Over the past two decades, the retail landscape has significantly shifted. Today’s consumers are purchasing products through digital channels and engaging directly with brands. With this shift has come the rise of the direct-to-consumer model, characterized by digital-first brands that control all aspects of their value chain.
DTC brands have risen to the forefront of the retail market and continue to grow in various areas. According to the Interactive Advertising Bureau, the success of the DTC model marks a fundamental shift in the consumer economy. Today, the majority of growth in consumer categories is driven by DTC brands with strong consumer relationships and agile supply chains.
As direct-to-consumer brands continue to emerge in the coming years, much can be learned from legacy DTC brands. With years of experience, brands have used the following strategies to connect with their consumers, innovate, and stay relevant through changing times.
- Develop Agility
Successful DTC brands place a large focus on agility. These companies prioritize connecting with and listening to their consumers while responding to their needs in a timely fashion.
This readiness to adapt and change has effectively differentiated DTC brands from traditional retailers. In fact, according to IAB and McKinsey, the typical product launch time for consumer packaged goods (CPG) companies is 22 months, as opposed to four months for DTC brands.
DTC brand Ministry of Supply has exemplified agility and innovation in its response to COVID-19. The company usually produces scientifically engineered moisture-wicking clothes. When the COVID-19 pandemic hit, they quickly began using their engineering technology to produce safe, reusable masks.
- Personalization & Customization
Many DTC brands have excelled in the realm of personalization. From targeted marketing messaging to curated recommendations, DTC companies have developed strong connections with their consumer base. This focus on personalization has been integral to the success of the direct-to-consumer model. An Epsilon survey indicated that 80% of customers are more likely to support brands that emphasize personalization. This group is additionally 10x more likely to be more valuable to brands, shopping 3x more frequently than other consumers.
Within DTC, personalization can be taken a step further – to customize. Customization can help consumers feel as if they are being provided a one-of-a-kind experience, serving to maximize loyalty and increase customer lifetime value.
DTC brand Curology has succeeded in this realm. Customers fill out a form detailing their skin type, past issues, and skin goals, and Curology develops a custom formula labeled with the buyer’s name. The skincare company then ships the products directly to customers’ doorsteps.
- Build Community
Successful DTC brands have also made an investment in the community. This comes in many forms – loyalty programs, brand ambassador groups, social media communities, and more. Customers are welcomed into a community where they can share experiences and feel like their feedback is valuable.
DTC brand Glossier is planning to build its own social selling platform which integrates elements of both social media and e-commerce. They hope to promote a community experience where prospective buyers can connect with real people using their favorite products.
Promoting a community experience may encourage customers to advocate for a brand, thus increasing customer acquisition. In fact, Nielsen found that 92% of customers surveyed globally trust earned media, such as recommendations from people they know, over all other forms of advertising.
- Focus on Values
Leading DTC brands have also placed a large focus on sharing their company values around important social issues, ethical production, and sustainability.
According to a recent RetailMeNot survey, two-thirds of consumers surveyed believe that more brands should take a public stand on important social values. Furthermore, Deloitte found that the majority of customers across a range of age groups are willing to pay between 1%-20% more for certified socially compliant products. Gen Z and Millennials lead this trend, with 75% or more of each group willing to pay extra. Evidently, large numbers of consumers base their purchasing off of their values, making this a key point for upcoming DTC brands.
DTC brand Everlane has focused on putting their values first. Everlane highlights their “Radical Transparency”, detailing where every product on their website was produced, providing virtual tours of the factories, and giving a true price breakdown. Each factory is given a compliance audit to evaluate factors like fair wages, reasonable hours, and environment, and Everlane only sources from factories with a score of 90 or above.
- Prioritize Retention
Customer retention is another important factor in the success of DTC brands. The subscription model is one that has worked well for many DTC companies.
According to a 2018 McKinsey report, the subscription e-commerce market has grown over 100% year-over-year for the past five years, and 15% of online shoppers have signed up for at least one product-based subscription service.
Of all total e-commerce subscriptions, 55% offer curation services, 32% offer replenishment services, and 13% offer increased access. By developing a subscription model that falls into one of these categories, traditional retailers may be able to improve customer acquisition and retention.
Dollar Shave Club has nailed the subscription model. Dollar Shave Club provides subscription boxes with full-size products of customers’ choice a few times a year. Buyers can schedule deliveries whenever they want and swap out products with no strings attached. The system is easy to use, and replenishes the necessities with ease while giving customers the freedom to try new products as they wish.
- Engage Customers in Product Development
Another important lesson is that of engaging customers in the product development phase. Successful DTC companies have used customer feedback, reviews, and surveys to inform product development. By engaging their target audience before the purchasing stage, these companies are taking an important step towards building a long-term relationship.
DTC brand Soylent used this method to drive the development and launch of its popular meal bars. Even though their 2016 launch of meal bars was not well received, the product was a success during their 2019 launch. What changed was the way in which Soylent sourced information to improve the product. The company sent out requests for reviews to existing customers, using this to pinpoint problems with their original launch and improve the product line.
Glossier used a similar method to inform the launch of their cult-favorite product, the Milky Jelly Cleanser. Glossier asked the readers of their blog, Into the Gloss, to provide information about the properties of their dream cleanser, in turn using this to inform the design of the cleanser product.
Invest in Data
DTC companies have utilized data in different forms to drive their performance. The DTC model allows companies to collect information on topics such as consumer demographics, preferences, and behavior throughout the entire purchase journey, helping brands to better understand customer interests and pain points. This ability to measure all aspects of the value chain is extremely powerful in creating a holistic view of the consumer journey.
Investing in data can also help DTC companies to drive personalization to new lengths, optimize marketing spend, and streamline product development. Additionally, data can be used to effectively manage inventory. Ultimately, better inventory management can minimize costs, reduce markdowns, and increase gross margins.
Chain of Demand has developed an AI-based predictive analytics solution to help companies do just that. With the goal to improve the link between profitability and sustainability, Chain of Demand’s solutions help brands make smarter decisions, more quickly and accurately than ever before.