Between business-to-business (B2B), business-to-consumer (B2C), and consumer-to-consumer (C2C), today’s business world is like a veritable alphabet soup. But what about direct-to-consumer (DTC)? This is the newest strategy of the retailing industry and has quickly become one of the fastest-growing and most effective business models to date. According to Statista, DTC ecommerce sales are forecast to reach $21.25bn by the end of 2021 in the US alone.
Read on to find out why you should consider adopting a DTC business strategy. But before we delve into the benefits, it is essential to understand what DTC means firstly.
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What is the DTC business model?
DTC refers to a retail ecommerce strategy that promotes direct sales from manufacturers to consumers without the middlemen. In comparison, the more traditional retail business model runs from the manufacturer or producer to the wholesaler, the distributor, the retailer, and the end-consumer.
Three typical characteristics of a DTC brand are:
1. Direct to the end-consumer
The manufacturer is the seller as well, and therefore, there is no third-party playing as the interface with the customer. Instead, the DTC brand has an end-to-end responsibility, looking after its own production, packaging, marketing, sales, and direct distribution to customers, without sharing revenues with distributors and retailers.
2. Digital-first
DTC companies are “digital-first”, which means that the relationship between the brand and the consumer is managed entirely through online marketing and sales, customer support, fulfillment, returns, and exchanges. The digital-native approach helps reduce management costs because there is no need to operate brick-and-mortar stores and offers the ultimate convenience for the consumer to shop in the comfort of their own home.
3. Omnichannel experience
Although DTC is categorized as ecommerce, brands have the flexibility of implementing an omnichannel experience. For example, a brand may occasionally adopt physical retail methods, such as pop-up stores or collaborating with brands with their own retail space. The purpose of this is not necessarily aiming to achieve in-store sales, but instead, it seeks to increase brand awareness and customer engagement to increase more online sales.
A DTC success story: Casper Mattress
Founded in 2014, Casper completely disrupted the traditional consumer experience of buying mattresses. The company designed and developed a simple, high-quality foam mattress that could be packaged into a small box and delivered directly to the customer’s door.
At first, the idea of buying a mattress online was considered questionable before realizing it was revolutionary. Casper offered absolute convenience for its millennial target market, who no longer had to visit various physical stores to view dozens of mattresses and arrange costly delivery for the large, bulky items. The modestly priced, high-quality product offered additional benefits, including free shipping and returns, 100-night sleep trials, and extended warranty periods. Casper’s DTC approach focused on omnichannel content marketing, where they created lifestyle content via a blog, social media, influencers, video posts, and even their own magazine, Woolly. This direction allowed them to position themselves not just as an online mattress brand but as leaders in the industry.
Source: KYLIE JENNER/INSTAGRAM
What are the benefits of the DTC business model?
Adopting a DTC ecommerce approach has its competitive advantages over the traditional retail model. These include:
1. Implementing an omnichannel experience for improved consumer engagement
Traditionally, manufacturers are unable to interact with their target audience directly. While some brands prefer a hands-off approach, DTC ecommerce strongly values customer engagement and relationship building to improve its brand equity. The Global Brand Shopper Survey found that 55% of customers prefer to shop directly with the parent brand/manufacturer over retailers.
Having more control over the whole customer experience allows you to manage your marketing and sales activities across multiple digital touchpoints and reach your target audience effectively. This omnichannel marketing approach offers more creativity and ensures consistent brand messaging throughout all communication channels.
Recently, even traditional brands such as Heinz, PepsiCo, and Nike have launched new communication channels for the first time to activate relationships with their customers directly. Adidas has also revealed its new “Own the Game” strategy to increase sales and profitability significantly and gain market share until 2025.
2. Gaining access to data for confident decision-making
Data is knowledge, and knowledge is power. With complete control over every step of the customer experience, you can collect (and own) valuable data from all consumer interactions.
Various data analytics tools can gather data such as shopper browsing behavior, online discussions about specific topics, the impact of pricing activities, and more. As a result, you will uncover incredible insights to understand your target audience better and make confident, data-driven decisions for their ongoing operational and marketing activities to drive more revenue.
3. The possibility of testing new ideas
By knowing what your customers want and need using data analytics, your business can become more agile. You can design and launch new products faster without any concerns about their success. If any doubts remain, you can ask your customers directly about what they think using various marketing approaches.
Other opportunities include trying out new ideas without the need to convince or locate a retail partner. You can trial new marketing initiatives like product bundles or offers or even introduce new payment plans and subscription services without needing to worry if they need to be altered at any time. DTC-led brands can also launch their shop in a new geographic location without any preauthorization or additional hiring required.
4. The opportunity to rapidly increase sales
Winning more sales is the ultimate goal for every business. By eliminating intermediaries, you can avoid distribution costs and commissions. Those without physical stores also remove overheads such as rent, insurance, and store maintenance.
What does this mean?
Lower costs = higher profit margins!
You can also boost sales by leveraging ecommerce technology that intelligently personalizes the customer journey to enhance the shopping experience. For example, in-built machine learning can automatically organize search results on your ecommerce website and suggest the most relevant products based on browsing history.
Algorithms can also improve type-ahead search with tailored keywords and synonyms to continue sharing alternate products to keep the shopper interested.
If the shopper experiences a thoughtful, seamless interaction from your brand, they are more likely to make a purchase.
Transitioning to become a DTC-led brand is a big decision for any manufacturer. To reap the benefits of this game-changing business model, you must have a well-planned and carefully executed strategy supported with the right tools and resources.
Consumer expectations are at an all-time high, and keeping up in today’s competitive world is ever-evolving and extremely fast-paced.
If you’re wondering how to make the transition or need extra support to take your DTC ecommerce business to the next level, get in touch with Acuity today.
