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The scale of direct-to-consumer brands is limited. DTC business model offers many different challenges and opportunities. Know here
The direct-to-consumer (DTC) business model became increasingly popular over a decade ago when digital native brands disrupted the traditional retail model.
Forward-thinking companies busted the myth that you can’t sell everything online. Instead, building the experience around customers’ wants and needs raised customer expectations for online shopping.
DTC brands were at the forefront of the digital transformation in retail. As soon as customers witnessed what the buyer journey could look like, there was no going back. As a result, traditional retailers were forced to change their approach to meet the new standard for online customer experience.
Fast forward to today, DTC brands are not the same. The ever-changing customer behavior was the catalyst that led to an evolved DTC business model—from digital-only to omnichannel.
1. What is DTC?
Direct-to-consumer refers to brands selling directly to their end customers without third-party retailers, wholesalers, or other middlemen. The rise of this business model helped tech-savvy brands position themselves as leaders in their product categories.
But is DTC the same thing as digitally native vertical brands (DNVB)?
DNVBs refer to online businesses that control the entire customer experience from start to finish. DTC is the distribution method of how the company sells products—directly to the consumer and bypassing retailers and wholesalers.
All DNVBs are DTC brands because they sell directly to consumers, but not all DTC brands are DNVBs because many DTC brands today open physical stores.
2. DTC brands in the post-pandemic world
When COVID-19 hit, and the world was under lockdown, traditional retailers were in a mad dash to figure out online selling.
Retail completely transformed in a matter of weeks. As a result, the total online retail sales have been steadily rising—with e-commerce penetration hitting 21.3% in 2020. For comparison, this number was 15.8% in 2019 and 14.3% in 2018.
COVID-19 has massively accelerated the shift to digital due to the inability to shop in physical stores. As reported by eMarketer, ecommerce sales are expected to reach $6.5 trillion by 2023.
While traditional retailers were grappling with how they can create a pleasant online shopping experience to compensate for the store closures, DTC businesses were well-positioned to capitalize on the online shift. In fact, 52% of DTCs experienced surges in demand.
It’s hard to predict what the world will look like post-COVID. But, one thing is for sure: With a digital-first mindset and innovative approach towards brick and mortar retail, DTC brands have everything it takes to succeed in the years to come.
3. 7 Benefits of the DTC model
What makes the DTC model unique are its core benefits for brands, consumers, and society. Let’s take a closer look at each.
A. Total brand control
Unlike traditional retailers that are highly dependable on manufacturers, DTC brands own the whole process from start to finish. As a result, they have total brand control. It’s hard to guarantee the product's quality when you’re not part of the manufacturing process.
This also means that DTC brands can position themselves as more “human,” which can be harder for deep-pocketed retailers with complex hierarchies.
The ultimate reason why people connect more closely with DTC brands is the humanized interactions and customer-centered experience.
B. Higher profit margin by removing the middleman
The supply chain havoc due to COVID-19 made everyone rethink their business model. Removing the middleman from the equation not only gives DTC brands a higher profit margin, but it also makes them self-reliant for every step of the way—from production to sale.
Distribution has become a commodity, and brands no longer need retailers or marketplaces to reach their customers. This paves the way to a higher profit margin, which makes this model especially attractive for businesses.
C. A direct relationship with customers
Today’s customers are educated and well-informed. They’re buying experiences rather than just simply products.
According to Salesforce, 73% of consumers expect to be able to buy directly from a brand and a retailer. What’s more, 53% of Millennials and Gen Zs expect to buy more products directly from brands in the future.
It’s no secret that direct-to-consumer is especially popular among digital natives. DTC brands are all about storytelling, experiences, personalization, and sustainability, ticking all the boxes for customers when choosing businesses to buy from.
D. Complete price control
One of the most obvious benefits of the DTC model is total price control. Selling through a retailer network makes it hard to get the final word in determining the price. On the other hand, DTC businesses have complete autonomy in choosing a price, offering discounts, or organizing promotional campaigns.
Price control enables DTC businesses to be transparent with their customers about the value and production costs. For example, one of the most popular clothing DTC brands, Everlane, believes in radical transparency and reveals the costs behind every aspect of their production process.
E. Access to data
Data is at the heart of every successful business. However, with middlemen, it’s hard to gather consumer behavior data. Being in charge of every step of the process gives DTC brands a significant advantage in collecting behavioral data, which they can use to improve the customer experience.
