In this article, I am going to take an overview of direct-to-consumer (DTC) trends and explain how producers can benefit from incorporating DTC model into their own business plans.
What is direct-to-consumer (DTC) ecommerce?
Direct-to-consumer e-commerce (DTC) is one of the hottest e-commerce trends recently and it refers to selling products directly to the end consumer by brands. You cut out any middlemen. Rather than creating products to be sold through Amazon, or Tesco, or any other online or brick & mortar retailer, some brands start up to sell directly to consumers themselves, cutting out distributors and third party retailers. Meanwhile you tailor your shopping experience to the consumer rather, making it more convenient for the buyer.
This business model works especially well now. More and more consumers go online now to purchase everything from household items to groceries. New young brands are moving fast to change the retail space and get in front of their target consumers, skipping a traditional retail middleman.
Typical benefits of DTC brands
Consumer expectations are continuously rising and they make conscientious buying decisions. There’s more choice now than ever before, which puts a greater onus on brands to meet their audience’s needs, whatever it is, price, quality, image, functionality, service or relationship.
1. Price. When it comes to price DTC brands can obviously lower their prices without lowering product quality, because their business process is cost-effective.
2. Relationships. It’s easier to communicate your brand’s values and mission to customers. By selling through your own store, you can utilize branding, promotions, content, and stories to engage consumers. You can also deliver better personalization through direct customer relationships. That’s a powerful opportunity to seize. Customers’ feedback can’t get lost in the retailer red tape. It drives brand loyalty by product, experience, and relationship controlled by the brans.
3. Data. To personalize experience effectively, you need a thorough understanding of your customers. Therefore you need data. You should collect and own data abut your customers across all channels you use to personalize communication in all channels. But good news is you can own data and not to be dependent on retailers or marketplace. You can collect email addresses, demographic, transactional and behavioural data related to cookies or other identifiers, etc.
4. Last but not least, selling your own products directly to consumers can allow you to retain revenue that would otherwise go to suppliers. So, it means higher margin.
Many strategies for DTC
When we talk about DTC brands we can find out several similarities. Usually they launch DTC strategy with a single product, or within a single narrow category containing just a few products. They want to stick with the regular sales channel as well for other, or all categories. And they start up selling directly via the web. And one more common area is strong focus on brand, on creating its specific image and on building its awareness among consumers. Even a small startup producing just a few items sold direct via Instagram has a strong focus on its brand and considers itself as a hot DTC startup.
Many brands define different roles for their DTC strategies. Nike, for example, goes in DTC as a way to further establish the brand. There are more and more new brands and more and more distribution partners on the market – the brand risks being diluted because of inconsistent consumer experiences. In 2020 one-third of Nike’s global sales were completed through the DTC channel. Dell aims to sell directly to businesses rather than consumers in its strategy. Levi’s on the other hand sells vast amounts through third party retailers, as well as direct.
Of course, there are nowadays many DTC brands in apparel/fashion category. Just to mention few of them: Ellie, REVOLVE, Tea Living, Huckberry, Rockets of Awesome, Ministry of Supply and dozens of others. Another category is beauty / personal care with many DTC brands. There are automotive DTC brands like: Lucid Motors, Tesla, Zoox. The most interesting category is food, beverage and alcohol, where more and more brands try to sell directly to their consumers.
The DTC model is not a guarantee for success, of course. It seems to be quite obvious way for newcomers, but also established brands can highly benefit from it and today more often looking for possibilities reaching customers directly with their marketing activities and sales. Sometimes selling directly to consumers is too far for many brands to start with, but owning marketing channels, data about customers or tools to support sales in 3rd party channels are hot topics among established brand today.