The Rise of Direct-to-Consumer Brands
Change is afoot in the world of eCommerce. Direct-to-consumer (DTC) brands are revolutionising the retail model.
Bypassing the middleman, these brands build relationships directly with their customers — relationships that they own in their entirety. The by-product? Rapid growth and market share that leaves their competitors in the dust.
This article explores the rise of DTC brands and the implications for the high street.
We consider why DTC brands are winning and how other retailers can emulate their success.
What are direct-to-consumer brands?
Traditional brands often look to third parties to market, distribute, and sell their products. Doing so cuts into their profit margins. Often, it also means they don’t own the relationship customers have with their brand.
DTC brands have set about changing this model. In doing so, they’ve shaped consumer behaviour in ways that look set to ensure their continued success.
DTC brands self-finance the research and creation of their own products. They also take ownership of operations, marketing, sales, and distribution. This means that when they go to market with a product, they own every part of the customer relationship.
Adopting an online-first model, DTC brands are masters at customer experience.
Every aspect of interacting with them is honed to engender positive brand sentiment and maximise buying intent. The result? Exponential growth and some impressive profits.
The approach DTC brands are taking is paying off. Big time. Let’s take a look at some success stories:
- eyewear brand Warby Parker was valued at $1.75 billion in 2018
- furniture retailer Made.com saw sales of £91 million in 2016 and profits soar by 60 percent in 2017
- mattress retailer Simba forecast £167 million in profits for 2018
- beauty company Glossier closed on $52 million in fresh funding in 2018
- shaving brand Dollar Shave Club was bought by Unilever for $1 billion in 2016
Reshaping consumer buying behaviour
DTC brands research, design, make, market, and sell essential on-trend products. Often, they specialise in one product. And do that product to perfection.
Crucially, a DTC brand’s products can be enjoyed as part of a seamless customer experience and consumed at home. Shopping with them is a pleasure, not a chore.
Every brand-consumer touchpoint has been considered and optimised. Buying online from a DTC brand is frictionless. It is low-risk too, through tactics like try-before-you-by and easy return options.
Mattress company, Casper, is famed for its 100 night trial. Traditionally buying a mattress would involve going to a store, browsing the selection available, lying down on a few to test for comfort, and then making a decision. That’s obviously not possible with an online purchase. The lengthy trial is there to help consumers overcome the concerns of not being able to test before they purchase. This approach may seem risky as returns come at a big cost to the company. But it hasn’t stopped Casper from seeing incredible growth. It went from a zero to $750 million valuation in just four years.
Arguably, the approach DTC brands have taken is in part responsible for changing consumer buying behaviour. Frictionless customer experiences have led to consumers becoming increasingly comfortable buying online with volume and frequency.
Research from 2017 found that 69 percent of 21 to 35-year olds (and 30 percent of 36 to 49-year olds) have made two or more online purchases in the last month. It seems the modern consumer is happy to buy almost anything online, including mattresses and subscription glasses.
By hooking into convenience culture, DTC brands have created a demand for their way of doing things. They have mastered every aspect of the retail value chain and honed the experience they offer customers. Now, they’re eating up market share and becoming household brands.
The eCommerce revolution
Many retailers with brick-and-mortar stores have been slow to embrace eCommerce. And as consumer behaviour shifts towards online shopping, these brands are losing out to their digitally savvy competitors.
Success in the eCommerce space requires digital transformation throughout a company. Brands that first found success on the high street have been hesitant to adopt the mindset (or commit the resources) needed to make that happen.
In contrast, online-first DTC brands have their online customer experience nailed from early doors. The have an agile mindset which makes them well-placed to meet rising consumer demands online. The high street’s loss is their gain.
Digital to physical
The bitter-sweet news for traditional retailers is that online-first brands are now expanding into physical stores. The high street is not dead. It’s just evolved.
Having perfected its online customer experience, Warby Parker is now delighting customers in-store. The brand is thriving on the high street with 100 brick-and-mortar locations set to open by the end of 2018.
Even eCommerce giants such as Amazon believe there is value (and profits) still to be had in brick-and-mortar. The opening of the cashier-free Amazon Go was met with immense press coverage and consumer interest.
Why DTC brands are winning
No doubt, your brand is keen to emulate the success of DTC brands. A failure to learn from them may leave you struggling to compete in the eCommerce space.
So, what are the key things you need to consider? How have DTC brands become so successful? Here is our analysis of the five factors that are helping them win:
1. Being great at one product offering
DTC brands get their core product right. They focus on becoming known for doing one thing well.
2. Building strong, recognisable brand
DTC brands go in hard when it comes to brand. They create a distinctive brand which they strengthen with authentic brand storytelling, eye-catching design, and pixel-perfect websites.
3. Being customer-centric
Every aspect of a DTC brand’s marketing is well-considered and designed to resonate with their target audience.
DTC marketing stays close to the problems their customer has, communicating how they can solve these. For example, Casper has solved the pain of getting a mattress home by shipping directly to the customer in a conveniently-sized boxes.
4. Prioritising online customer experience
DTC brands are online-first to the core. Building a frictionless, memorable online customer experience sits at the heart of their business.
5. Adopting new technology quickly
To consistently offer an outstanding customer experience, DTC brands are quick to adopt and master new technology.
This article has shed light on how DTC brands are shaping the eCommerce landscape to benefit their customers and boost their profits.
We’ve explored five essential ways that DTC brands have gained market share. Adopting these strategies is the first step your brand needs to take to emulate their success.