Today the only way to create an engaging buyer’s journey is to test, measure, and optimize. Without access to data, customers' behavior is a black box, and businesses are doomed to fail.
F. A faster innovation cycle
We’re conditioned to think that DTC businesses have to be innovative. And it’s true. Innovations are inherent to DTC companies, as has been proven time and time again.
Owning the complete process gives them a competitive edge and makes it easier to test different approaches and introduce innovations.
G. Room for environmentally friendly and human brands to thrive
Sustainability is another distinctive attribute for DTC brands. Ever since they entered the scene, digitally native brands have been a benchmark for environmentally-conscious practices.
Why do they do it? It matters to the customer. According to Shopify, purpose-driven consumers—approximately 40% of all consumers—want products and brands that align with their beliefs and are willing to pay a premium.
Businesses have finally realized that they have to give back to society. And getting involved in environmental issues requires more than tokenism. Customers can make an infallible judgment and recognize genuine action from opportunism.
4. 7 Successful DTC brands and their secret sauce
One of the most common questions for DTC businesses is: What’s your secret? Here’s a peek inside some of the world’s most successful DTC brands and how they grew to be so successful.
A. Skims - Products for every body
The underwear, loungewear, and shapewear DTC brand, owned by Kim Kardashian, has capitalized on the increased demand for products that enhance beauty. Relying on the body-positivity narrative, Skims offers products ranging from XXS to 5XL in nine nude colors.
Founded in 2019, this DTC brand today has 2.8 million followers on Instagram, and it’s one of the fastest-growing businesses in the space.
Even though the brand’s exponential growth is— without a doubt—related to the popularity of the Kardashian family, having size and color inclusive products played a significant role in the success of Skims.
B. Gymshark - The power of influencer marketing
In less than ten years, Gymshark has managed to become one of the most influential fitness brands. Back in 2012, when Gymshark was founded, the activewear market was already saturated.
While it seemed that global giants such as Nike and Adidas were well positioned, and it’s almost impossible to succeed in the niche, the founder of Gymshark, Ben Francis, proved everyone wrong.
The secret? There was a gap in the sportswear market—a lack of affordable activewear for young gym-goers. So this was a perfect opportunity for Gymshark. But that’s only the tip of the iceberg. Gymshark made the most out of the health and fitness growing trend by leveraging influencer marketing when no one else was doing it.
Turning Instagram and YouTube influencers into brand ambassadors, also known as “Gymshark athletes,” was the one thing that set this DTC brand apart from other activewear brands. Their focus on authentic content and collaboration with influencers from across the globe made them a $1.3 billion brand.
C. Morphe - Encouraging user-generated content with in-store YouTube studios
While many DTC brands started as digital-only, soon they’ve tested waters with brick-and-mortar stores. The same is true for Morphe, a beauty brand founded in 2008. However, even though they opened stores, their retail approach is slightly different.
Visiting a Morphe store is more of an experience than a regular showrooming. From hands-on makeup demonstrations and masterclasses to in-store YouTube studios where visitors have the necessary equipment to film videos.
With this approach, Morphe not only encourages foot traffic but also drives brand awareness through user-generated content.
D. FIGS - Revolutionizing a niche industry
Entering a niche industry can be a double-edged sword—especially in an industry where things haven't changed for ages. However, with the right approach and mindset, FIGS was able to shake things up. This brand completely revolutionized the healthcare apparel industry.
FIGS promises to deliver technically advanced apparel and products that feature an unmatched combination of comfort, durability, function, and style.
Besides the high-quality and maximum durability materials that withstand the demands of a healthcare professional’s work, FIGS made another smart move that strengthened its position. Their partnership with New Balance resulted in the launch of a capsule collection of functional and fashionable footwear for the healthcare community.
E. FabFitFun — Creating a base of loyal customers with subscriptions
Subscription businesses are on the rise. According to the Subscription Trade Association (SUBTA) report, 75% of organizations selling DTC will offer subscription services by 2023.
FabFitFun is a quarterly subscription box business that offers fashion, wellness, and beauty products. With over 1 million members, FabFitFun relies on customers’ feedback to create boxes that offer the highest value. They even allow customers to hand-pick some of the items that will come in their box.
Besides the subscription boxes, they launched FabFitFunTV, an on-demand video service that gives members access to exclusive fitness content from well-known studios and celebrity instructors.
