More shoppers are making the switch to online retail. This means there’s a growing need for brands to connect directly with them. Over the past two years, consumers have been seeking out more authentic connections with brands and craving more personalized experiences, and the sheer amount of competition means there’s plenty of choice.
Consumer brands are now faced with the task of creating exceptional, customer-led experiences. Welcome to the birth of the direct-to-consumer model.
What is direct-to-consumer?
Direct-to-consumer (DTC) is a retail model where brands sell directly to new customers. It skips the wholesale middlemen and eliminates the need to join forces with big retail brands and brick-and-mortar stores.
DTC brands keep their own products in stock and, when a customer makes a purchase, the brand is in control of sorting, packaging, and shipping the product. They don’t have to rely on third parties to deliver the goods. This gives them the power to communicate with customers directly and take charge of the entire fulfillment experience.
The DTC model removes several steps of the buying cycle to speed it up and provide a slicker experience for loyal customers:
- Traditional wholesale/retail model: manufacturer > wholesaler > distributor > retailer > end consumer
- DTC model: manufacturer > advertising/website > end customer
The DTC retail model was created for a digitally savvy consumer base, with top DTC brands like Warby Parker, Dollar Shave Club, Allbirds, and Glossier disrupting the traditional beauty and fashion industries with their unique personalities and a customer-first approach. The model brings them closer to the customer, strengthening connections and relationships, and giving them a first-hand understanding of who is buying their products and why.
Wholesale brands like Walmart and traditional retailers like JCPenney and Unilever are now up against these smaller, more niche brands that are reaching out directly to customers, but things are changing. In fact, up to 57% of manufacturers are embracing the DTC model, and it’s now the fastest-growing ecommerce category.
Why direct-to-consumer is so popular
DTC isn’t a particularly new phenomenon. In the 1920s, clothing brands saw an opportunity to cut out the middleman and started to open their own DTC stores. In 2007, Bonobos emerged as one of the first digitally native brands that focused on selling just one product. But the concept has snowballed in recent years because of two major factors:
1. Consumer expectations have changed
Expectations are higher than ever. Retailers must now deliver exceptional customer experiences or lose out to an influx of new competitors. Consumers today crave personalization and human connections, and they want to buy from brands with the same values as them. This is difficult when you’re selling through large retail stores that stock all sorts of products from a range of different brands.
For example, a consumer might choose to buy a pair of glasses from Warby Parker over Sears because they resonate with Warby Parker’s mission more than that of a big-name department store that sells products from a variety of brands with a variety of different values and ethics.
2. Online sales have skyrocketed
Seventy-five percent of US consumers have changed their shopping habits during the pandemic, leading to an online-first approach. Retail partnerships are pointless when shoppers no longer venture in-store. Add to this the fact that it’s difficult to stand out when your products are surrounded by hundreds of similar products from different brands, and it’s easy to see why DTC retailers have chosen a different path.
Even legacy brands that have traditionally depended on wholesalers and physical stores for distribution are leaning into the DTC model—take Pepsi, with its Pantry Shop and Snacks.com DTC offshoots, for example. Legacy brands like Pepsi are moving over to the DTC model due to understandably lower orders from retail clients during the pandemic. To put it into context, in 2010, just 15% of Nike’s revenue was made up of DTC sales. But this figure rose to 35% in 2020 and is set to grow to 60% by 2025.
How the direct-to-consumer model works
The model does exactly as it says on the tin: sells directly to customers. Shoppers go to your website or another digital channel, make a purchase through your store, and receive the product directly from you—no middlemen in sight.
The whole process is carried out between the brand and the customer, and the brand takes full control over the fulfillment process. Usually, DTC brands are digitally native and favor an omnichannel approach to create unique experiences for each customer. This isn’t to say DTC brands can’t have brick-and-mortar stores, but the emphasis in-store is on customer experience and engagement rather than sales.
Many DTC brands have a very defined target audience and sell a limited range of products—think Dollar Shave Club with razors and Warby Parker with glasses. The model relies on building customer relationships and creating experiences that put the customer first and show a deep understanding of shopper pain points. Many brands use discounts, loyalty programs, reviews, and user-generated content to build communities and retain long-term customers over time.
The pros of DTC
- Direct line of communication. You can connect directly with customers to build customer relationships, which positions you on the front line for customer service.
- Better understanding of customer needs. Access to first-hand data provides a comprehensive view of customer wants and needs and can help brands make more strategic, customer-focused decisions.
- More control over messaging. No need to rely on middlemen and third-party stores to advertise your products.
- Complete control over the fulfillment process. Less reliance on third parties, which means less fulfillment restrictions and the ability to pass any savings along to customers.
- Control over marketing. Easy to promote customer perks, like free shipping, gifts, and a subscription model without being restricted by wholesale requirements.
- Access to first-hand customer feedback. Glean insights directly from customers and foster open communication and increase brand loyalty.
The cons of DTC
- Everything is on you. It’s up to you to build your own audience via your own platforms, and you don’t have access to the audiences that big retail stores and sites have already amassed.
- Increased risk. Added risks that are usually swallowed up by third parties, like cyber risks and liability risks.
- Potentially complex supply chains. Everything from the manufacturing to distribution to shipping is up to you, which can be both a blessing and a curse.
- Potential increased costs. You might need to invest in tools, software, and advertising to promote your products, which can add up and affect your bottom line.
Examples of DTC brands that are killing it
Velasca is a Milanese startup on a mission to disrupt the footwear industry by connecting consumers directly to shoemakers. Owners Enrico Casati and Jacopo Sebastio found their DTC model has a competitive advantage over high-end Italian footwear brands because they’re making the same products from the same factories as big-name brands, but can sell them at half the price because they don’t have to give a cut to wholesalers, distributors, and retailers.
Oura sells just one product: a ring that provides personalized health insights, sleep analysis, and heart-rate monitoring. By focusing its energy on just one offering, the brand has created a product that has been shaped by customer input and generated a huge cult following.
Bombas began with selling just socks—a niche product but a product that everyone needs. It’s since branched out to sell new products, like t-shirts, underwear, and slippers, but its motto remains the same: comfort is everything. One of the brand’s main selling points is its strong values and beliefs. For every item purchased, the brand donates an item to someone affected by homelessness.
Mattress brand Casper wanted to disrupt a well-established but potentially outdated industry. It created a very simple “bed-in-a-box” business model back in 2014 that aimed to offer the best quality mattress possible at an affordable price—and it only had one option. The brand strived to deliver quickly, for free, with a 100-day trial. It turned out to be exactly what customers were looking for, which brought the brand $100 million in just two years.
Luggage brand Away co-founders Steph Korey and Jen Rubio had a vision. They took the traditional retail tactic of preordering and combined it with an inspirational book release to sell out their product line before it had even been made. The campaign went viral on Instagram and led to $12 million in sales in the first year.
“Storytelling is a central part of our marketing strategy,” says Korey. “We think about what stories we can feed to the press and to social media—things that make people take notice, things people want to share and talk about.”
Clothing brand Everlane is all about sustainable fashion—something that has created close connections with shoppers who are on the hunt for eco-friendly options that don’t buy into the fast-fashion phenomenon. The brand’s ethical approach drives everything it does, from its marketing efforts to its product descriptions, and even its “true cost” calculator.
Merchants take back control with the DTC model
DTC was born out of changing customer expectations and the shift to online shopping. The model gives brands a chance to connect directly with customers and get to know who’s buying them, so they can create a personalized customer journey unique to each shopper. DTC lets merchants take back control, creating strong relationships with buyers and creating stand-out brands with memorable personalities.