The Rise of Direct-to-Consumer Brands

Direct-to-consumer (DTC) brands have become big news. In this piece, Dr Geraint Evans tells RetailTechNews how these brands are growing exponentially in terms of valuations, revenues, customers, and positive sentiment. 

DTC Brands are now household names

A year ago, this piece would most likely have been titled something to the effect of ‘5 DTC brands you’ve not heard of, but you will soon’. However, since then, the likes of Dollar Shave Club, Warby Parker, Casper, Bonobos, and Glossier have exploded into the market; and you are sure to have heard of most, if not all of them – and you are also potentially either an existing, or likely to become, a customer!

A little over a year ago I was conducting a learning session for my team, using the Dollar Shave Club’s million-view viral video as an example of incredible viral content and ‘authentic’ connection through its CEO-presented tone. Fast forward to end of H2 2018, and OneDollarShave (alongside WarbyParker and Casper) are now a USD$1bn+ brand, following its acquisition by Unilever – hardly the upstart challengers they once were (in size at least – their brand very much still adopts that position).

With the increasing number of traditional retailers, such as Toys R Us and Maplin, announcing closures, and others suffering, how are these DTC Brands making a success of their business while other retailers are not?

What is DTC anyway?

DTC brands are incredibly varied – from products like clothing, to cars, to information based on products, or a service provider. DTC companies also deploy a wide variety of delivery mechanisms to their end customer – with products and services being consumed at work and at home. Brands like the above and the likes of The Honest Company, Hello Noémie, Bonobos, Everlane, Reformation, Away, and MeUndies, are all collectively creating a shift in retail by not selling through the transitional chains.

The emergent DTC model challenges many of our assumptions on what retail is and needs to be. DTC brands can be typically defined as selling products and services, but who also ‘own’ their entire value chain – they invest in research, development, and design, through to manufacturing the final products. DTC brands then take full responsibility for execution of marketing, ensuring the end-to-end customer experience is seamless. As such, they disintermediate large sections of the traditional retail channels (both physical and digital) and connect direct to the buyer and, crucially, their wallet. As this great article puts it, they “master everything – from the design to the final sale, take over every part of the sale cycle, own the customer, and keep all the revenue”.

DTC brands are also managing to connect to highly sought-after customers, who are highly digitally literate, and happy to become a brand ambassador for them and pay for the privilege.

How are DTC brands obtaining their success?

DTC brands can be seen as winning, due to their excellence and ownership in a number of key areas. First of all, they are offering great (not just good) customer experience. With consumers increasingly having a zero-tolerance attitude to friction when buying products and wanting everything to ‘just work’ the first time, DTC brands really need to execute well.

However, this is exactly how they are producing a competitive advantage – because they can own and influence the end-to-end journey to ensure it fulfils the expectation of the consumer; and by selling directly to the consumer, the entire journey from discovery to interest, purchase, and loyalty, is all delivered as part of the brand vision, aesthetics, and execution – think words like ‘curated’ and ‘consistent’.

DTC brands are winning by forming an extremely strong direct connection with their consumers before, during, and after the purchase cycle, and developing trust and collaboration from the beginning. Again, here we can see the value in the brand owning all of its assets – it can directly influence in the way it wants without having to navigate any other relationship in the value chain.

Despite the GDPR hysteria, owning and utilising detailed customer data, especially when the primary channel is digital, creates massive opportunities for DTC brands to measure everything, test, and iterate. Data and influencing consumers online is paramount to this process – both in terms of building interest, eventually selling them a product, capturing their feedback to improve word of mouth, and peer referral, but also for insight on how to create better products in collaboration with them.

Finally, of course, dealing directly with an end consumer does also allow for some of them to claw back margin from what others are losing to their distributors, shipping, promotions, and payments.

Shifting Consumer Demand

It is clear that DTC brands have a specific proposition and approach to the market, but where is the actual consumer demand coming from?

The growth of these brands could be seen as being the result of an ongoing drive towards convenience, but also a shift towards a desire for a very specific product from consumers – with the ability to browse, research, and configure in so many categories, consumers are getting more used to knowing exactly what they want and how to (quickly) find it.

The need for ‘quickness’ is also connected to simplicity. It is hard to argue against these brands being successful through having an extremely easy-to-understand brand, proposition, and a set of defined benefits. This also helps DTCs focus on getting ‘cut-through’ of their message in the hyper-crowded marketplace, ensuring marketing is highly targeted using data and viral marketing techniques to build hype and encouraging customers to share positive word of mouth.

DTC brands to watch out for

This article on Airtable gives you the great Top 25 to check out. For me, I suggest to keep your eye out for the following companies – Peloton, Chewy, Soylent, Carvana, Ancestry, Poshmark, Stitch Fix, and Tophatter.

While the top DTC brands are far from small companies now, they are now being embraced by massive global brands that are significantly ramping up digital and physical channels to sell to customers direct as well. For example, Nike predicts DTC sales will grow from USD$6.6bn (£5bn) in 2015 (smashing their previous USD$5bn (£3.8bn) target for 2015) to USD$16bn (£12bn) in 2020 – so watch out for many more brands thinking in this direction.

How to apply their model – think like a DTC brand

So, how to apply some of these ideas? The mentality of these DTC brands is not just for startups.

I’d encourage you to not think like established brands – instead, try to see your business as if you were a hungry challenger company – how would you architect your business model?

Can you say you truly are listening too and servicing your customers? Are you expecting them to transact with you in the way you want them too, rather than how they might prefer? Would your customer recommend you? If not, why not?

Focus every day on how to offer quality, value, and the best possible experience to your customer, and you will see the results. Good luck!