The rise (and rise!) of DTC - Direct-to-Consumer Brands – how they are winning and how to apply their lessons.

Although still not talked about a lot, DTC (direct-to-consumer) brands have become VERY big news over the last few years.

A report by eMarketer earlier this year found that web traffic to DTC sites has doubled in the last two years. The Silicon Valley Bank claimed in its 2019 wine industry (hmm, must subscribe..) report that DTC sales make up 61% of the revenue of the average family Californian winery, and no less than Nike predicts that its DTC sales will grow by 250% in the next five years.

Global DTC Brands

A couple of years ago, this post would most likely have been titled something like ‘5 DTC brands you’ve not heard of, but will soon’. However, since then, the likes of Dollar Shave Club, Warby Parker, Casper, Bonobos, and Glossier have exploded into the market. In 2017 I conducted a learning session for my team using the Dollar Shave Club’s million-view video as an example of incredible viral content and ‘authentic’ connection through its CEO-presented tone. By the end of 2018 OneDollarShave (alongside WarbyParker and Casper) had become 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).

UK DTC Scene

In the UK, global brands such as Glossier, Harry’s and Casper are perhaps lesser known than British brands like Birchbox, Made.com and Abel & Cole, according to a survey conducted among 2,000 UK consumers. Four of the top five direct-to-consumer (DTC) businesses are native to the British Isles – and manage to drive viewers to buy around a quarter of the time, mostly through social media platforms.

However, with an increasing number of traditional retailers, such as Staples, Toys R Us, Poundworld and Maplin, announcing closures over the past few years, and others suffering, how are these DTC Brands making a success of their business while other retailers are not?

How are DTC brands winning?

DTC brands can be seen as getting ahead in a competitive market due to their excellence and ownership in a number of key areas. Brands like 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. These DTC brands are incredibly varied; from products like clothing, to cars, to information-based products, to service providers.

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. They are winning through:

Owning their entire value chain

The emergent DTC model challenges many of our assumptions on what traditional retail is, and needs to be in the future. DTC brands can typically be defined as‘owning’ their entire value chain: they invest in research, design, and development, through to manufacturing the final products. 

DTC brands also often 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 directly to their buyer - and, crucially, to 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”. Dealing directly with the end consumer allows them to claw back margin where traditional retailers are losing to distributors, shipping, promotions, and payments.

2. They offer a 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’ instantly and at the first time of trying, DTC brands often execute really, really well - and this is exactly how they are producing their competitive advantage. DTC brands own and influence the end-to-end journey to ensure it fulfils the expectation of the consumer; and by selling directly to the consumer, their entire journey, from discovery to interest, purchase, and brand loyalty, is all delivered harmoniously as part of the brand vision, aesthetics, and execution. It is curated and consistent. It just ‘works’.

3. Their customers become brand ambassadors

DTC brands are also succeeding in connecting to highly sought-after customers: customers who are extremely digitally literate, and also more than happy to become brand ambassadors for them (while paying for the privilege!). DTC brands can therefore be seen as succeeding 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. 

4. They utilise customer data

Despite all of the GDPR hysteria (can we look back and laugh a little yet? No, I guess not..!), owning and utilising detailed customer data, especially when the primary channel is digital. This creates massive opportunities for DTC brands to measure everything - testing, and iterating. Influencing consumers online is paramount to this process – in terms of building interest, inspiring word of mouth and peer referral, and capturing feedback that gives invaluable insight on how to create better products.

Consumer demand for DTC brands

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

As discussed, the growth of these brands could be seen as being the result of an ongoing drive towards convenience, but also due to 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 a hyper-crowded marketplace. They ensure that their marketing is highly targeted using data and viral marketing techniques to build hype and encourage customers to share positive word of mouth.

So what brands are the next ones to pop? This article gives you a great Top 10 to check out. For me, I suggest keeping your eye out for the following companies: Hims, Buffy, Dirty Lemon, Flamingo, The Inside, Peloton and Otty.

While the top DTC brands are now far from small companies, 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 start-ups. I’d encourage you not to think like an established brand. Try instead to see your business as a hungry challenger company – how would you architect your business model if you were a DTC brand?

• Can you say you are truly 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 engage with your customers and offer quality, value, and the best possible experience, and you will see the results. Good luck!