Direct-to-consumer. DTC. D2C. It goes by a few names, but they all mean the same thing—selling your products directly to consumers. It seems like everyone is doing it, from Casper to Harry’s, Warby Parker to BarkBox. Even PepsiCo sells chips and soda online now.
But is the time right for your brand to give DTC a go? It’s a significant opportunity, but it also presents significant risks.
Read on for our advice on (quickly) determining the commercial viability of a DTC business model for your manufacturing brand—and the baby steps forward you can take to add this sales channel to your mix.
What is direct to consumer?
Let’s start with the basics. A direct-to-consumer business model is an alternative to the more traditional retail or distribution model. Instead of manufacturing your products and selling them to a retailer (who then sells them to a consumer) or a distributor, you cut the middleman out of the process and go right to the buyer yourself.
It’s important to note that DTC does not have to be an all-or-nothing approach. Incumbent brands like Pepsi, Nike, Unilever, and Nestle have all added direct-to-consumer options for certain products geared toward specific audiences—while still selling the majority of their products through traditional channels.
It’s about balancing this new DTC opportunity with your existing go-to-market strategies.
Why is DTC growing so fast?
Obviously, the DTC model increases your margins. But that’s not the only reason DTC is seeing a surge in popularity.
People have been steadily buying more online over the past decade. Globally, DTC startups have raised between $8 billion to $10 billion in known venture capital across more than 600 deals since the start of 2019. And between 2016 and 2019, the DTC model grew at three to six times the rate of overall ecommerce sales.
And that was all pre-covid.
When the pandemic hit, ecommerce saw another decade’s worth of growth in only a few months. As shoppers avoided stores and markets, the brands that were set up to sell digitally reaped the rewards. A whole new set of consumers have tried digital over the past year, driven by convenience and accessibility.
RetailDive reported in 2020 that “Chewy's first quarter net sales grew 46% year over year to $1.6 billion, Casper's rose 26% to $113 million and Wayfair's direct retail net revenue increased 20% to $2.3 billion.”
And many of those brands that weren’t selling online? They rushed to set up their first digital operation—or they’re doing it now. While some people are back in brick and mortar, McKinsey predicts that a good chunk of this online buying behavior is here to stay. Nearly two thirds (65%) of consumers express a high intent to incorporate their new shopping behaviors moving forward.
Why consumers like D2C
There are three big reasons people that try D2C are sticking with it:
3. Engaging experiences
Of course, buying direct online is convenient when you can’t leave your house. But it’s still convenient when you can. For example, 57% of shoppers say “they wish shopping for clothes in-store or online was like streaming TV or movies on Netflix, Hulu, etc., ‘where I can get whatever I want, whenever I want it.’” For many products, DTC offerings come close to fulfilling this promise—especially with streamlined, easy to use websites and apps.
Brands that sell directly to consumers also have the ability to use personalization to create more impressive, engaging experiences. These brands can use valuable first-party data from previous purchases, site behavior, and more to make highly relevant product recommendations and offers. The savviest manufacturers even allow customers to customize the products themselves. Consider Function of Beauty and Prose, both of which offer health and beauty products customized to the individual shopper.
Why businesses like DTC
All of that personalization and engagement benefits more than just the customer. It also means more business. Brands that personalize the shopper’s experience benefit from increased loyalty—and more loyalty means lower cost of acquisition and higher lifetime value.
Plus, businesses that sell direct-to-consumer also own the relationship with the customer. You own the interactions, which means you own the data—and this is the piece that allows you to do that oh-so-valuable personalization. It also makes it easier to reengage customers that have purchased in the past when the transaction was directly with your brand.
Finally, when you own the sales channels, you own the margin. Cutting out the middlemen (e.g. retailers, marketplaces, etc.) means you control the price your product sells for and what you make on it.
Your incumbent brand has advantages
With all the tech giants and scrappy startups in the DTC space, it might feel daunting to make your own play.
These guys know how to leverage the internet and ecommerce to challenge traditional retail. They will be a big part of online retail growth in the future.
Where do you even start?
You don’t have to change your entire retail model to satisfy consumer demands and compete with DTC challengers in the space. Instead, you can combine DTC strategies with advantages you already have in brand identity and omnichannel marketing to prepare your brand for the future of retail.
According to the book From Incremental to Exponential: How Large Companies Can See the Future and Rethink Innovation, incumbent brands have a number of assets that give you the advantage over the smaller guys, including:
1. Sales data. Your business probably has a wealth of historical data you can use to mine valuable insights.
2. Access to funding and resources. With budget and personnel at your disposal, you can quickly retool and retrain to make new initiatives come to life. This is much harder for cash-strapped startups.
3. Access to production and infrastructure. With your manufacturing expertise, you can bring more products to market faster to quickly address customer needs.
4. The power of your legacy brand. People know you, and that brand equity gets you places the new guys can’t always get.
Authors Wadhwa, Amla and Salkever explain:
“Any of these...resources can be used to accelerate innovation by themselves. Collectively, they can make innovation truly formidable…”
How can you put these assets to work for your brand? By using them in combination with the same digital growth playbooks the digitally-native guys are using.
How to get started—with small, incremental steps
For most brands, DTC is not a light switch. The goal is not a wholesale switch to a new model. It’s not sayonara to your retailers.
Instead, you want to dip your toes in, see if a direct-to-consumer approach makes sense for your brand, your products, and your customers. Then take small—but quick and incremental—steps forward.
Here’s how we do it.
Step 1—Validate the DTC model for your brand.
The first step is to decide if DTC is right for you and how to make it happen…with hard data. Vokal uses value proposition testing to rapidly evaluate your direct-to-consumer offering and answer questions like:
- Who (specifically) would be interested in buying this product direct?
- Which products would they be most interested in?
- At what price?
This might include creating a rapid prototype of an app or launching a basic website. At the end of the day, you either have the business case for your DTC offering—or the decision to go back to the drawing board.
Step 2—Create your GTM plan.
At this stage, you’ve validated your audience. You know what you’re selling them and what price point you’re selling at. The next step is to document how you’ll reach and engage them. Outline your GTM plan, including your positioning and channel acquisition strategy. More rapid testing can you help concretely answer key questions like:
- How can our brand reach these audiences?
- What messages will resonate best?
Step 3—Build your ecommerce foundation.
Product that people want? Check. A plan to sell it? Check. Now it’s time to evolve your technology infrastructure to make it happen.
This means determining which digital tools you need to actually bring your direct-to-consumer offering to life—and implementing them. You need to create a technology stack that allows you to physically sell to consumers and fulfill their orders, including:
- An ecommerce platform
- A CRM
- Analytics dashboards
These technologies also need to be integrated with your current inventory management system.
The best approach is to evaluate your current tech stack, figure out your gaps, and build on your existing systems.
This is exactly the approach that a global building materials and home improvement brand took to unlock huge new revenue potential—and become the first in their category to go DTC. All during the pandemic. Check out the case study here.
Is your brand ready?
Following the same plays that unlock digital growth for your newer competitors, you can put the might of your resources into:
1. Reducing risk. You can validate your DTC product and/or positioning before you invest significant resources.
2. Understanding which customer segments, value propositions and channels will work best for your products—and how to engage them online.
3. Understanding the cost to acquire, market to and expand in a new market.
Getting it all done faster than your peers.
So, are you ready to get closer to your customer?