Buzzword or Buzzworthy: Direct to Consumer (DTC, D2C) Demystified

Marketing Strategy

We are living in a new era, gone are the days when the sole focus of a manufacturer was to mass produce products and leave the selling up to retailers. In today’s economy, the internet has eliminated the need for middlemen; therefore, it is essential that businesses adapt, and the only way forward is through the direct to consumer (direct-to-consumer, D2C, or DTC) model. Direct to consumer brands typically arise as online stores, not only is the e-commerce concept a cheaper and easier option to launch, but eight in ten Americans now shop online giving suppliers the opportunity to serve a global audience. In other words, if businesses don’t adopt this model, they run the risk of losing their customers to brands who have streamlined and simplified the shopping experience. If you are thinking about joining the revolution, keep reading! 

What is Direct to Consumer 

Direct to consumer means that manufacturers ship their products directly to their consumers without relying on middlemen or brick and mortar stores. D2C brands do not need to rely on traditional retailers for exposure, they can experiment with a variety of distribution models from shipping straight to the consumer, opening pop-up shops, and partnering with physical retailers. D2C startups have strategically positioned themselves to gain a competitive advantage by rethinking their retail models as well as their products.

The Benefits of Direct to Consumer For the Brand

There are several advantages associated with D2C, these include the following:

Faster to Market: It typically takes between 18-36 months to market a product the traditional way. With D2C, businesses are no longer bound to the requests of external manufacturers. They can quickly and easily test new products within a specific demographic, collect feedback and then tailor the product to the needs of the customer before putting it on the market. 

More Control Over Reputation, Brand and Product: Direct to consumer allows the manufacturer to take full control of all stages of product and brand development. In a traditional relationship, the retailer deals with the end-consumer marketing, and the manufacturer handles operations such as product design and packaging. The D2C model provides a distinct and streamlined brand identity which provides a superior customer experience. 

Better Customer Engagement: Business can cultivate and control relationships with their customers that surpass traditional retail channels. It gives them access to key customer information at every touchpoint from geography, demographics and psychographics, social profiles and email addresses. Direct to consumer also allows businesses to develop an accurate picture of their target audience so they can better serve their personal needs. 

The Benefits of Direct to the Consumer For The Customer

Consumers and businesses alike are benefiting from D2C; some of the main benefits include:

Comparison Shopping: Instead of customers having to travel from store to store, consumers now have the opportunity to click from website to website and compare products. They can read reviews to find out what other buyers are saying about the product and compare prices which enables them to make intelligent buying decisions on the spot.

Saves Time: In today’s busy society, people no longer have the time to spend all day shopping. Time is the only resource that rivals money, and due to this fact, shoppers often state that they shop online because their time is more important than money.

Flexible Delivery: Delivery choices are important to customers; for example, Amazon will deliver to any address you provide as long as the invoice address matches the cardholders details. Therefore, customers can have their products delivered to their place of employment, a relatives house or any location most convenient to them. 

Building a D2C Brand

Despite the many advantages of D2C, it takes focused effort and determination to accomplish. It is essential that you have a specific strategy in place to get the attention of your target market. Here are some tips to get you started:

A Business Plan: What market are you trying to penetrate? A business plan will give you a deeper insight into your target market so that you can develop the most effective strategies for your business.

Customer Relationship Management (CRM) Data: Understanding your customers is one of the major keys to the success of any business. The internet is awash with information – some of it will benefit you and some of it won’t. You will need to find a CRM tool that is capable of finding the golden nuggets within the sea of information and interpret it in a way that will most benefit your company.

Handling Transactions: Transaction handling is essential to developing a strong relationship with your customers. Your shipping and delivery style provides the customer with insight into your level of commitment to them. A study by Accenture found that two-thirds of customers have chosen a different retailer based on delivery options and the returns process.  

Your Brand Comes First: When you have a strong understanding of the market potential, it assists in defining your brand’s purpose. For your brand to flourish, it must establish its value; in other words, why is a customer going to choose your brand over another. Every consumer knows why they have favorite brands; for example, I would never choose a Samsung smart phone over an Apple smartphone because among other things, I find Apple phones easier to use. Even though I know I am going to spend a bit more money, I would rather pay the extra for peace of mind. What are the defining features of your brand, and how are they superior to your competitors?

Innovation is the Secret to Success: Today’s consumers are not like yesterday’s, they know what they want; they are very particular about it and if they can’t get it from you, they will go elsewhere! Therefore, you must offer your customers with a unique experience that will keep them coming back for more.

D2C and the Customer Experience

To succeed, D2C companies must utilize customer information starting with first-party information gathered directly from their audience. First-party data includes:

  • Social profiles and email addresses in CRMs
  • Demographics and geographic location data
  • Behavioral information from website analytics
  • Cross-platform data
  • Customer support information

Additional data sources are second and third party data which are collected through partners and purchased from data aggregators. First, second and third party data combined generate a complete picture of each customer. After all this information has been collected and turned into a profile, companies can use them for sophisticated target marketing.

