The concept of direct-to-consumer commerce (DTC for short AKA D2C) is no secret, it’s been around for decades, so why am I writing about it? Right now, we’re seeing a real upwards trend in emerging DTC online business and we’re going to investigate why that might be, the pros and cons, current market context, trends and insights as well as key DTC marketing strategies that all brands should be utilising.
Brace yourself, I’m going to say DTC a lot of the next couple of thousand words. I hope you like acronyms.
DTC puts the power in businesses’ hands, allowing brands to sell their products directly to customers cutting out any third-party retailers, wholesalers, or middlemen getting in the way. DTC gained traction during the dot-com bubble. However, we starting to see large legacy brands which usually depend on retailers or wholesalers dipping their toes into the DTC space and setting up DTC arms of their business (don’t worry we’ll talk about these a little later in the blog).
According to Mintel. The number of online-only businesses has grown by 96.2% between 2014 and 2021. Also, I know everyone is probably tired of talking about it (and hearing about it), but the pandemic sent shockwaves through the retail industry in ways that it hasn’t been seen in modern times. The high street was desolate, but people still needed and wanted goods, leading consumers to look to alternative solutions. In response, UK online sales flourished – up to £107bn in 2020 in comparison to £75.48bn in 2019, and the upward trend continued all the way into 2021 hitting £119.46bn. We can only expect to see trends like this continuing in 2023 onwards as people hold onto the habits that they have developed during their experience of the pandemic. But is it the future of retailing?
Dwindling footfall to retail stores as well as this explosion of online sales has made the concept of DTC incredibly appealing to many brands. The ease of setting up an eCommerce store with Shopify, utilising the power of social media marketing, as well as a flourishing shipping and fulfilment ecosystem makes it possible for brands large and small to try their luck in the DTC space.
So, what is DTC? As mentioned previously, DTC cuts out the middlemen. A more traditional business model goes from the brand/manufacturer/producers, then to a wholesaler, then to a distributor, then to a retailer, and ONLY then to a customer. The DTC eCommerce model cuts all of this out. It’s a direct transaction between brands and customers. It allows brands more control over their product, the marketing, the customer journey, and the price. It also allows customers to build relationships with brands through personalised marketing and experiences.
DTC should not be seen as enemy number 1 of the retail sector, instead, it should be seen as an ally. It helps to build direct relationships between brands and consumers, it also allows for first-party data collection which is going to be key moving into the future due to the tracking cookie slowly dying. This data should make DTC brands attractive to retailers and build confidence in them wanting to stock their products, brands can bring key insight from that first-party data to the negotiating table – essentially most of the primary market research is already completed and you have the receipts to show for it.
Let’s have a look at the benefits of DTC commerce
Benefits of DTC
- It builds meaningful customer relationships
Touched upon above, DTC allows brands to start dialogues and create personal experiences for their customers. This leads to a higher brand affinity which in turn creates a meaningful relationship between brands and consumers. These relationships start conversations which can lead to key insights through data that they might not have achieved through a more traditional retail channel, which then allows them to cater to specific customer problems by providing intuitive solutions. This intricate data collection also helps brands to understand their customer’s journey on a deeper level. Understanding what the customer is doing at each point of their journey means that brands can implement strategies and formulate ideas all while communicating effectively across the most relevant channels, depending on the customer’s current phase on their journey.
DTC allows brands to price cheaper than if they were placed within a traditional retail space, as they don’t have to pay the premium to be featured within a store – and the costs of all those pesky middlemen mentioned earlier are now at 0. According to Barclays, 26% found that they are able to reduce prices for customers. However, there are some price point pitfalls which I’ll run through later.
- Brands are in control, less reliance on third parties
The power is in the brand’s hands. With fewer entities involved, they no longer have to spend valuable time and effort negotiating prices and processes and can focus more on their products, brand and community building, as well as the customer experience.
Here are some quick stats that highlight the benefits of a DTC strategy, courtesy of Barclays:
- 45% saw a growth in revenue
- 38% accessed a broader customer base
- 29% see an improvement in customer data
- 28% could create more personalised products
- 26% formed closer connections with the end customer
Of course, with advantages come disadvantages and it’s important to look at both sides of the coin. Lates take a look at some of the risks involved with a DTC strategy.
Drawbacks of DTC
- Price (again)
Although money is saved in some areas, some will have to be reinvested into other parts of the business as well as logistics. For brands moving into DTC, research has found that 36% would need to upskill their existing workforce and 32% would need to hire more people. This does all cost money BUT brands should reap the benefits of investment in the future.
- Competing with other retailers and DTC brands
Everyone and their dog (literally) has a brand these days. This means depending on the niche, there could be some serious competition out there for brands trying to break into the market – online and offline.
Unbeatable DTC marketing strategies
Omnichannel marketing puts customer experience first. It breaks down the walls to which brands were initially confined within a multichannel strategy. All your channels operate in unity with each other, whilst maintaining a similar style, completely streamlining the consumer experience. Having an omnichannel strategy within eCommerce is incredibly important - especially with a DTC brand. If brands want to maximise sales, they need to make sure that the buying experience is as frictionless as possible. The easier something is to buy, the more likely they are to get customers converting, whilst also retaining for future purchases. If something is as easy as possible to buy, chances are you are going to get repeat business from those customers. You can read more about the omnichannel experience here.
