Direct-to-consumer (DTC) is becoming quite the hot buzzword as merchants seek to bring more control of supply chain operations in-house. Traditionally, DTC brands were manufacturers or suppliers that sold products to end consumers without going through a retailer, distributor or other wholesaler, but the success of many digital natives in the space has convinced some retailers to adopt a DTC model themselves. As the DTC market becomes flooded with retailers and brands alike, these businesses must go beyond creating a strong e-Commerce presence to succeed; instead embracing the model across the three stages of the customer lifecycle: acquisition, sales and engagement, according to a report from L.E.K. Consulting.
“The bar is rising, and the skills of being a retailer are not inherent in most brands,” said Robert Haslehurst, a Managing Director and Partner at L.E.K. Consulting in an interview with Retail TouchPoints. “What we see among our own clients and among the broader landscape is often a too-narrow perspective on the thinking of the DTC model. They set up an e-Commerce business and say ‘We’ve checked that box. We’re done.’ They are not taking the view that this is going to be 100% of what a brand does, and it’s a big part of demand generation and a big part of the customer relationship.”
As many as 65% of brands now sell directly on their own sites, based on the study of 176 leading brands across consumer goods categories such as footwear, apparel, luxury goods, food and beverage, furniture, beauty and consumer electronics. But the select businesses that continue to be in front of the customer at the three lifestyle stages employ what L.E.K. refers to as a “Total DTC” strategy.
Customer Acquisition Starts The Cycle
The first step for “Total DTC,” customer acquisition, revolves around understanding customer identity and practicing effective segmentation. This goes beyond typical social media and search engine marketing tactics, which often don’t go deeply enough into personalizing the experience for an individual.
Brands must develop a view of customer segments that factors in channel preferences and interest in direct engagement. When combined with an investment in customer identity, brands can direct consumers with different characteristics to the most effective messaging and experience.
DTC Sales Require Strong Investments In Talent, Selective Partnerships
In order to deliver an efficient direct sales model, these businesses are required to give consumer a seamless experience that meets the customer at every channel of the shopping journey, while also allowing them to purchase products at all times. This requires retailers to either hire new outside talent or to selectively leverage partnerships, in order to build out their own processes in merchandising, fulfillment, technology and customer service.
The report highlighted Alex & Ani as a brand that has successfully converted to a more DTC-based strategy, growing from an already high DTC sales penetration of close to 50% to more than 75% by trimming specialty/mass retail partnerships and refocusing on owned e-Commerce and its own stores, as well as pop-ups.
As DTC Brands Think Over Consumer Engagement Strategies, More Subscriptions Pop Up
Building a recurring relationship between brand (DTC or not) and consumer is key to remaining relevant with their audience. While retailers continue to focus on loyalty and advocacy programs as ways to reward and encourage customers to maintain ongoing engagement, many are turning to the subscription model to ensure that shoppers keep coming back.
For subscription DTC businesses, measuring metrics such as churn management and maximizing lifetime value are also absolutely critical. DTC brands must maintain a dialogue with customers to encourage them to keep seeing value in their purchase, the report said.
Despite the emergence of many successful brands that have created affinities with consumers, most of these DTC companies still don’t have a distribution strategy that is set in stone, according to Jon Weber, a Managing Director and Partner at L.E.K. Consulting.
“There’s a lot still to be thought about in terms of what true distribution means for them and what DTC means for them,” Weber said in an interview with Retail TouchPoints. “You see a lot of businesses exploring with different types of store environments that are trying to achieve different objectives, whether they’re actually trying to sell goods or they’re actually just pick up in-store shops. There’s a lot of complexity to thinking about what that right mix is, whether they own it, whether they’re partnering or whether the smaller-store format is appropriate.”
Nike, Disney, Apple Enable DTC Models Through Corporate Changes
While names such as Warby Parker, Casper, Dollar Shave Club and Allbirds are always thrown around as DTC success stories, the report highlighted high-profile brands such as Nike, Disney and Apple as businesses that have embraced the Total DTC model — even going as far as to make changes to their corporate organization. For example, Nike recently created the Consumer Direct Offense initiative to streamline its Nike.com, brick-and-mortar and Nike+ digital product businesses.
“When you think about more established brands that might already have retail stores or that work across different channels and have established a customer expectation, they have a bigger challenge,” Haslehurst said. “You can’t walk away from what you have. You have to build upon it, integrate new capabilities, and it’s not just a systems thing, but a process and data issue as well. Often, people are faced with this wall in front of them consisting of tens of millions of dollars of spend on new systems, and I think that is very daunting. You need to have that nimbler mindset around achieving these things more incrementally.”
Noor Abdel-Samed, a Managing Director at L.E.K. Consulting, agreed that organizations can be successful in building a DTC model without necessarily breaking the bank on technology. He specifically pointed out organizational flexibility as a major gap between traditional retailers and digital natives.
“From a ‘getting things done’ perspective, most legacy brands are heavily influenced by their many decision-makers owning different pieces of the pie,” Abdel-Samed said in an interview with Retail TouchPoints. “Just launching anything has to go through many different layers and purveyors to approve things. That’s why you’ve seen such a push toward agile methodologies in both retailers and brands over time.”