With retail being the undisputed envy of the global economy right now, it’s no surprise to see people jumping in to reap the rewards of online commerce. And among the biggest and boldest strategies in eCommerce is what’s called the direct-to-consumer approach. So to explain what the direct-to-consumer business model is and what it can mean for you and your business, we wanted to answer everything you could possible ask about going DTC.
What is direct-to-consumer (DTC)?
DTC, or direct-to-customer, is a low barrier-to-entry eCommerce and digital innovation strategy that allows manufacturers and CPG brands to sell directly to the consumer. It bypasses the conventional method of negotiating with a retailer or reseller to get your product on the market. In DTC, brands sell directly to the consumer through an online medium.
Going DTC has many advantages, with competitive pricing being a major benefactor for consumers. Other advantages include having direct contact with consumers to get a better understanding of them, cutting out expenses otherwise needed in a wholesaler-retailer partnership, and being able to freely experiment with new product releases and test them with a segment of your consumer-based to gain their feedback.
But going DTC is not easy. It is crucial that you have a DTC-specific strategy in place to be heard and noticed by your target market. To help you know how to get started, we want to give you the best understanding you need to go DTC for 2021 and beyond.
Direct-to-consumer vs. Wholesale
The direct-to-consumer business model disrupts the traditional model entirely, with manufacturers cutting out the retail middleman and selling straight to the end-consumer.
But just because we’re “cutting out” the middleman doesn’t mean there’s zero retail side of this equation.
Of course, direct-to-consumer companies by nature don’t involve third-party retail companies in their business models.
However, going DTC means the manufacturer takes responsibility for all things retail- related within the business in addition to their original manufacturing and fulfillment responsibilities.
You might be asking yourself:
“Why would a manufacturer take on this added responsibility when they could just as easily keep selling their products to retailers wholesale?”
The answer to that question involves two sides—both of which revolve around the evolving needs, expectations, and behaviors of the modern customer.
First, today’s consumers expect to be able to go directly to the source when researching a variety of products or brands, or when making a purchase from a specific brand. People are much more likely to go to the source itself to find out more information rather than a retail vendor selling a good.
That’s also why it’s more important than ever to ensure every brand displays all the info a customer needs to make a purchasing decision; you would not want to lose a potential customer because they could not find the information they needed on your site and risk them going to someone else for business.
In fact, trends show that more people are going directly to the source now and are visiting fewer retailers. This means brands reliant on retailers to do the selling for them can no longer be assured they can count on partnerships and will have to take matters into their own hands.
How do direct-to-consumer companies approach marketing?
The greatest difference between the way a “traditional” manufacturer and a DTC company operates is that DTC companies take full control and ownership of the end-to-end customer experience.
And while that may sound like a burden, the upside to this added responsibility is manufacturers that go DTC are free to market their own products (and overall brand) as they see fit — or, rather, as they know will most effectively engage their audience.
That’s not all. Additionally, DTC companies have the benefit of also choosing how they build their relationships with customers, have full control over who their customers are, and how they deliver value to this end-user customer.
It’s no surprise the traditional retail experience is not what it used to be. And of course, it wouldn’t make sense for DTC brands—with the responsibilities they now bear—to use the same playbook they’re cutting themselves off from. Just because something’s worked extremely well before doesn’t mean it will forever.
Instead, you’ll want to do something different in terms of the marketing strategies you use, and the channels you use to implement them.
Going DTC frees you from the constraints of the traditional business model, and allows you to cater to your target customers the way you know they want to be treated.
Whether this means providing them with top-quality, engaging content, treating them to more personalized services, or any other strategy you desire, going DTC can allow you to become more connected and engaged with your end-users than ever before.
DTC is here to stay
For all the investment we know going DTC requires, you might have a few questions:
- Will consumers continue to flock to DTC companies as they have in recent years?
- Will retail companies evolve and regain their lost footing?
- As some retailers are sure to evolve, can manufacturers continue to operate DTC or, at the very least, use an omnichannel approach?