How to Measure Success: Before you can even think about measuring your success, you need to define your goals. Outside of increasing your profit margins, what do you hope to achieve through the direct to consumer model? It is advised that you use the SMART goal formula and ask yourself how you plan on measuring each goal to ensure that you are achieving them. Measuring your goals is where key performance indicators come in handy. 

Key performance indicators (KPIs) measure the values that highlight how a company is achieving key business objectives. It is essential that companies do not blindly adopt industry recognized KPIs because each company is different, and what worked for one might not work for you. You must develop a clear, succinct and relevant strategy that details how you intend on achieving your end goal. Key performance indicators to consider measuring include the following:

Keywords: What keywords are your customers and potential customers using to find your products?

Exit Pages: By measuring exit pages, you gain insight into the pages on your website that are failing to achieve your business objectives. 

New vs Returning Visitor Traffic: Measuring which customers are new or returning will give you insight into the most effective marketing channels for new customers. 

Device: Which devices do customers use most often to interact with your brand?

What is D2C Marketing?

With standard business to consumer (B2C) models, retailers (think Walmart), sell products on behalf of a variety of manufacturers. Customers have a wide range of options available to them which means manufacturers relinquish their control over the buying process, brand positioning, customer experience and engagement. All of which is left to the retailer selling the products. I know I’ve been in a store with my mind made up that I am going to purchase a certain brand; however, upon arrival, I see another display that looks more appealing and I’m swayed by the other brand.

Direct to consumer marketing puts the control of the buying process back into the hands of the manufacturers. The company is responsible for creating a superior product, marketing it to their target audience, delivering the product or service to their customers and establishing a relationship with them. 

Should I be Doing it?

The majority of large corporations have already entered the direct to consumer arena, and as the eCommerce industry continues to dominate the retail industry, smaller companies are asking whether they should join the party. We have already looked at the benefits of D2C, here are some of the negatives you may want to consider before making the transition:

Difficult Conversions: Direct to consumer brands can appear to have a competitive advantage because of their low costs and free trials. Although free trials attract potential customers, many of them will often only pay for their services for a couple of months and then cancel their subscription, or they will cancel before the end of the free trial.

Supply Chain Issues: The D2C brand Glossier is a good example of this problem, they found it difficult to keep their products in stock. Direct to consumer brands can face challenges when it comes to managing their supply chain.

Requires Expertise Many Areas: As a small company on a tight budget, do you have the funds available to invest in hiring people to teach you or handle things like shipping logistics and other processes associated with direct to consumer selling?

How Does it Differ from Traditional and Digital Marketing?

Although traditional marketing is still effective, the growth of technology has enabled organizations to connect to their audience in an unprecedented way. Here are some of the main differences between traditional and digital marketing:

Interaction: Traditional marketing does not allow businesses to interact with their customers. They broadcast their information in the hopes of attracting their target audience and converting  them into buyers. Digital marketing on the other hand, makes the advertising process highly interactive giving the audience the chance to click on links, type immediate feedback or speak to a live agent.

Cost: Traditional marketing is far more expensive than digital marketing. If you want to run a global campaign, in most cases, you will need to set up a contract with each individual country. Whereas digital marketing gives you access to a global market with one advert.

Campaign Measurement: It is difficult to measure a traditional marketing campaign unless customers have the time to fill out a survey letting  you know where they saw your advert. You won’t have this issue with digital marketing because you can put metrics in place to automatically record how customers are locating your information. 

What Does a D2C Campaign Look Like?

Away is a luxury suitcase brand founded by Jen Rubio and Steph Korey. The company officially launched in February 2016 and generated more than $12 million in sales within its first year and in less than three years, generated $125 million in revenue! What’s their secret? Amongst other strategies, direct to consumer sales has played a huge role in their success. They started by looking into how they could tackle the price/quality conundrum that is so prevalent in the luggage industry. They determined that the reason luxury brand suitcases had such a high price tag was due to distribution and markup retailer costs. Their solution was to create superior luggage inspired by the customer experience, cut out the middleman and sell directly to the consumer. Their D2C strategy allowed them to offer their products at prices their target customers were willing to pay without sacrificing quality to make a profit. They now had a direct line of communication with their customers which allowed them to continue making improvements to their products based on customer opinion. 

How to Market Direct to Consumer

There are a variety of ways to connect with your consumer, but it requires a high level game plan to ensure that you maximize your potential.

Paid Advertising: Facebook, Instagram, Google, and other digital platforms offer opportunities for brands to deliver highly-targeted advertisements and disseminate their message directly to the people that might be interested in their products. While this approach requires continuous testing and analytical know-how, if you deploy a digital advertising strategy correctly you can produce low-cost, high-impact conversions.

Search Engine Optimization (SEO): Google is possibly the most powerful tool on the internet. When a potential customer doesn’t know exactly what they are looking for, they will type in a keyword and the product that Google respects the most will show up right at the top of the first page. For example, if a potential customer types in “glasses,” statistics show that they are going to click on the first website that pops up.

Social Media: Platforms such as Facebook, Instagram and Twitter have quickly become the most effective marketing tools of the 21st Century. Social media has revolutionized the way brands and customers interact. They provide a low-cost way to engage and connect with the people who buy and use their products. Social media driven engagement can drive direct consumer sales and help build brand loyalty.

