How to build a multi-million pound kick-ass DTC eCommerce brand: Part 2
Part 2: Why well executed DTC brands are killing it and 5 key benefits a DTC model can bring to your eCommerce business.
In this latest instalment of the 5-part series on how to build a multi-million pound kick-ass DTC brand, we’ll be exploring some of driving forces behind why DTC brands are thriving right now and some of the standout advantages of adopting a DTC model.
If you didn’t catch the first instalment, where we delved into the COVID catalyst for Direct-To-Consumer acceleration, fear not! We have you covered. You can check it out here.
The Direct-to-Consumer Boom
Simply put, DTC as a business model is the promotion and sale of retailer products directly from a manufacturer or producer to their target customer base, bypassing the need for intermediaries (the ‘middleman’) such as retail stores, marketplaces, and department stores.
In the historical context of retail, the DTC model is a relatively new concept, and some key global players include Dollar Shave Club, Glossier and Harry’s and Casper. Here in the UK, key British DTC brands you will have likely heard of include the likes of SimplyCook, Freddie’s Flowers, Made.com and Birchbox.
DTC, as a model positioned within online retail, has quickly gained popularity in recent years, initially among brands selling easy-to-ship product categories such as skincare, makeup, and fashion, and more recently by manufacturers selling high-ticket and larger items such as furniture.
Why DTC brands are winning
There’s a whole host of reasons why Direct-To-Consumer brands are really killing it in the market right now. The thirst and demand from consumers for an improved customer experience and deeper connection is real.
Consumers want to feel closer to brands and a DTC offering helps to facilitate this. Consumers are increasingly wanting to invest in more than just a product, they’re looking for a valuable experience that connects them with a brand like never before and those businesses that have realised this are really reaping the rewards.
To meet this growing consumer demand for a closer connection and better customer experience, brands that are coming out on top, are establishing strong DTC channels, and bypassing traditional practices, such as selling through resellers. They’re taking full and direct control of the consumer experience from the very beginning of the sales cycle by communicating and selling directly to their customer base rather than through retailer and reseller channels.
This is a sensational shift from traditional B2C strategies that have dominated the retail sector for decades. Until the advent of ever-evolving digital channels, most brands focused their energies on getting their products in other companies’ retail outlets. Today’s winning brands are building their own stores, communicating directly with their customers through social media and creating clear and direct channels to get closer to the consumer.
The shift towards DTC is undeniable. The 2021 DTC Purchase Intent Index by Diffusion uncovered the true demand from consumers around DTC purchases. It revealed that 79% of those that are familiar with DTC brands plan to increase their DTC purchases in 2021 and more than 50% of consumers stated that 20% of their purchases in 2021 will be with DTC brands.
Ultimately, brands that are not selling DTC online are falling behind. By failing to adopt a DTC channel, brand owners are losing out on a unique opportunity to better understand their customer base, build a greater connection and improve the overall, end-to-end customer experience. Fail to act and you risk an opportunity to future proof your business (with millennials and Gen Z shoppers more likely to buy from DTC brands). Your brand’s fate, and to some extent, its perception amongst consumers, is being left in the hands of resellers and retail distribution partners.
5 benefits of adopting a DTC model
The benefits of adopting a DTC model and having a clear and direct channel to sell to your customers are endless. DTC gives brand owners greater control over their operations and key advantages include less dependence on third parties, fewer limitations on branding and fulfilment, fewer contract negotiations, the ability to collect valuable consumer data, the prevention of counterfeiting, and a better end-to-end understanding of the customer journey.
Selling DTC also helps with insulating you as a merchant against the forces that are ravaging retail. It’s a bleak picture for the high street as we know it, for instance the UK lost more than 17,500 chain retail stores in 2020 alone.
By 2021, eCommerce is expected to account for 6.6% of all FMCG sales, and the DTC movement accounts for 40% of the sales growth in the sector.
Such compelling benefits mean that a DTC model is attractive to both well-established merchants and upcoming distributor brands. Brands that have traditionally sold their merchandise through other outlets such as department stores, partner retailers or major online marketplaces are now switching their focus to DTC to improve their product margins and have greater control over their brand image and consumers’ shopping experience.
It’s important to note that selling direct isn’t a one size fits all approach and there are various ways brands can implement and execute a DTC strategy (something we’ll cover in one of the later editions in this series). For example, you may wish to develop a subscription product as a recurring stream of revenue, or launch a range of new differentiated products, and position your brand to compete better with the bigger players.
Below we’ll give you 5 standout benefits that adopting a DTC model can bring to your eCommerce business.
1. Know and understand your customers better
Data, data, data. Adopting a DTC model allows you to gain a deep understanding of your customer, using data. Through a DTC model, your brand has full ownership over the customer relationship and consumer data. This means you can focus on creating a personalized customer experience, complete with curated product selections, subscription-based offerings and tailored, targeted communications.
Better understanding your customer helps you, as a brand owner, reach, secure and retain them more effectively. Some research even suggests that as high as 80% of consumers are more likely to make a purchase from a brand that provided a personalised shopping experience. Research from Accenture suggested that around 90% of shoppers would make a purchase from brands that could recognise and remember them and provide tailored recommendations and special, relevant offers.
