Direct-to-consumer (D2C) is about mastering technology to give the best possible products and services to your consumers. Brands like Nespresso, Tupperware, Tesla or Peloton show how it’s done.
A New Word for Consumer Focus: D2C
Selling direct to consumers is nothing really new to brands. Brands’ own stores, for example, have been around for at least 50 years, and direct sales models like Tupperware (household goods) for even longer. So what’s new and what’s different this time around? Why all the craze from brands and investors alike? To me, D2C is really about consumer focus, but on steroids. Driven by technology and the ability to listen to consumers and provide them with more products, better products, and relevant individualised content.
2 ½ Ways of Selling Direct to Your Customers
D2C means selling directly to an end-consumer and having the legal right to use your customers’ data. Channels like your own webshop, your own brand store, selling direct to consumers via Instagram or Live Shopping are some obvious and frequently used D2C channels.
Marketplaces, however, even though they have the highest market share of all digital distribution channels, are only half the way to selling direct to your consumers. That’s because the Marketplaces legally own the customer data, and brands cannot directly influence customers to drive a customer’s lifetime value to the brand (CLV). So, while you definitively have more control over your assortment than in a traditional wholesale business model, you do not have control over consumer data.
Despite this lack of consumer data ownership, many native D2C brands do very well selling on marketplaces. That’s due to their detailed knowledge of their target group, combined with an excellent understanding of digital marketing processes, tools, and the product search algorithms of the marketplace.
D2C Impact on Your Channel Mix
Of course, growth via D2C channels alone has its limitations. Marketing funds to reach ever more consumers will be limited, even at the biggest of brands.
And more importantly, consumers don’t want to manage a plethora of 1:1 relationships with all the brands they like to buy. They want to be able to conveniently compare and shop products, to touch, feel and smell them. That’s why the largest brands operate on a mix of D2C and non-D2C models and will likely continue to do so for the foreseeable future.
There has been a lot of talk recently about how the largest global brands in particular try to better control their wholesale distribution. Driven by a market environment where it has never been easier to compare products and prices, consumers have been educated to “love the deal, not the brand” (thanks to Torben Valsted for this quote). As a result, brands are finding it increasingly difficult to monetise on their upfront customer acquisition invest and try to gain more control via D2C business models and tighter control and guidelines for their retail partners.
Point in case just earlier this week, Adidas announced an increase in pressure on wholesale partners along with higher minimum order volumes and standards for being allowed to sell the brand. Nike, Adidas and Rimowa are prime examples of this trend in recent years.
Smart Brands, however, will also support and form cooperations with their retail partners. The focus will be on better digitising and interweaving their mutual business models to ensure availability of customer data across all of their distribution channels. WOOM bikes and their upCYCLING idea is an example of a smart way of doing so, offering consumers (no matter where they bought their bike) to trade in their old WOOM bike for a new one and get a discount worth 40% of the old bike’s original price.
Even better, if your retail partner bases their whole business model on giving your brand the space and the data you want. A great example for this is VAUND.
D2C Success Factors: The Right Mindset Is More Important than the Distribution Channel
The success of D2C native brands and the D2C initiatives of traditional brands is undeniable. The obvious question is: What factors drive this success?
Despite my earlier classification of D2C as a distribution model, the key to the success of DTC is understanding that the consumer needs to be at the centre of all activities. And while the new breed of D2C brands have understood this by design, traditional brands are still catching up by developing relevant and personalised experiences.
Specifically, D2C native brands stand out in understanding their customers and keeping them loyal to the brand based on these factors:
- D2C brands are better at understanding the ins and outs of all things digital, be it digital distribution channels or digital (performance) marketing with influencers and social media activity. Based on a study by the CMO Club, B2C brands say their DTC counterparts excel in digital media buying, social media and delivering curated consumer experiences. A 2019 survey by Arvato, for example, found that webshop traffic coming from social media channels was almost three times higher for D2C brands than for traditional brands.
- D2C brands are better at understanding the value of consumer data, at analysing it and acting upon it. This is visible in two main areas:
- First, product innovation: As a result of the much better focus and analysis, D2C brands often see opportunities to solve customer needs through product innovation that B2Cs overlook, or even worse, don’t even identify (because of lack of data/ info). This is exemplified by new product development often being more iterative and much more focused on “consumer listening” (e.g. structured analysis of customer comments in all digital channels). A good example here are Lumaland tents (part of Socialchain) that have outperformed most competitors by improving their products based on feedback received via their digital distribution channels. And Horizn Studios and also ZARA for using feedback from their physical stores to guide product development.
- And second, actively asking for feedback: For example via flyers sent out together with product packages, replying to consumer feedback or by providing forums where consumers can exchange views about the product experience. D2C brands have understood that social proof is a key element for the credibility of a brand in today’s digital world.
If you are looking for an awesome collection of D2C brands and need some inspiration on what to do, I can only recommend you also look at https://www.direct-brands.de/ – hands down the best curated overview of D2C brands that I know.
You need to review your POV on what it means to be consumer-centric. While this is easily said, it is much harder to do. Having the right people on board, ideally from a brand that has already lived this direct to consumer mindset, is probably a must for successful execution.
Think hard and smart about how to regain control over your brand when you are not in direct contact with your consumers. Not all brands have the power of Nike or Adidas, and you may need to come up with new ideas on how to incentivise your retail partners and / or develop cooperations and additional services along the consumer journey.
You need to have the right technology. This will be the main focus of the second article in this series, published here next week. See you there!
About the Author:
Christoph Berendes is a consultant in strategy development and process optimisation for fashion brands and retailers. He has more than 15 years of experience as a consultant, line manager in the sportswear industry and in e-commerce marketplace distribution. Read more of his work here or connect with him on LinkedIn.