And that leads to the biggest question of all:
"Is going DTC actually even worth it for your company in the long run, or is it just a flash in the pan?"
Of course, the DTC space is thriving right now. The success from brands like Warby Parker, Casper, and Away make it seem like DTC companies are abundant and plenty prosperous and perhaps a little too good to keep on going.
Unlike a fashion season, though, DTC is a business model that’s begun picking serious steam as of late and will be here to stay. A good reason for a lot of the success in the brands I mentioned previously is because they’ve been able to respond to the rapidly evolving needs of today’s consumer far better than past companies through more personalization and an effective service experience.
At the same time, traditional brick-and-mortar stores have not been able to keep up with rapidly changing consumer behaviors and expectations.
This desire, on the consumer’s part, for more personalized and authentic engagements with the brands they do business with definitely isn’t a fad that is going to fade away soon enough. The reality is, customer experience is becoming more and more important as time goes on — to the point that it will soon overtake price and product as the key factor that differentiates your brand from another.
So, it really isn’t a question of whether or not DTC as a business model will fall “out of style”; it’s more a question of whether or not your company can continue to use the DTC approach effectively and profitably well into the future.
Be warned, though: the DTC approach that worked for the successful startup in 2015 may not work in 2025, just as the 2025 strategy might not work ten years after.
Given that we’re in the midst of a media fixation on the success of DTC brands, one might think that the current frenzy really is a fad and that it will all eventually die down. The truth is, we’re only bound to see more innovation from these companies and the ones yet to exist.
But remember this: the direct-to-consumer model can be a winning model for a company so long as you utilize the model to optimize the service you provide your customers and the processes that allow you to do so.
Should big brands sell directly to consumers (instead of through retailers)?
While going DTC certainly may work for some big brands, others might not experience the same level of success in making the switch.
Before making the jump, big brands need to answer the following questions:
- Does your company have the means to implement an omnichannel business model and ensure both sides of the business run effectively and efficiently?
- Does your company have a profitable and mutually-beneficial agreement with your retail partners, as well as a plan for how to put the agreement into action?
- Is the company prepared to take full control and ownership of their customer experience?
Let’s not think the direct-to-consumer model is the missing combination that catapults a decent business to a great one. It’s why every brand considering implementing the DTC model ought to know what they’re in for before making the jump.
But as long as you know exactly what you intend to provide your customers—and you’ve determined that using the DTC model is the best way to give it to them—then you should start planning to make the shift as soon as you possibly can.
Why manufacturers are going DTC
The biggest reasons for going DTC are the upside for CPG brands to earn a higher margin and have direct access to their consumers and their data.
In a digitally connected world, there’s less of a need for middlemen in today’s commerce economy. That frees up the opportunity for direct-to-consumer manufacturers to make the same profit for their goods at a lower cost to the customer.
There’s also the ease of being able to go DTC; in 2017, Amazon began inviting manufacturing companies to use their fulfillment centers as a way to encourage their foray into the direct-to-consumer model.
The benefits of selling DTC
Besides the obvious benefit of earning higher margins, there are other notable benefits of selling DTC, to which we explain below.
DTC benefit #1: Better control over brand, product, reputation, and understanding of the customer relationship
This is probably the most important one. With the traditional retail model, companies could run outbound marketing campaigns to boost recognition of their product(s). But once their products stocked retailers’ shelves, there was nothing more a brand could do to influence the sale of its product.
For all the money a giant like Procter & Gamble has spent on advertising ($10.5B in 2016 alone), imagine if the retailers they’ve partnered with struggled to sell their products. They’d be at the risk of sustaining a loss.
Control is what makes the direct-to-consumer relationship extremely enticing. With consumer habits changing rapidly, people expect to get a high quality experience throughout the customer journey. And for the brands that get to control every aspect of their business, they won’t have to trust people outside of their team to get something done to the degree of quality they want.
That means DTC brands control everything from the initial engagement up until a product has been purchased. So when a problem arises at any point of the customer journey, a DTC brand can respond with agility and speed in a way a brand reliant on the retailer relationship just can’t.