Digitalisation means brands have an opportunity to harvest more consumer data than ever before. This information can range from understanding consumer interests, countless demographics, how consumers engage with your brand, how they navigate around your site and much more. Amassing such rich data, brands can make data-driven decisions and create a customer centric approach to marketing, to not only help the efficiency and success of campaigns, but to execute them in a way that will truly resonate with your audience.
With a DTC model, you own much more of the data and therefore the understanding of your consumer is drastically increased. Before DTC, manufacturers and producers of products had little to no interaction with the end consumers of their products and relied on market research and feedback from retailers. They effectively didn’t own the true relationship with their consumer. The majority of the information provided by retailers typically related to transactions alone and lacked depth. However, when you sell DTC, you can collect a wide range of first-party data on consumer behaviours.
By adopting a DTC model, you’re able to directly communicate with (and better understand) your customer throughout every stage of the customer journey. Utilising a combination of harvested data and technology, you can truly understand the demographic and behaviour of your customer.
2. Accelerate recurring revenue with subscriptions
Selling direct empowers you, as a merchant, to truly accelerate recurring revenue through subscriptions. The demand for subscriptions from consumers is huge and the ‘subscriptions economy’ is driven by a shift in consumer buying behaviour. Consumers are choosing to opt for ongoing, flexible relationships with brands over one-off transactions – think Netflix, HelloFresh, Smol and Freddie’s Flowers (which recently secured another £50m funding from investors). These services are highly customisable and offer flexible, subscription-based relationships. Likewise, brands selling beauty products, baby items, food and even sex toys are turning their products into subscription services that can be combined, packaged, and personalised. The demand is there and ever growing.
The Subscription Economy Index (SEI) which tracks subscription businesses, recently revealed that subscription businesses grew revenues approximately five times faster than S&P 500 company revenues (18.2% versus 3.6%) from January 2012 to June 2019.
As a brand owner with a DTC offering, you can really capitalise on this growth on leading platforms such as Shopify and BigCommerce by utilising integrated tools that allow you to automate your subscription order, billing, and fulfilment processes. Some popular tools to support you with this include: SpurIT, Zuora, Rebillia, PayWhirl and Recurly and are part of the huge app ecosystem of major eCommerce platforms.
3. Greater brand identity, control and positioning
By adopting a DTC model, you’re able to have greater control on how your product is presented to consumers and positioned within the market. In a traditional manufacturer to retailer relationship, you’re only able to control areas such as the design of the packaging, and brand marketing activities. Once your product has been dispatched in bulk to the retailer/reseller, in many cases control of the brand has been lost and the representation of that product is then in the hands of the retailer rather than you, the manufacturer.
Brand owners who sell DTC can have greater control over brand image and presentation to consumers from the moment the consumer engages with the brand on their website or other digital channels, all the way to the product being delivered, after-sales care and beyond.
Having greater brand identity and control, through an effective DTC model, can help you cultivate an authentic, values-driven brand that truly resonates with your target audience.
There are a number of key examples of brands that have really established themselves through adopting a DTC model that has allowed their brand to truly connect with consumers. Such brands have seen exponential growth by offering everyday products that are more affordable, more sustainable or simply more exciting than those found in a traditional retail setting.
4. Faster to market
With the removal of intermediaries, DTC brands are able to get products to market quicker. Product ranges can be developed on a smaller scale to test the demand and learn about consumer behaviour before launching at scale. Some manufactures with a DTC model are even promoting ‘limited stock’ product ranges on their site whereby, there’s only an initial, limited number of available products to buy (which can also create a scarcity and exclusivity demand spike) or where you can you sign up to be on a waiting list and be contacted when the product is in stock. This allows manufacturers to gain valuable insights into consumer demands without wasted product spend or huge commitment demands from retailers/resellers, all whilst collecting 1st party data from people that have actually expressed a genuine and clear interest in buying the product.
By adopting a DTC model, manufacturers can mitigate many of the risks (and the drawn-out lead times) associated with product development, innovation and launch to market. DTC brands can operate with agility by selling direct as opposed to through retailers, meaning they can quickly adapt, and test product lines based on real-time data on customer demand.
5. Delivering an exceptional customer experience (CX)
By having a clear DTC model, your brand is able to really focus on delivering an exceptional customer experience. Data from Statista revealed that 66% of the UK population are now using some form of social media platform (the figure being higher amongst Millennials and Gen Z). Consumers now have greater power to voice their opinions and share their experiences with your brand. It perhaps explains why almost 50% of online businesses have listed CX as a core focus in 2021 and beyond.
Customers are basing their brand loyalty on receiving great service and experience over price or product. As high as 86% of buyers are willing to pay more to receive a great service. As brands who adopt a DTC model are better connected with consumers and have a deeper understand of their customer base, they’re better positioned to provide an exceptional customer experience. Brands now have to know and understand their customer more than ever before. By selling direct, rather than through a retailer, you’re able to harvest more information and create customer profiles that help you understand and measure customer behaviour at every step of their journey across multiple digital channels. This helps with truly understanding what customers want, demand and expect when it comes to service. DTC brands impact every interaction directly to develop a distinct customer experience. DTC brands are able to communicate their message more effectively and portray their brand values in a way that is more difficult to achieve through traditional retail methods.
Have your say
Please feel free to share your thoughts in the comments section below on part 2 of this 5-part series on building a multi-million pound kick-ass DTC eCommerce brand. The next edition will be released later this week and will explore how brands can brilliantly execute a DTC model, be sure to look out for it.
Hope y’all enjoyed and see you on the next one.