Navigating the new ‘face’ of retail
The changing role of direct-to-consumer digital commerce
Just over two years ago, the way we shop changed forever.
Though not all borne from choice, the pandemic created a boom in online and social selling, increased customer comfort with new technologies, and led to new, higher customer expectations.
For brands, that same boom in digital commerce created new opportunities to reach their customers directly. Often created at breakneck speed, these direct-to-consumer (DTC) initiatives from both legacy and challenger brands helped combat supply chain shortages and delivery slot challenges, as well as supported customers reluctant or unable to go in-store.
Shifting retail models
The term DTC has become complex over time. At its heart, DTC is the sale of products or services directly to the end customer. A DTC model bypasses wholesalers and third-party retailers – whether that’s a brick and mortar third party retailer (brand own stores still exist!) or an online marketplace. However, it has also been loosely applied to start-ups that grew their business through an online-only model.
Many household brands have announced a shift towards DTC led digital commerce models in recent years. Nike has stated that 70 percent of its sales will be direct by 2027; adidas has predicted half by 2025. And it’s not just smaller-ticket items – every major car manufacturer has created a sales platform to sell vehicles directly. Volvo Cars has even announced its intention to be an online only electric car retailer by 2030.
Harnessing the DTC opportunity
It’s not hard to see why this shift is taking place.
Many brands who have committed to online DTC strategies have seen real direct benefits. Sonos - facing over 90 percent loss in sales at the start of the pandemic - revamped its website in March 2020 and focused on value-add services such as radio content and free Disney+ subscriptions. Its DTC sales grew by 67 percent in less than one year.
Similarly, P&G saw its market share in e-commerce equal that of its bricks-and-mortar outlets in 2021 following a considered strategy of acquisitions, and developing new brands through its innovation incubator programme.
In a world where customer loyalty to a brand or product is no longer a given, DTC provides a unique opportunity to establish direct connections with customers, increasing the potential for engagement and conversion. Through these direct connections, brands can also benefit from using consumer data to drive business decisions such as new product development pipeline, personalising websites or digital marketing experiences. The value of building and owning first party data provides considerable long-term opportunities for brands.
Plus, having a direct channel provides brands with full control of the customer experience – whether that’s product pages, packaging, delivery or customer support. With its benefits clearly understood, it’s not surprising that DTC is increasingly becoming central to brands’ commerce strategies, and both household and challenger names are shifting to this business model.
Operating DTC is complex
However, bringing digital commerce to customers, from their screens all the way to their doorsteps isn’t as simple as it sounds.
After all, DTC fundamentally changes a business’ operating model. DTC requires knowledge in omnichannel strategy, an understanding of demand forecasting, and an in-depth knowledge of bespoke supply chains and delivery processes, as well as handling payments, managing returns and dealing with customer enquiries. It also means marketing teams must move from campaigns that are solely designed to increase brand awareness to those that also have a direct impact on sales performance.
These considerations are further complicated when brands want to operate multi-market DTC strategies. Consumer attitudes, privacy data laws, supply chain logistics: what works well in one market may easily flop in another.
And with all these requirements comes a host of execution considerations for business leaders including speed to market, cost, technology stack, data privacy, not to mention the attraction and development of ecommerce talent.
The reality is that most brands don’t have this knowledge or capability in-house. This has therefore historically meant outsourcing to multiple partners, bringing additional cost and risk to the brand.
It has also often meant such brand offerings fail to deliver on the very thing that encourages people to buy direct in the first place – a unique, personalised service at every touchpoint. (In the last Wunderman Thompson Commerce Future Shopper Report, DTC channels received an average rating of just six percent when it came to customer experience.)
In short, putting a strategy in place is one thing, but activating that strategy is quite another. The challenge of getting DTC ‘right’ shouldn’t be underestimated.
The future of DTC
Two years on, and with bricks-and-mortar outlets developing in-store digital shopping experiences, the retail landscape is shifting once again.
Today’s shopper demands maximum flexibility in how they discover and purchase new items and services. The future success of brands therefore depends upon their ability to create that cohesive, personalised customer experience both on and offline. And to do this successfully and effectively, brands need access to invaluable customer data.
The demand for DTC digital commerce as part of an overarching omnichannel strategy doesn’t show any signs of diminishing – Global Web Index highlighted that in February 2022, 64 percent of UK adults visited a brand’s website. Yet as the world begins to pivot away from pandemic behaviours, operating DTC in a way that builds growth, market share and profitability has become increasingly complex. Specifically, it requires experience in forecasting often volatile consumer demand and responding to this demand with experiences that make a difference – expertise that arguably many brands that saw demand explode during lockdown have failed to fully appreciate.
In addition, as customer acquisition costs continue to increase, brands need to find opportunities for efficiency in order to continue to thrive in an increasingly competitive DTC environment. Consistency of execution of the brand promise becomes key as does delivering an unerringly high standard of operation execution. Brands also need to consider how to consolidate the number of third parties involved, perhaps partnering with a single external provider that has all the capabilities ready to go. A partner that is able to deliver both creative and operational brilliance for their brand across every step of the DTC experience, helping get their product to market quickly and exceeding their customers’ expectations.
One thing is for sure, whatever DTC choices brands make will have a significant impact on their success. The competition is fierce and there are many more brands waiting in the wings to steal their market share.
12 April 2022
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