Why Global Brands are Investing in DTC Strategy
Search for the top retail trends for 2021; you’ll find direct-to-consumer (DTC) appears in almost every relevant result.
How can that be, you may ask, considering that people have been selling direct for centuries? What it means to sell direct has undergone multiple transformations over the years. The latest transformation is happening right now as retailers invest in DTC strategy not just to supplement sales revenue, but to build a global brand. Understanding the motivations behind this shift is crucial for retailers to fully capitalise on the potential offered by DTC.
20 years ago, DTC looked very different
The term DTC is a misnomer, as it does not encompass all types of direct sale. If you took your cart on wheels to sell potatoes at London’s Old Spitalfields Market in the 18th Century, for example, you were not a DTC brand.
DTC refers specifically to a type of commerce in which the customer buys directly from a retailer’s branded website or app. The term was born in the 1990s, when the internet was in its heyday and retailers suddenly found themselves with the means of selling to customers all over the world, and doing so cheaply.
DTC became popular as a democratic, modern form of commerce. Retailers could create a website with an integrated e-commerce platform and sell to customers without convincing a wholesaler, online marketplace or specialised distributor that a product is worthy of their assortment. It was this ease of access, along with minimal go-to-market times, that made DTC a popular channel for startups in its early days. Along with cheap social media ads and an abundance of venture capital, small businesses could launch and scale at unprecedented pace with DTC commerce.
For a while, the pattern was consistent: companies would launch with a minimal product offering (sometimes even a single product), foster a small community of loyal followers, and then scale the business with social media ads. Today, many of the startups that had flourished now face soaring social media ad prices and steady deceleration in Instagram followers that come with market saturation. Even when a company edges ahead of the competition, there is a limit to how far it can scale when relying solely on web-only retail. For now, these companies have reached a stalemate.
Today’s DTC landscape is evolving
Rather than remain the hallmark of web-only startups, DTC has now entered the mainstream, and there are two main motivations behind this shift.
The first is the COVID-19 pandemic, which saw established retailers — especially those that formerly relied heavily or exclusively on brick and mortar sales — invest in DTC strategy. With the closure of physical stores driving an unprecedented number of consumers to shop online, brick-and-mortar retailers found e-commerce to quickly be a high priority. Buy online, pick up in store services (BOPIS), for example, saw a year-over-year growth in 2020 of 28% in February compared to 18% in January, research from Adobe Analytics shows. While many retailers saw these initiatives as a temporary solution, the increasing popularity of digital retail experiences has encouraged many retailers to continue these investments in e-commerce platforms.
The second, and most promising, is a growing interest from global retailers in the potential for a DTC strategy to strengthen their brand image and protect it from dilution. The larger a company gets, the harder it can be to keep brand messaging consistent, because each extra third-party distributor means an additional fragmentation of the brand and more room for unevenness in the customer experience. Retailers have limited oversight or control over the product descriptions, delivery times or customer service provided by third parties. Because distribution partners are never going to put as much effort into championing a retailer’s brand as the retailer itself, investment in a DTC strategy is the best measure retailers can take to ensure they present the brand on their own terms.
An online presence is increasingly important
More than ever before, consumers do their homework before they buy. 63% of shoppers now research a brand online before making a purchase, according to Think With Google. If they can’t find the information they’re looking for, 72% would purchase elsewhere, a study by Akeneo found. Consumers can’t risk buying from retailers they don’t know much about, especially during the COVID-19 pandemic.
Having a brand website that provides consumers with the information needed to make an informed decision is the single best way to assuage these concerns. Even the most basic DTC strategy that focuses primarily on the e-commerce solution can provide consumers with a level of information not available anywhere else. Product guides, FAQs, and size guides are just some examples of services that help consumers make certain that a product is right for them. In fashion retail, some companies are going the extra mile by offering consumers the possibility to view the same product on models of different body types.
One of the most common reasons putting off consumers from buying online during the pandemic is the inability to touch items as they would in-store. By providing consumers with as much information on each product as possible, retailers can gain consumer trust. For locked down consumers, being able to trust a retailer to deliver on their promises is critical. Half of respondents in an Edelman study agree with the statement: ‘In this time of crisis, I am turning more and more to the brands that I am absolutely sure that I can trust’ (52% in the UK, 51% in France and 48% in Germany). Suspecting that a retailer is trustworthy is no longer enough; consumers want absolute certainty.
Besides product information, consumers also want to know about the brands they are buying from. A brand’s mission, purpose, and attitude towards corporate social responsibility are now key criteria in changing consumer decision-making patterns. Consumers across all generations are prepared to spend more money on products that they believe protect the environment, champion workers’ rights and safeguard inclusivity, a report by McKinsey found. If they believe that brands are neglecting their social and environmental responsibilities, it is now very likely that consumers will avoid buying from them. In fact, Edelman reported that 71% of consumers would lose trust in a brand forever if it placed profits over people.
It’s all about the brand
The most successful DTC strategy does not start with an e-commerce solution and retrospectively fashion a website around it. A successful DTC strategy sells its brand just as rigorously as its products. While the e-commerce solution is often just one of many potential revenue streams, the company website is the brand headquarters.
Here are some ways retailers can strengthen their brand through DTC strategy:
Communicate your brand’s values clearly, and consider including sections on sustainability, social responsibility and inclusive practice, as well as information on the company’s response to COVID-19.
Explore issues related to your brand in a blog, and feature guest writers whose values align with your own.
Inform consumers that your brand cares about their experience by working to ensure consistent customer service, responding to customer reviews directly and sending customer feedback surveys.
Excite consumers through special promotions, subscription-based sales, product bundles, flash sales, free shipping and gifts.
Personalise the customer experience, such as through design-your-own products and build-your-own bundles.
Reduce friction as much as possible by letting customers create an account that saves their shipping and payment details.
Reward your most loyal customers through membership programmes that give members special benefits, such as pre-sale access and exclusive discounts.
Provide online activities that complement your brand, such as expert makeup tutorials and yoga classes.
Boost customer affiliation with your brand through a community page that explores customer stories, brand ambassadors and events.
Rather than a means to supplement sales revenue, big brands should invest in DTC strategy to build a brand that customers find so exhilarating that it boosts sales across all channels.
The DTC strategy of the future
For some retailers, the company website is just one digital asset in the DTC strategy.
Over the next few years, we are likely to see a rise in the number of retailers offering retail apps for mobile and smart home/smartwear. Rather than simply provide mobile-friendly versions of the website, the best retail apps offer experiences exclusive to the app. They augment digital channels whilst creating entirely new consumer experiences.
Retail apps work on the knowledge that customer loyalty increases with brand engagement. In food and drink retail, apps may allow you to order your food at the table, open up a digital map of the supermarket or receive special offers via notifications as you walk past items in the store. In homeware, it could be apps with integrated VR functionality that let you see how items would look in your home. In sportswear, it could be a training app, such as those offered by Nike and Adidas. Retail apps have the potential to boost brand engagement across all markets when employed as part of a DTC strategy.
If you’re thinking about investing in a DTC strategy, look out for an upcoming article with tips for getting your DTC channels right.