Direct-to-Consumer - The Next Big Opportunity in Retail

Historically, consumer brands have focused on creating products and widening their range to service larger consumer needs. They have mainly relied on their distribution channels to take their products to consumers, and over a period of time these channels have evolved from traditional to modern retail formats. Brands’ marketing strategies have been to generate demand across these channels and to ensure that supplies are available to the customers they targetted.

It was in the early 20th century that some premium fashion brands started their own single-brand fashion stores, with the objective of delivering a special brand experience to their target customer base, and to create a platform to engage directly with these customers. This was when fashion and lifestyle brands made the first foray into direct marketing, a term coined by Lester Wunderman (known as ‘the father of direct marketing’) in the late 1950s. For decades, the Manhattan agency he ran with his brother and two colleagues sent personalized advertisements to pre-selected people for the products and services they were likely to buy. Through research and zip codes, the team reached out to people in their homes with promotional mailers, phone calls and newspaper inserts, and this grew the sales to their clients dramatically. When Wunderman died in 2019 at the age of 98, a memorial tribute in New York Times quoted a speech he made in 1967:

A computer can know and remember as much marketing detail about 200 million consumers as did the owner of a crossroads general store about his handful of customers. It can know and select such personal details as who prefers strong coffee, imported beans, new fashions and bright colors. Who just bought a home, freezer, camera, automobile. Who had a new baby, is overweight, got married, owns a pet, likes romantic novels, serious reading, listens to Bach or the Beatles.

These visionary observations led Wunderman to predict that direct marketing would evolve to a point where absorbing a sales pitch and making a purchase would be almost instantaneous — where, as he put it, “advertising and buying become a single action.”

In my last piece on the future of loyalty and rewards programs, I highlighted that though retail chains have been collecting all possible information about their customers for a long time, most have not leveraged technology much to personalize their marketing models. It was during the pandemic when consumers remained unseen as they could not visit stores to shop, brands and retail chains were struck by the importance and utility of purposeful engagement with their customer base. Many fashion and lifestyle retailers reached out to their customers by phone. At a time when non-essential retail was shut, this effort of reaching out to check on customer needs to be met with a positive response, and this is when the contemporary form of D2C started taking shape.

Brands retailing their merchandise through these retailers started feeling isolated and disconnected. But as online shopping for essentials started gaining traction, brands offering non-essential merchandise started exploring ways to catch consumers on the internet. The initial success led them to realize that here was a more profitable channel – not only did it provide the opportunity to market, but it also brought them in direct contact with their customers. Soon it was clear that the D2C model brings brands closer to customers and enables direct interaction, strengthening their relationship with them. The brand also gets an opportunity to get a better understanding of who is buying, why and when! ?By directly interacting with customers, the brands are able to develop their own sales, customer service and marketing skills. And this gives them better control over their pricing and discounts, which can lead to better margins and perception about the value of their product. Another huge benefit of the D2C model is that the brands get instant feedback from customers on products, packaging, marketing, and other aspects. ?????

This has been possible because the internet has removed middlemen from the distribution channel. It has not only enhanced the profitability of the brands but has also given them the opportunity for complete control over their brand communication, reputation, and messaging. Post pandemic trends show that an increasing number of consumers are buying directly from brands, and researchers believe that over the next five years, more than 55% of consumers will prefer to do so.

During the pandemic, onboarding of major QSRs, restaurants and other food suppliers on platforms like Swiggy and Zomato increased the popularity of online food delivery. Now that consumers have grown used to this channel of ordering, food retailers are setting out to create their own D2C channels. By doing this, they are restoring the margins previously sucked up by the aggregators and, even better, they are coming in direct contact with their customers and can understand their needs and buying patterns better.

The huge opportunity created by D2C across all sectors has seen a surge of new brands entering the market. Instead of looking for a retail partner, emerging brands are now looking for specialized digital marketing possibilities to connect them to their customers. As more brands jump in the fray, digital marketing is evolving with new innovations to get the best out of marketing budgets.

As go-to-market models for D2C brands continue to evolve, brands must increase their sensitivity to the key challenges of product lifecycle and supply chain. Brands have got to make the best use of the opportunity of direct customer engagement, to ensure that their products are in line with their consumer’s growing needs and expectations. Though the supply chain is a very wide subject to address, the key to success and profitability will remain with delivering a last-mile customer experience. As brand reach grows across geographies, direct deliveries from central distribution models may not stay competitive to fulfil customer expectations.

Since the sector is at a very nascent stage of growth and maturity, some of these challenges will have to be addressed at each stage through technology and innovation.

(published in The Business Guardian edition dated 26th Sept 2022)