Trends in direct-to-consumer (D2C)

Going D2C provides benefits to brands

D2C brands price more competitively when they skip traditional ways of selling goods by eliminating intermediaries. They also have more influence over their brand image, reputation, associations, and marketing strategies since they have direct contact with customers.

Brands that previously explored developing a direct-to-consumer (DTC) channel but concluded against it are changing their minds after COVID-19. The pandemic has expedited significant commercial developments, such as the global customer move towards digital channels. And this is still increasing, even though lockdowns have become rare outside China.

Summarized, the tangible successes for brands going D2C are:

Margin - explosively higher margins compared to traditional channels

Markets - the ability to reach markets and segments that were previously off the map

More data - switching to zero-party data about customers provides many opportunities to grow faster, save money and create better products and campaigns

But it’s not all sunshine and rainbows

Some brands notice now that the direct-to-consumer business strategy isn't only about collecting much higher margins passing intermediaries. Indeed, increased collection of data delivers very valuable insights, margins explode and the brand becomes much less dependent on channels; all is good there and executives are dancing on the table.

But D2C brands also meet considerably more responsibility for areas like data management, customer service and customer experience by eliminating wholesalers, distributors, and retailers – and not all brands are well equipped for that.

Three Trends helping Brands succeed in D2C

Three trends help brands manage the risks and to predictably deliver results in their D2C strategies:

1. The importance of Brand building to improve performance grows even more

For D2C brands, the key to improve performance is building the brand. Even more than in ‘traditional channels’, in which the retailer could position the brand favorably. Successful D2C brands are built on a moat: presence in the minds of the relevant consumers, who are motivated to find the brand’s direct outlet. Traditionally, brands connect with consumers through mass-advertising. Marketers now learn that online, there are smarter ways to achieve the connection, and newsletters and Instagram posts are only just the start. Once a brand achieves presence through its community, there's a natural pull for the brand and this helps in creating referrals, long-term value, and loyalty; the 3 key pillars in any D2C's performance. Building a community is a very cost-effective and sustainable method for creating and keeping direct connections.

2. Collaboration is important for DTC businesses

A difficult aspect of launching a direct channel is figuring things out. In the physical world, brands know how to get a good location on Main Street and pay for (online) and very creative advertising online; that usually does the trick. Direct channels work differently.

Brand’s agencies usually do not know much more about these channels (even though they claim expertise, because they do know how to sell themselves). This is changing the agency landscape very fast: traditional agencies try to catch up with digital skill sets beyond SEO and creativity, but often lack the culture of running operations (DTC is not a campaign but a long-term strategy), understanding IT-infrastructure (DTC is not a flashy website, but should be a reliable infrastructure with high availability), customer service (customer do connect, and not always with a ‘like’) and data management (managing data and keeping quality high is more complex than using a spreadsheet, newsletter list or CRM-system). All these elements are crucial for success and the necessary positive customer ratings. Therefore, several new players offer high value by arranging these factors for brands (or for agencies that sell them to their existing clients). Collaboration with these new players is inevitable for quick and sustainable success in the direct-to-consumer market.

3. Repeat-direct-customer-contact need a context

Brands discover that it’s one thing to attract customers to their channel once, but they will have to develop retail like skill sets to make shoppers come back more often (without having to advertise heavily for each visit). The most successful ones are learning to create a context for repeat purchases. Several successful scenarios seem to take the lead:

• Programs: whether it is a classic loyalty program, or a more innovative privilege program, or even a program focusing on shared passions and interests (and most likely a combination of all of the above), programs in which shoppers register themselves works great on all KPI’s: collecting zero-party data, persuading customer to come back more often, encouraging referrals and offering inspiring branded information and/or asking for user-produced content which can be shared on social media. The program creates the context in which all of these cost-effective and data enriching strategies work seamlessly.

• Referrals: encouragement of advocacy has been a classic low-cost strategy to select the most effective audiences. In nowaday terminology, they are a self-fulfilling look-a-like audience, but without the ad-costs for Meta. The peer-to-peer invites create the trusted context that marketers recognize as a very effective strategy to connect and keep customers.

• Storytelling: brands realize that creating a story around the brand and its products counts even more in D2C than in classic mass-advertising and retail-channels. The great news is that a direct channels allows a brand to tell their story (and sub-stories, and artefacts, and approvals, and reviews) much better than in expensive Super-Bowl seconds, ephemeral D-O-O-H or at supermarket display materials. And brands are getting better at that, especially because new digital tools allow them to create that context. For example, the impact of a personalized automated contacts (sending email or text messages at the moment perfectly relevant to that one customer) is unparallelled. No mass-broadcasted ad can compete with a message, endorsed by a trusted friend, at exactly the right moment. Especially if this fits within the contact permissions that the brand has acquired from that consumer: permissions are valuable assets and with new tools, brand can now manage them properly.