stores or retailers only catering for the mass market.
Ultimately, selling directly to consumers allows you to gain deeper insights about your customers and their behavior, leading to improved loyalty and customer lifetime value (CLV) for your brand.
But data is predominant in DTC. The more you take care of data, the better the chance of success. Since there is no middle party involved, you own the entire customer experience. Brands can, by using the right platforms, record, store, manage and analyze data and use those insights to offer the exact things customers are looking for.
Other benefits of going direct include the opportunity to expand into new markets, improve profit margin and to gain a deeper understanding of your merchandising data, such as fast and slow moving inventory, lost opportunities and seasonal trends. This ensures this part of your business can be adaptable, which is especially important in a rapidly changing retail climate.
The challenges of going direct
Despite the market opportunity of going direct, there is some pushback to integrating this type of business model.
The reasons behind this hesitation follow similar themes. There are concerns around upsetting retail partners, becoming DTC fulfillment ready or being able to compete with the same-next day shipping expectations being set by the likes of Amazon, while others have issues around investment, their technology capabilities or a lack of ‘know how’ around how to get started with the shift from a B2B to DTC business model.
These concerns are understandable, but they shouldn’t hold back your business and its evolution. Almost half (48%) of manufacturers are currently planning to build DTC channels, while the number of brands selling direct to consumers is expected to grow by 71% this year alone.
Despite such a vast number of brands racing to launch their own DTC channels, we’ve found that there is a disconnect between how merchants and consumers feel the movement is going.
The idea that a DTC business simply requires a standard ecommerce presence seems to be a common thread of thought. Often, in this case, not enough thought is being given to the idea of a fast and frictionless ecommerce experience.
This is the very essence of the direct-to-consumer movement and relies on a next level of efficiency and accuracy within any business intent on tackling this exciting new channel.
If you’re a brand that isn’t selling directly to consumers but is considering it, or you’re struggling to adapt or grow your existing DTC channel, then your next step should be to read our guide: ‘Succeeding at DTC: Your Essential Guide’.
The guide aims to equip you with the knowledge and information you need to successfully launch a DTC business model, covering multiple aspects of this exciting journey, such as:
- What’s caused the shift towards DTC business models
- The challenges and opportunities of selling directly to consumers
- Top traits of successful ecommerce businesses
- When it’s viable to launch your own retail channel
- What customers expect when it comes to the end-to-end buying experience
- The ideal technology stack to support your shift to DTC
Download the guide today to gain actionable advice and next steps for your own DTC journey.