These upstarts have fundamentally changed how consumer goods and services are developed, marketed and sold, and the rest of the industry is playing catch up. Savvy consumer goods companies are using the emergence of the new DTC channels to bring new products to market, add value to consumers, elevate their brand, and grow revenue.
For example, Adidas expects its DTC channel to make up 50 per cent of net sales by 2025 as part of its “own the game” strategy. The four-year plan includes paring down wholesale partners to focus on strategic partnerships and doubling its e-commerce business to between €8 billion and €9 billion. (AU$12.3 billion and AU$13.8billion )
Pepsi, Heinz and Unilever have all launched DTC propositions, allowing customers to have snacks, sauce and ice cream delivered straight to their doors.
A change in consumer behaviour has powered the growing adoption of DTC. Shoppers are now more interested in buying directly from brands than multi-brand retailers. Online challengers have earned consumers’ trust by delivering a seamless customer experience and telling an authentic brand story.
Many successful DTC brands were born out of a clear purpose and brand promise, led by entrepreneurial founders who had a problem themselves and set out to solve it. As a result, consumer obsession and experimentation are an intrinsic part of digitally native brands.
Having a clear purpose, showcasing and advocating for issues such as ethical sourcing and sustainability drives brand loyalty and advocacy.
Through those one-to-one relationships, DTC brands have the unique ability to capture valuable data about their customers that is often difficult to collect through traditional retail. The direct dialogue with loyal customers provides invaluable insights into product development and more relevant marketing campaigns. This engagement acts as a feedback loop, permitting brands to surprise and delight customers.
The lines are now blurred as retailers are developing brands and brands are cutting out the intermediary, leaving consumers with an abundance of choice. The endless marketplace of competitors means the bar for delivering an incredible customer experience continues to get higher and higher.
To compete, brands are taking more control over the end-to-end experience of selling products. Under the DTC model, brand experience is more consistent across channels and provides the brand with more control in delivering that experience.
Nike, for example, is moving away from department stores and wholesale accounts to focus on its stores and digital experiences. Its big bets paid off during the pandemic, as DTC makes up a third of the company’s revenue.
Similarly, Swarovski is focused on creating a more upscale customer experience through its products and store experiences. As part of its strategy, the jewellery brand ended its relationship with select multi-brand retailers worldwide, including 68 partnerships in Australia. The move demonstrates Swarovski is exerting more control over the product and environment where it appears.
Making the transition
For brands, a DTC model is more profitable and provides the opportunity to reduce the cost of operations across the channels and increase customer engagement. However, as brands transition to the new model, they will likely face a short-term increase in cost as they embed new capabilities.
From an operations perspective, more of a retailer’s sales will require shipping individual parcels to consumers instead of large bulks of products to wholesale partners. This requires a change in back-end operations and the ability to handle a higher volume of returns.
Like the ones pioneered by Nike and Adidas, a successful model could involve a combination of direct e-commerce sales, owned stores, and a limited number of strategic wholesale partnerships. But brands need to strike a balance between traditional and new channels while maintaining consumers’ attention.
There needs to be a clear purpose and value statement for consumers at the heart of any DTC play. Having a direct relationship with your customers will be crucial for retailers to survive in the future as customer expectations continue to rise, and more competitors emerge.