Additionally, direct-to-consumer brands get the benefit of interacting with their customers through every stage of the sale process. Not to mention, DTC brands also own the communication they have with the customer even after they’ve sold a product. It’s precisely this that makes the innovation feature of this business model so attractive to people: there is no barrier between a brand and a consumer to know what their purchasing behavior indicates they might buy next.
DTC benefit #2: Faster to market
Touching back on speed, one other reason why direct-to-consumer brands have an enviable benefit is their ability to bring a product to market faster than ever.
For most established brands, the idea that they need to innovate also brings along with it a baggage they can’t shake: money, effort, and most of all, time. It takes a considerable amount of time to innovate with a new product launch and for some established brands, the risk involved isn’t worth possibly having to neglect the needs of their shareholders first and convince them to take a chance on an idea that may not see any returns for years out.
Additionally, retail partners may not be so keen to welcome innovative ideas if they have no prior sales history, which can reek of uncertainty and look like a risk to their sales.
Through a direct-to-consumer model, manufacturers can limit any one of these risks by launching an innovative product at a smaller scale, and thus faster than they could if they were to do so with the traditional retail model. And by launching faster, DTC brands can sooner understand what their customers love and hate about a product so they can make the necessary adjustments where they’re needed.
DTC benefit #3: Omnichannel commerce
Just because the DTC model is predicated online doesn’t mean you do away with any in-store experiences. On the contrary, direct-to-consumers can bolster their sales by having multiple channels for customers to browse and purchase from, choose from a range of delivery options and return products in several ways if necessary regardless of which channel they originally bought the product from.
If the goal is to provide a greater user experience, giving consumers the option to choose where to buy is a valuable addition to your brand.
“Hold on, won’t going DTC damage our retailer relationships?”
It could be that the one reason brands today hesitate going the DTC route is because of the fear they might have about implicating their current retail relationship. And of course, there’s plenty on the line to think about: why after establishing a relationship with a retailer and securing some good shelf space that’s brought all the sales at this point should I need to consider the direct-to-consumer model? Wouldn’t this risk everything I’ve built for?
However, this isn’t really the case. In fact, more than half of brands that sell directly to consumers have also seen growth in sales through their channel partners in a Forrester Research report. And that’s because these brands redirect their DTC customers to their retail partners for order fulfillment.
On top of that, over half of the manufacturers in that same report say their direct-to-consumer sales helped improve brand awareness and that their going DTC has actually boosted leads and sales for their retail channel partners.
So it’s safe to say that a direct-to-consumer channel is a win-win for both brands and their retail channel partners.
7 things you should know before going DTC
We’ve laid out the benefits of having a direct-to-consumer business model as a way to inform you with the knowledge you need before making a decision. But we also would like to equip you with the realities of going DTC.
As we’ve established by now, the direct-to-consumer model cuts out the middle-man and allows greater flexibility in brands accessing consumers themselves through their own eCommerce sites and web applications. And that means higher margins, greater control over brand image, and a closer relationship with consumers.
What you need to know in addition to the great benefits the direct-to-consumer business model provides before diving into it is the time and effort it takes to make the change happen.
So here are 7 things we want you to consider before going the DTC route.
DTC thing to keep in mind #1: You will need every decision maker on board
As perhaps the biggest shift your brand can make, you will need to make sure every stakeholder agrees that this move is a mutual priority. Going direct-to-consumer is not as simple as whipping up a website, nor can you ignore the new investments needed in hiring new people or training your staff with new skill sets to handle new capabilities. The reality is, going DTC requires a lot of restructuring and reorganization.
This decision is not something you can do half-heartedly. If your eCommerce strategy approach is not given the attention it needs, your brand will not succeed. You will need every stakeholder in your brand to prioritize this strategy and put time into organization and direction, which leads to the next thing to keep in mind.
DTC thing to keep in mind #2: You need robust infrastructure
Cutting out the middle man as part of the direct-to-consumer equation also means you will be responsible for fulfilling and shipping on top of marketing and selling your products. Of course, organizations with the infrastructure to adapt quickly will see DTC as a viable option for them.