Here’s a rundown of some tried and tested methods brands can utilise within an omnichannel DTC brand marketing strategy.
- Social media marketing
Where to start? Social media is a lifeline for DTC brands and right now it holds the key to breaking into the market. There are 57.6m active social media users in the UK, further to this around 1 in 3 use social media to discover new products as well as brands – 1 in 4 use social media to purchase products. It’s clear social media is a weapon that should be a part of any brand’s arsenal. Different social media platforms come with different uses and qualities for brands. For instance, historically Facebook has been amazing for targeted ads purely because of the sheer amount of data that they hold on their users. The introduction of tougher data laws as well as Apple changing up their privacy preferences with iOS 14 has made it slightly harder to target. However, this should still no doubt be a vital part of your digital marketing portfolio.
TikTok is another platform which is great for emerging DTC brands to promote their products. The nature of the TikTok algorithm means that it’s possible for anyone to go viral – no matter what the following, you can read more about that here. If you have a strong concept and entertaining creative, your brand will thrive on TikTok. You can also utilise paid targeted ads on TikTok to skyrocket your brand’s reach on the platform.
- Organic strategy
The power an organic strategy alongside a paid strategy holds cannot be understated, if done right, it can be super low cost with high ROI. Organic growth is key to building long-lasting relationships and an authentic community of loyal followers – it also helps to reinforce your brand personality and identity.
Some content formats that can be used to boost your brands online growth are as follows:
- Long form articles
- Videos – such as posting to YouTube or TikTok
- User-generated content
- Personalised email campaigns
Personalising email campaigns is proven to increase click through rates and dramatically improve ROI. According to campaign monitor, emails with personalised subject lines are 26% more likely to be opened than those without. When we talk about personalisation, what do we mean? We can utilise data that we already have in order to personalise emails, data such as the customer’s name, their location, or age or any other information that you may have. This can all be used to make what feels like a truly personal experience for the customer which is key to setting brands apart from traditional retailers.
- Brand personality and identity
A unique personality and identify are key to DTC strategies, as mentioned brands could be in an already very crowded market and making yourself stand out within this crowd is key. ‘When the world zigs. Zag.’ Organic social media strategies are great for building your identity, as they allow you to interact with your audience with your desired tone which also gives a much more authentic feel to your brand.
- Influencer marketing
Leveraging influencers can be a strong element in developing a brand’s personality and identity. But choosing the right person is key, they need to be someone that would actually use the brands products and resonate with the desired audience. UGC style content created by influencers is original, brand-specific content, usually posted to a social network. Stackla states, 90% of consumers say that authenticity is important when deciding what brands to support. And guess what 60% of consumers think is the most authentic style of content? UGC. Influencer marketing is also a great way of demonstrating social proof.
KPIs to keep an eye on
It’s great having a campaign in place for your DTC brand, but it’s also important to keep track of how it’s performing by setting some key metrics to keep an eye on which could include:
- Customer LTV (Lifetime Value)
- Conversion rate
- Average Order Value
- Customer Acquisition Costs
- Churn rate
DTC trends and insights
Because we’re such nice people here at Soar With Us, we’re going to run through some key trends and insights which brands can utilise to their advantage.
- Buy Now Pay Later (BNPL)
Unfortunately, people abandon cart A LOT – as high as 70% in some cases. This is an issue that DTC brands need to look into addressing and a great way to do that is to offer multiple payment options which offer flexibility. BNPL schemes lessen the blow of high price point items meaning that consumers are more likely to put the payment through instead of abandoning cart.
- First party data
This was discussed previously in the blog, but unfortunately third-party data is becoming unreliable and its expensive. First party data is collected directly by the brand, voluntarily by the consumer which can then be used for ad targeting as well as leveraging if they were to try and extend an arm of the business into retail.
- Branded apps
DTC brands are increasingly utilising mobile apps to create a truly branded experience and control their relationships with consumers. It allows brands to push notifications directly to customers with the app. Also allows brands to push exclusive deals to customers which have downloaded the app – which builds brand affinity, acts as an incentive to download the app, and is a lovely way to say thank you to your customers who have download.
- Digital product identities
For this I’ll use an example. Ralph Lauren are focusing on transparency as well as authenticity. Every Ralph Lauren Polo apparel item now comes with a scannable QR code which tracks the product through its lifecycle, it can also be used to prove its authenticity – which helps in the battle against counterfeits and builds brand trust. It also helps to acquire that sweet consent given first-party data.
- Legacy brands trying out DTC
Just DTC it. Household names that have been in the retail space for years now see the importance of DTC marketing and are opening up DTC arms of their business. For instance, Nike. Their aim is to operate and maintain a digitally-led omnichannel DTC business. The pandemic led to Nike bolstering its digital offering, with 50% of its total brand revenue coming from online sales this year. Is this a sign of more to come?
Digital is here to stay, and its clear that eCommerce is going to be a huge part of the business landscape forever. What is important is how brands adapt to the hurdles that are thrown in the way and utilise everything that is on offer to its full potential to create a DTC marketing strategy that is high converting, but focuses on providing an unrivalled customer experience committed to providing value as well as delivering top-level customer satisfaction.