Even though the subscription model is one of the oldest models—tracing back to the newspaper industry—DTC businesses find innovative ways to earn customers’ trust and build a significant base of subscribers.
F. Allbirds - Focusing on simplicity and reliability
The sustainable footwear DTC brand, Allbirds started with a simple $95 wool sneaker. But, unlike its rivals that offered thousands of colors, shapes, and materials, Allbirds co-founders Tim Brown and Joey Zwillinger focused on high-quality materials and simplicity in design. The result?
Allbirds offers an entirely new category of shoes inspired by natural materials. In less than three years, the shoe brand hit a “unicorn” status with a $1 billion valuation.
And just like other successful DTC brands that changed the digital-only playbook by opening brick-and-mortar stores, Allbirds plans to boost the number of physical stores by 50% this year.
Some of the key differences that give Allbirds a competitive edge are offering only about half a dozen varieties of its shoes, focusing on comfort and simplicity, having a firm belief in a no-discount strategy, and placing sustainability at the core of the business.
G. Outer - Earth-friendly, creative, and innovative outdoor furniture
After years of traditional, rigid retail approach, DTC brands have completely disrupted the furniture industry. The innovative players in the space have redefined furniture shopping by introducing an engaging online customer experience.
One of them is Outer, a direct-to-consumer brand selling high-quality, sustainable outdoor furniture at affordable prices. The Outer Sofa is made from 30% recycled materials and is 100% recyclable.
During the COVID-19 lockdowns, the demand for outdoor furniture skyrocketed. People were investing in creating personal oases in their backyards. Outer’s digital-first mindset prepared them for the surge in demand, and they witnessed a 1,000% increase in sales over 2020.
5. The Ultimate tech stack for DTC brands
After seeing how popular DTC brands made their mark, it’s time to take a look at some of the staples for your DTC toolbox. Even though there are plenty of solutions on the market, we’ll take a look at the ones that can be a game-changer for your business.
A. Set up an ecommerce store
The first step is setting up your ecommerce store. While there are many ecommerce platforms, Shopify has everything you need to start, sell, market, and manage your business. It also allows users to use different plugins and customize the site.
The next step is finding an online payment processing platform for internet businesses. Stripe, one of the most renowned players in the space, lets you transfer money from a customer’s bank account into your business’s account by a credit or debit card transaction.
B. Set up an ecommerce store
When was the last time you bought a big-ticket item without reading product reviews? Hard to remember, right? Customers trust other customers more than paid advertising.
Investing in a customer review and rating platform like Yotpo can help you earn customers’ trust and boost sales, and tools like Reeview can help you find and leverage quality video reviews that customers are already making and sharing on their own.
C. Provide top-notch customer support
Having exceptional customer service is one of the key differentiators for DTC brands. Using a multichannel helpdesk like Gorgias allows merchants to manage all their support from one place and get a holistic view of their customers.
D. Take care of last-mile delivery
Being diligent with inventory and order management is a prerequisite for success. One of the tools that can help you stay on top of the game is Skubana—a distributed order management platform powering fulfillment, inventory, and business intelligence for brands looking to achieve multi-channel profitability.
Last-mile delivery is the new battlefield for DTC brands. To help you with logistics, ShipBob provides best-in-class fulfillment so your customers get the fast and affordable shipping they expect.
E. Offer different payment models
The rise of the subscription economy forced DTC brands to take into consideration this payment model. Recurly is one of the platforms that can help DTC brands with subscription management and billing to drive growth.
When it comes to payments, customers always appreciate flexibility. Buy now, pay later is an increasingly popular payment method. Platforms like Affirm provide your customers with the flexibility to buy instantly and pay over time.
F. Analyze data to make informed decisions
DTC brands need to understand data to make informed decisions. However, tracking all the data from different sources can be daunting. With platforms like Polar Analytics, you can integrate all your marketing data, analyze it from a custom dashboard and detect insights and anomalies in real-time.
The DTC business model offers many different challenges and opportunities, and it can be a silver bullet for innovative, customer-centric, and data-driven brands.
The new decade will require an analytical approach and the ability to turn numbers into insights. While many businesses will fail to pivot and meet customer expectations, the recipe to succeed with a DTC model is readily available.
Buckle up and fuel your growth with actionable insights for your DTC brand.
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