But for those brands who do not have the organizational ability to fulfill orders on their own, the most sensible solution is to partner with a third-party fulfillment provider (think Amazon fulfillment) so that your customers can count on fast and reliable shipping.
DTC thing to keep in mind #3: Expect a dip in traffic at first
After finding a solution for fulfillment ordering and having the necessary infrastructure in place at first, you’ll note that traffic is another thing you’ll have to manage. A lot of brands will oftentimes find it difficult to gain initial some visibility and traffic to their direct-to-consumer site, which is a big reason why most brands will first optimize and amplify their sales through their existing online retail channels before taking that big leap to DTC. It’s not enough to call it a day with getting a website up and running, checking off the to do’s for web design, and adopting a digital marketing and advertising strategy; you have to understand where you can get your customers in.
It’s no surprise the retailer giants like Amazon and Walmart get a lot of traffic, which means being on their platform opens you up to more traffic. For your direct-to-consumer site, however, you’d have to invest heavily to get a fraction of the traffic you’d get on their platform.
But after you have your products successfully optimized on these channels, you can then think about your DTC strategy, which leads to the next DTC thing to keep in mind.
DTC thing to keep in mind #4: You’ll need to give consumers a reason to buy from you directly
Just because they can doesn’t mean they ought to. You’d also have to be conscious to do so in a way that doesn’t damage any of your existing relationships with retail partners and avoid channel conflict.
Another consideration that you need to think about is how you can get customers to shop at your site without damaging relations with your existing retail partners. In other words, how can you avoid channel conflict?
But that’s not to say there can’t be any creative solutions. There can be plenty of ways you could offer benefits and features through your direct-to-consumer eCommerce site that your current retail partners can’t. For instance, offering personalization through customized purchases or unique pricing, subscription services, or loyalty rewards.
DTC thing to keep in mind #5: You’ll need to avoid channel conflict (for now)
In no way should adopting the direct-to-consumer business model mean it is an immediate replacement for existing retail partners. Instead, you should see DTC as a supplementary channel that adds onto your existing revenue streams. In a rapidly shifting digital era, channel diversification is the way forward for brands.
So to avoid any potential conflicts with your channel partners, perhaps identify how you can optimize your inventory; see what products are performing well with your retail partners and which products aren’t doing so well. Some brands have found that by limiting the products they offer on their direct-to-consumer eCommerce website, they can ensure their channel retail partners avoid missing out on sales.
You also don’t want to detract from your retail partners, as they are the biggest source of revenue for most brands. After all, it would be wise to maintain the stream of sales and traffic you get from your retail partners.
DTC thing to keep in mind #6: You’ll need to manage data a lot better
One of the best things about the direct-to-consumer business model is the ability to have a far better understanding of your customer and have direct access to their behaviors and purchasing history. It’s a perfect opportunity to hone that kind of data and provide a personalized experience—something more consumers want more than ever.
To do that, you’ll need to not just have engaging digital content, captivating imagery, and well-written product descriptions but be able to combine all of these properties with data you have about your customers: who they are, what their purchase history is, and how they interact with your brand.
DTC thing to keep in mind #7: Your eCommerce solution will make or break your DTC efforts
There is a range of sophisticated eCommerce solutions out there, from the likes of Shopify, Magento, and others. Plus, there is also no shortage of excellent eCommerce agencies that will help you get up and running.
With the variety of options available, it’s time to consider which solution is the right one for your direct-to-consumer approach, as every one has its own unique set of features and capabilities.
Luckily, G & Co. is a full-service UI/UX design and development eCommerce agency. With a specialized focus on direct-to-consumer (DTC), G & Co.’s services range from mobile apps and brand identities to digital marketing and advertising strategy. Through our work with Outdoor Voices, Burrow, and Burberry, our reach and level of experience with luxury brands and emerging disruptive names, we’re confident we can help make your direct-to-consumer path a success.
Ready to go DTC? Shoot us an email to help you get started.