Today more and more brands are embracing direct-to-consumer (DTC) as a core component of their retail strategy. The rise in popularity of this approach correlates with a few prevailing trends:
- The visibility of some highly successful digitally-native brand pioneers (e.g. Casper, Dollar Shave Club, etc.).
- The advent and democratization of new technology platforms that make reaching consumers directly, and at scale, easier and cheaper than ever before.
- Changing consumer sentiment, where consumers now expect brands to “authentically” interact with them.
Digitally-native brands present a new model for effectively and efficiently leveraging digital technology to define how people interact with brands and consume a business’s offerings (products and services). This new model affords them a far richer understanding of their consumers and consequently enables them to move quicker in optimizing their marketing models and engender virtuous cycles of improvement.
Yet, despite these vanguard examples — the Caspars, the Dollar Shave Clubs and the Warby Parkers of the world — there remain many misconceptions about what “DTC” actually is. In short, DTC, or “direct-to-consumer”, means just that: reaching customers directly, sans intermediary (such as, brick and mortar or online retailers, DRTV channels, retail brokers, etc.). Which of course begs the question: how is that any different than just selling goods from your own e-commerce website? Truth be told, that is what many clients go to when they hear the term “DTC”. But these days, DTC is really a lot more than just that, rather It’s about building a retail marketing strategy with the following three core pillars:
Core Pillars of DTC
Pillar One: Multichannel –including:
- Responsive Design Brand Websites
- Social Media
- Marketplaces (e.g. Amazon)
Pillar Two: Addressing Every Stage of the Customer Life Cycle – including:
- Stages 1-2: Awareness and Consideration
- Pay Per Click (PPC) – e.g. Paid Social, Google Adwords, Amazon A9
- Search Engine Optimization (SEO) – e.g. Onsite Optimization, Keyword Focused Content, Link Building, etc.
- Content Marketing – e.g. Blogs, Videos, etc.
- Community Management – i.e. Organic Social Media, Online Product Review Management (encouraging and responding)
- Email Marketing and CRM
- Word of Mouth (WOM) – e.g. Rewards points for referrals.
- Stage 3: Acquisition
- Responsive Design, Brand E-Commerce Sites: Selling via a business’s own e-commerce-enabled website
- Social E-Commerce: Leveraging the tools afforded by social channels to sell directly, e.g. Instagram Shoppable Posts, Pinterest, etc.
- Marketplaces: Marketplaces like Amazon or LivingSocial. Nowadays marketplace strategy is more than just selling via that channel. Consumers predominantly go to marketplaces for product discovery as well, so brands need to actively manage and curate their presences there (product merchandising, managing reviews, etc.). They are, at least initially during the traction-building phase, essential channels because it’s hard for any new product to affordably build the necessary traffic to its own website right out of the gate to produce meaningful sales. Additionally, since today’s consumers demand a seamless experience (i.e. secure and easy checkout, free and/or inexpensive shipping options, and responsive customer service) and scaling a full, retail operation takes time (especially when it comes to fulfillment and customer service), new products must leverage marketplaces to deliver it.
- Stage 4: Retention and Loyalty
- In DTC strategy, engendering high levels of ongoing customer engagement — by creating and nurturing a customer community — is an important goal, as it correlates with higher levels of loyalty and generally delivers a better overall average lifetime value (LTV). To this end, in a holistic DTC strategy, brands mine their customer data (gathered as an endemic side effect of digital-centricity) for insights on how best to engage their communities in order to build dialogue and be seen as both relevant and authentic. This is especially true for subscription businesses especially where churn management and maximizing LTV are essential to business health (e.g. maintain a dialogue with customers to encourage them to keep seeing value in their purchase). Additionally, loyalty programs that reward customers for referring others, drives engagement and LTV; this type of WOM marketing is a vital component in keeping the average cost of customer acquisition low.
Pillar Three: Product Strategy
Today, products need to be looking for ways to drive LTV beyond the single product purchase. For instance, selling a core product that has a replaceable component which consumers need to purchase repeatedly in order to continue to get value from it. This is the so called “printer ink model”, from the practice, pioneered by printer manufacturers, of selling printers at a very low price or even a loss, and continuing to monetize that customer relationship ad infinitum by selling him or her a monthly subscription for ink cartridges.
Benefits DTC strategy
Higher Margin Sales
Selling direct to consumers obviates third party intermediaries and thus expands business margins. Of course, there are new costs associated with DTC to be accounted for, such as fulfillment (staffing, packaging, shipping costs, etc.), though the increase in margin should more than offset them and deliver net gains.
Deeper Customer Loyalty and An Increase in LTV
Working directly with customers affords brands more opportunity to promote recurring economics (e.g. the “printer ink model”)
More and Better Data on Your Customer Base
The vast amount of data generated via a DTC strategy can be leveraged to drive insights on: marketing tactics, product optimization, business model extensions, product and pricing strategy, and personalization in both community engagement and customer support.