For many years the end-to-end delivery of a product from the manufacturer to the customer involved a multi-stakeholder value chain comprising manufacturers, distributors, logistics enterprises, retailers, and other stakeholders. In recent years, an alternative model is emerging, which involves the centralization of value chain activities around a single company. It is the Direct to Consumer (DTC) business model, which is giving rise to the notion of DTC brands. DTC brands control the entire value chain of product manufacturing and delivery, including marketing, sales, and other consumer-facing activities.
Most DTC players were established during the past decade, when many DTC brands entered the consumer-packaged goods space. Leveraging the DTC approach various successful startups managed to disrupt incumbents with a new business model that sells products direct to consumers at a lower price point and with a better customer service experience. Nowadays, the DTC model is becoming very popular due to its ability to serve customers better than legacy value chain models. At the same time, DTC brands seem to have a bright future, as they will leverage modern digital technology to provide further improvements to the customer experience. Specifically, they will use a combination of data, automation, and human touch to accompany the customer beyond the initial transaction. In this way, direct-to-consumer brands and the DTC model will continue to grow and will disrupt the traditional retailing industry. This is already visible in the significant number of new DTC entrants, including famous companies like Apple which is now selling watches direct to consumers and Tesla which sells cars directly to its customers. These companies are aggressively positioning themselves in the direct-to-consumer space based on investments in Direct to Consumer Marketing and omnichannel outreach to their customers.
Best Practices for DTC Evolution
Direct-to-consumer brands and e-commerce sites will continue to shine and disrupt the retail industry. This will be largely due to their ability to limit distribution costs and to personalize interactions and relationships with customers. In this context, existing and prospective DTC retailers must look at optimal ways for deploying and fully leveraging the DTC model. In this direction, they must take advantage of multiple channels to address a variety of customer segments. However, they must also evolve based on proven best practices that lead to DTC success. These best practices include:
- Deepening and improving customer relationships: DTC changes completely how products are bought and sold based on digital sales models that change the dynamics of consumer and business behavior. For these brands to continue to succeed they will need to focus on deepening customer relationships, rather than simply looking at how to outweigh competitors. Consumers are gradually adapting to the convenience that digital sales bring, yet they are still questioning brand quality and security online. The DTC evolution must scale up its benefits, while at the same time alleviating any concerns associated with it.
- From individual transactions to long terms relationship: DTC brands must strive to support the customer beyond the initial transaction. The future of DTC brands lies in their ability to stay connected with the customer well after their initial transaction, towards developing trusted long-lasting relationships. This is an area where a comprehensive offering will separate the most successful brands from those that may go out of business.
- Provide value added services as part of an omnichannel approach: DTC brands have created a boom in innovation, customer experience and speed. In fact, using pure e-commerce as a sales channel has been their secret sauce. However, in the future direct to consumer brands must understand that Omnichannel is not only about cost efficiency. Rather omnichannel approaches must offer value added services to the consumer. In this direction, D2C brands should take an integrated approach to their omnichannel strategy. This will help them differentiate their brand, build customer loyalty, and increase revenue. Contrary to some of the existing practices, Omnichannel is about brand experience rather than distribution paths.
- Start small think Big: Sooner or later D2C companies will seek to extend their reach. Nevertheless, the core of their value proposition has to remain strong, otherwise, they won’t be able to distinguish between a real extension and diversification. Successful D2C brands build a truly differentiated brand from the ground up, which forms their strong starting point. Leveraging this strong core, they seek ways to grow by creating new product lines that will make more than just a niche impact in the market
The impact of Technology
The future of DTC will be technology-driven. Specifically, recent technological advances will be used by DTC brands to improve their offerings and grow their revenues. Some of the most prominent examples of technology influence follow:
- Online and mobile-first DTC: It is widely accepted in the retail industry that DTC brands and channels will grow with more online and mobile presence. Based on such channels, clients will be seizing the opportunity to reach out to their consumers and get closer to their overall business operations. This will also allow for a better connection between producers and consumers.
- Adopting and integrating cutting-edge technologies for mass personalization: With the latest technological advancements in virtual and augmented reality, 3D printing, Artificial Intelligence (AI), and other technologies, DTC brands will be able to further capitalize on mass personalization. For instance, Generative AI technology will be used to automatically produce product configurations that best match the consumers’ preferences and needs. Likewise, augmented reality cyber-representations will provide consumers will ergonomic ways for testing and understanding the use of products prior to purchasing them online. In these ways, the trend away from the traditional brick and mortar retail channel will continue to increase as online channels grow faster than physical store sales.
Overall, DTC brands are growing in popularity, as consumers turn away from traditional brands. This shift has focused on the interaction between consumers and the brands they buy. However, there are still some reservations concerning the DTC business model that companies need to address before a successful rollout. With technological advances and consumer trust, DTC brands will become able to relax these reservations and to ensure that their model will continue to grow in popularity.