Email Marketing: A study conducted by Adobe found that millennials spend approximately 6.4 hours per day reading emails. Millenials are not the only people who check their emails regularly, the majority of people use emails daily and will check their emails while working, travelling, eating etc. Email marketing provides a reliable form of communication between your customer and brand. It is a cost-effective solution to contact your customers in a location they visit often – their inbox!

YouTube/Instagram Influencers: Adding YouTube and Instagram influencers to your marketing campaign is a powerful way to get your products in front of millions of potential customers. Ninety percent of marketers state that it is more effective than any other marketing channel. Influencers are called influencers because they have a large following and have the ability to influence their audience. The difference between influencer marketing and traditional marketing is that the audience are receiving first hand information about a product from someone they trust, if they say the product is worth buying, you’ve instantly gained new customers. An influencer will leave your link in the description box on their page meaning that those that have made a buying decision have instant access to your products. 

Legacy Brands Leveraging D2C

When it comes to legacy brands and D2C, it’s important that they take the approach of “if you can’t beat them, join them.” There are some companies who are hell bent on refusing to join the revolution. I am not saying that I can’t understand their perspective – they have worked tirelessly for many years to build their brand and customer base, and they are comfortable with their current way of operating. However, historically, this approach isn’t a good move, and one company that comes to mind is Blockbusters. They were once market leaders when it came to video rentals; however, the organization failed to adapt to the changing retail environment of online rentals which resulted in their demise in 2013. The bottom line is that legacy brands can’t rely on their reputation and the equity they have built, even though they are valuable assets, they are not enough. Consumers were once loyal to the Blockbuster brand, but as soon as they found something more convenient, they jumped ship – don’t let this be your downfall. Here are some tips on how you can leverage the direct to consumer phenomenon.

Develop an Amazon Presence: According to Salesforce, fifty one percent out of the 500 consumer goods leaders surveyed felt that the Amazon marketplace was a critical threat to their organization. However, again, this is a case of, “if you can’t beat them join them.” Research suggests that approximately half of all eCommerce retail purchases in the United States took place on Amazon. Amazon might have cornered the market, but CEO Jeff Besoz is a smart guy, he understands that giving retailers the opportunity to sell their products on the Amazon website turns them into partners instead of competitors. Since consumer behavior has made such a radical shift in the direction of Amazon to the point where it has become the starting point for the majority of their product searches, it would be wise to jump on the bandwagon.

Amazon Advertising Options: Slightly behind Google and Facebook, Amazon is now the third largest advertising platform in the world, and it is continuing to grow. It is also important to mention that within the Amazon ecosystem, it provides transparency with the transaction process, it provides brands with better insight into consumer behavior and the way brands impact that behavior. 

When not to go Direct to Consumer

Despite the growing trend and the power behind D2C, it is essential that you do not embark on this journey unless you are ready! D2C isn’t an overnight success strategy, it’s going to take an extensive amount of time and effort. The problem with D2C is that if you get it wrong, without spending thousands, perhaps millions of dollars to rebrand yourself, it can be impossible to recover. Whether you are a new or existing company, you must invest in training to ensure that your company is able to operate profitably and efficiently under the D2C model.

It is also important that you have a clear rationale as to why you’ve chosen to switch to D2C. Additionally, you must be prepared to communicate this rationale to your customers and team in a way that they can understand. Without transparency and clarity in place, you will increase the likelihood of failure.

Key Takeaways

The most important aspect of the direct to consumer model is the customer experience. The main aim of any business wanting to take this route is to build strong connections with your target audience. Interactions should be highly personal and when done in a meaningful and genuine way can have a lasting impact. Today millenials are choosing brands based on social consciousness, and if they don’t like what you stand for they will move onto the next no matter what it costs them. Therefore, it is imperative that your brand is built on strong principles that resonate with your core audience. The good news is that you now have access to your core audience in a way that wasn’t possible in the past making it easier to cater to their needs. 

As you have read, the direct to consumer revolution is shaking the foundation of the retail industry. As digital advancements make it easier to deliver totally new experiences and eliminate the middlemen, customers are going to continue to demand that traditional brands provide them with the same experiences as D2C brands. The organizations that are willing to adapt, innovate, provide a superior experience and smarter ways to buy will ultimately win the race. 

References

  1. https://www.accenture.com/us-en/_acnmedia/accenture/next-gen-2/insight-post-parcel-etailer-research/pdf/accenture-differentiating-delivery-how-win-ecommmerce-battle.pdf
  2. https://hostingfacts.com/online-shopping-statistics/
  3. https://www.business-live.co.uk/enterprise/90-per-cent-marketers-say-17022784
  4. https://www.coredna.com/blogs/direct-to-consumer-retail-strategies-away
  5. https://www.channelape.com/ecommerce-terms/what-is-direct-to-consumer/
  6. https://www.bigcommerce.com/blog/direct-to-consumer/#why-brands-are-going-to-direct-to-consumer
  7. https://www.racked.com/2016/8/11/12412470/direct-to-consumer-sales-explainer
  8. https://www.cbinsights.com/research/direct-to-consumer-retail-strategies/