The direct-to-consumer (DTC) model is a staple for many of today’s successful eCommerce brands. But the DTC model isn’t something new; companies like L.L. Bean, Dell, and Eddie Bauer have been doing it for decades.
So why are there so many emerging eCommerce powerhouses relying on it now? Because, when the DTC model is running correctly, it has benefits for everyone: Consumers, brands, suppliers alike. Plus, it’s a model that’s become a lot more feasible for small companies and startups thanks to the efficiencies and cost savings created by advances in a number of different technologies.
The modern version of DTC eCommerce creates a flywheel that drives company growth. The cost savings of cutting out retail middlemen means companies are able to invest in ethical domestic manufacturing and higher-quality products without having to charge significant premiums to customers. Because of today’s low-cost and highly targeted digital advertising channels, companies can efficiently put those products in front of consumers and iterate quickly and cheaply on marketing strategies. Audiences respond to companies that match their values and makes products that fill a direct need in their lives, so they’re happy to become customers and become brand advocates. That, in turn, feeds more revenue back to the company, which allows it to streamline its processes and create even higher-quality products at competitive prices.
In this article, we’ll examine some of the key ways that modern advances in technology have created the opportunity for the rise in eCommerce DTC brands—and how some of the top brands have seized that opportunity.
Finding efficiencies for manufacturing and marketing
Today, companies can gather information on their customers, gain access to high-quality manufacturing channels, and ship products worldwide for a fraction what all of those things used to cost. This makes the DTC model both more powerful and easier to launch and grow.
A manufacturer that’s not using the DTC model would typically mark up their wholesale price by two to three times when selling to distributors. The distributors would then turn around and mark up their price by an additional two to three times when passing the product on to retailers. This DTC model bypasses these retail markups entirely, which allows DTC brands to compete on price with traditional retail brands—even while creating higher-quality products, and often using more expensive domestic manufacturing.
And that’s just on the manufacturing and distributing side of things. It’s much easier for modern eCommerce brands to get up and running on the marketing and advertising side as well.
Take a company like Casper, which sells mattresses direct-to-consumer. Casper cut out what was once the prohibitive cost of getting into the mattress space: Either setting up a nationwide network of retail stores, or getting other giant retail stores to carry your brand. Instead, they used eCommerce in place of retail showrooms, and used relatively low-cost content, social media, and search marketing to deliver highly targeted messaging directly to potential buyers.
This was possible only because they had access to technology that significantly streamlined the DTC model:
- Targeted customer data. Say what you will about Google and Facebook’s data collection, but from a marketing standpoint, they’ve allowed modern brands to pinpoint people in the demographics they want to target with their advertising.
- Social media and online advertising. Companies now have a much simpler, lower cost way to communicate what they do and how they stand out. It’s also simpler than ever to build a community around a brand and interact with customers.
- Easy website and content creation. DTC eCommerce brands rely on a high-quality website that shows off not only their products, but also their brand philosophy, differentiators, points of pride, and customer-friendly policies. The cost of selling online has dropped precipitously in recent years because of off-the-shelf eCommerce platforms like Shopify or WooCommerce. (Casper’s CTO describes their first eCommerce website as “rinky-dink,” but that’s the point: brands can launch quickly and cheaply thanks to advances in technology.)
All of those advantages differ from what DTC brands of the past had to do. They needed to send out massive numbers of catalogs, at a great expense, to a giant swath of people, hoping to find the right ones who happened to need their product. They also had to rely on other more expensive, less efficient means of marketing and sales, from infomercials to fully-staffed call centers.
Brands today can quickly find customers who need a product, serve those customers ads that showcase a product’s value, and drive them back to the website to complete the conversion. After a purchase has been made, cheaper and more efficient manufacturing and shipping gets the product to the customer faster. End to end, this is an amazing experience.
Invest in ethical manufacturing to boost credibility in your brand
Lower acquisition, operations, and manufacturing costs through the eCommerce model give DTC brands better margins, and with more room on their prices, they can invest in ethical and quality manufacturing. That’s not just good from a business values standpoint or a product quality standpoint—it’s also a practice that really resonates with potential customers. Taking a more socially conscious approach also allows brands to gain credibility with the customer. With 73% of millennial customers willing to pay more for sustainable and ethical business practices, companies can easily build a trusting audience based on shared values.
Check out this Moral Fiber statement from the DTC jeans and clothing brand DSTLD:
The site describes how the brand “carefully screen[s] our suppliers, laundries, and factories to ensure our products are fairly manufactured and 100% sweatshop-free.” DSTLD uses “natural dyes and softening techniques,” many of which they claim are “eco-friendly and fully sustainable.”
DSTLD’s attention to ethical and eco-friendly manufacturing would generally justify a higher price tag, but their jeans are competing in the $75-to-$100 price range—certainly not fast-fashion cheap, but cheaper than or on par with their well-known, premium competitors. For customers, they’re presented a choice between brands at the same price point and similar quality levels, but one is also purporting to be socially conscious in its manufacturing. That’s a no-brainer for many consumers.
And it’s working. DSTLD has become a thriving brand in a very crowded, competitive space.
Make quality connections with your customer
While the DTC model creates a lot of opportunities for eCommerce brands, that also means it can be harder to compete in today’s market. Because it is so much easier to launch consumer goods brands using the eCommerce DTC model, it means the markets for many product categories have gotten crowded. DTC brands also need a way to connect with customers directly to stand out and be successful.
By cutting out the retail middleman, these brands can decide exactly how they want to build their customer bases. Many focus on developing stronger relationships, communicating with them directly through email and social media, or connecting on an emotional level through shared values.
This would be much more difficult without ubiquitous access to customer data that would normally be inaccessible through traditional retail channels.
All that extra data helps DTC brands target their marketing and reduce their sales costs even further. By making it easy to purchase their products and delivering a more personalized customer experience, they turn customers into loyal brand advocates. It’s why more traditional retail brands, even well-established legacy brands, are gravitating toward more direct to consumer sales. (Nike, for instance, predicts its DTC sales will grow to more than $16 billion dollars by 2020.)
By combining modern eCommerce tactics with the efficiencies of the DTC model, consumers get a high-quality product at the right price, and often from a company that’s proudly ethical.
► Use the right technology
Advances in technology cut costs in a multitude of ways, so eCommerce brands can get up and running and grow with the DTC model faster and more cheaply. When you’re building your company, consider how technology can play into your larger business strategy and make your processes more efficient.
► Be transparent
When you’re proud of your manufacturing and production processes, transparency can be a marketing strategy. Show customers that you care about your company’s impact on the world and local economies. It will help to foster strong emotional connections with the customer.
► Find customers that share your values
Customers are more willing to buy from you when they share a similar value or ideal. Ad-targeting technology and social media make it easy to search out groups of people who are concerned about the same things. When you give these customers a reason to believe in your company, they’re more likely to advocate it to their peers.
► Invest in quality
DTC brands are rarely the lowest priced options in their category. Many of the high-profile eCommerce DTC brands are in the mid-to-high price range. The DTC model allows for a focus on quality that was difficult in the past while still maintaining a solid profit margin. When customers understand the quality of your product, they’ll be willing to pay for it.