Over the past two decades, a new wave of startups has emerged, characterized by the direct-to-consumer business model. Unlike traditional retailers, DTC brands focus on building unique products and developing loyal customer bases while maintaining full control of their value chain.
With command over a wide range of business processes from manufacturing to distribution and sales, DTC brands retain control over their brand and narrative at every step of the process. For this reason, they are able to build authentic relationships with their consumers. Often prioritizing social media marketing and utilizing digital sales processes, they develop compelling minimalistic designs that define their brand image.
Ultimately, DTC companies combine consumer-centric strategies with data-driven digital systems, presenting a compelling narrative, and building a loyal consumer base.
Advantages of direct-to-consumer brands
DTC brands differ from companies with more traditional business models in the way they maintain full control over their value chain and make use of their data. In doing so, they consolidate their brand narrative, achieve larger gross margins, and effectively expand their digital reach. Ultimately, DTC companies hold many advantages within the retail landscape.
- Control over the value chain – A company’s value chain is the range of iterative processes used to create a product or service. This process, including design, manufacturing, order processing, marketing, distribution, and customer service, is integral to maintaining production efficiency and a cohesive brand narrative. By maintaining control over their value chain, DTC brands create a unified process. Additionally, brands are able to quickly react to consumer feedback regardless of where it falls on the value chain, thus improving customer satisfaction and loyalty.
- Brand narrative and consumer loyalty – By maintaining control over business processes, DTC companies can more easily create a cohesive brand narrative. Such operations help businesses form a reputable brand image – one that focuses on consumer connection and retention. This focus helps companies develop a sense of authenticity, thus forming brand loyalty. Ultimately, loyal consumers act as brand advocates, sharing their satisfying experiences with friends, family, and colleagues. DTC activewear brand Fabletics centers its narrative around providing high-quality and stylish activewear at an accessible price point. They built out a VIP membership program, offering members curated apparel selections, membership credits, early access to launches, up to 50% savings, and other free perks. Fabletics additionally developed an attractive referral program, offering members $20 credit for any friend who signed up. According to Forbes, as of 2018, Fabletics’ same-store sales grew 20% year-over-year, and their annual revenue exceeded $300 million – evidence of their success.
- Larger gross margins – DTC brands’ full control of their value chain has another large advantage: larger gross margins. Often, third party companies are contracted to handle certain aspects of business, be it manufacturing, marketing, or delivery. This could potentially manifest into negative losses for the brand, as companies lose control of their pricing structure or are pressured into lower margins. DTC companies choose to leave out the middle man, and in doing so, boast larger cost savings.
- Digital optimization and data-driven – DTC brands are additionally digitally optimized, allowing companies to connect with a wider range of prospective customers. With almost 14% of total US retail sales projected to come from e-commerce channels by 2021, digital optimization is more crucial now than ever before. DTC brands start with an online presence, utilizing digital marketing tactics and sales platforms, and sometimes expand into brick-and-mortar locations. They also have the powerful ability to collect key consumer data points throughout the discovery and purchase processes. Ultimately, this data allows DTC companies to better cater to their consumers, improving customer satisfaction and retention.
Customer data is an incredibly valuable resource for DTC companies. As the power of data continues to expand, it is worth exploring how investing in data analysis can put DTC brands ahead.
Leveraging data for greater returns
From consumer demographics, preferences, and behavior to the customer purchase journey, the DTC model allows companies to better understand customer interests and pain points. Ultimately, DTC companies have the power to measure all aspects of the value chain, creating a holistic view of the consumer journey.
According to Wunderman Thompson, DTC e-commerce sites allow companies to record crucial data including onsite behavioral analytics, onsite search, customer reviews, purchasing trends, contact information, and inquiries. These tools help companies to understand consumer’s onsite journey from awareness to consideration to purchase, as well as satisfaction and pain points. Companies are then able to improve the onsite experience, grow engagement, and carry out new product development.
In order to measure success, Big Commerce suggests looking at four main KPIs: purchases, repeat purchases, average order value, and customer lifetime value. These four KPIs allow DTC companies to identify loyal customers. It is further possible to look back on these customer’s purchasing journeys, identifying high performing acquisition strategies, and developing those channels.
The need for data analytics solutions
In late 2019, Nike announced that it had acquired Celect, a predictive analytics firm. In an interview with CNBC, Nike’s Chief Operating Officer Eric Sprunk stated,
“As demand for our product grows, we must be insight-driven, data-optimized, and hyper-focused on consumer behavior. This is how we serve consumers more personally at scale.”
Nike aims to increase personalization within their businesses, hoping to strengthen the consumer relationship, as well as optimize inventory and generate localized demand predictions. Sprunk also emphasized the need to anticipate demand in a timely fashion. Essentially, Nike hopes to reduce out-of-stock rates, improving inventory control, and putting less pressure on profit margins. They believed data analytics was crucial to successfully execute this plan.
They weren’t wrong. According to Nike’s annual report, digital direct sales grew 35% in fiscal 2019, outpacing all other marketing channels to represent 32% of total Nike brand revenues. Ultimately, this suggests that digital DTC sales will be integral to Nike’s future growth, and emphasizes the importance of Nike’s acquisition of Celect.
Similarly, in early 2020, Google confirmed their acquisition of Looker, data analytics startup used by leading DTC companies including Dollar Shave Club, Glossier, Bonobos, and Casper. Google aimed to incorporate Looker into its existing Smart Analytics Platform, utilizing the tool for data visualization. According to Forbes, Google has historically trailed behind Amazon and Microsoft in the cloud market. The deal is intended to boost Google’s cloud growth and drive Google to the market’s forefront. Vogue Business commented that Google’s acquisition of Looker highlights the value in tools that help brands aggregate and understand consumer data.
The future of DTC brands
According to Forbes, 85% of companies with an enterprise-wide analytics strategy in place are seeing revenue growth greater than 7%.
It is clear that data analytics is becoming an essential tool in helping companies better understand consumers, manage inventory, and achieve maximum margins. Ultimately, prioritizing data analytics can help put retailers and brands of any size ahead of the curve in this digital world.
With Chain of Demand’s predictive analytics solution, DTC brands can also make smarter decisions, more quickly and accurately than ever before, helping to minimize inventory risk, maximize gross margins, and improve sustainability.