We’re currently in the third quarter of 2021, and there are excellent reasons for the ongoing surge we’re seeing in the growth of DTC (direct-to-consumer) e-commerce.
Not surprising, as it presents brands with opportunities for greater drop frequency, regularized revenues, and enriched customer journeys.
After all, what brand or retailer would turn away from a chance to sell product at a continuous pace, maintain brand control, have a regular and growing revenue stream, and build closer ties with loyal brand shoppers?
A Word About DTC: Is IT REALLY All About Customer Experience?
DTC, in an e-commerce world struggling to find its way in the new but artificial “post-pandemic” reality, has had little choice but to become all about customer experience as means to change the “flavor” of consumers’ retail journey.
DTC enables brands to establish bonds with their customers with a level of directness – even intimacy – that’s much harder to cultivate through third parties.
There are opportunities to involve shoppers directly in a brand’s ongoing story as part of the customer journey, and to employ personalization tactics that would otherwise be unavailable.
Why is it important for brands considering taking a whole or partial plunge into DTC sales to be aware of these benefits?
Simple: success in direct relationship-building with their customers allows them to take increasing advantage of the practical advantages of DTC sales:
- reduced dependence on distributors or retailers in achieving targets and realizing growth;
- opportunities for product development and content strategy that aren’t contingent on the performance of third parties;
- the ability to gather rich first-party data for dramatically better analytics and strategy development (and coincidentally, a measure of freedom from the current debate over suitable replacements for third-party cookies as data-gathering tools);
- access to new tools and strategies for inventory management, fulfillment, and logistics, all of which are evolving under continuous pressure from market factors; and
- better control over their brands, better growth management, and (critically) the ability to reduce costs and improve margins without damaging their prospects for better consumer relationships.
But it’s not just a technological phenomenon, or something brands should do because others are doing it and the means to make it work now exists. It’s becoming more about the human rationale underlying strategic business decisions.
In a March 31, 2021 post on the Common Thread Collective blog, Aaron Orendorff suggests that the move to “direct” is less about technological innovation and immersive digital experience for its own sake, and more about changing one’s business rationale, ethical position, and personal relationship with consumers.
He sees “direct” as being about ensuring that the emotional and intellectual characteristics of positive personal relationships permeate marketing strategy, brand story, and customer journey. From his perspective, it’s not just about the application of technology for relationship enhancement to streamline sales and boost revenue.
We agree...and there are competitive advantages to be had from adopting this attitude. We think you’ll see many DTC brands’ relationships with their customers move in this direction, even if their marketing and content strategies are initially tech-focused.
Leaders: Something About Zara
You can’t really talk about DTC marketing and sales without considering the success of Zara.
In developing a vast, vertically integrated retail fashion empire, Zara has found ways to maintain a continuous selling cycle involving “fast fashion” and consumer-responsive design, frequent products drops, and an ability to keep up with (or even create) rapidly changing fashion trends.
The company’s hybridized vertical control over manufacturing, sales, and logistics has proven incredibly effective, even in changing and unanticipated circumstances.
Zara’s market strategy has focused less on conventional wisdom than on ways to serve its unique vision for product development, distribution, logistics, and customer accessibility both online and by way of its thousands of brick-and-mortar stores.
It would be fair to say that Zara’s approach is the gold standard at which medium and large brands continue to aim in their own moves into DTC.
But, to be clear, that does not mean smaller brands can’t take steps to emulate Zara’s DTC success. Even smaller brands can opt to be absolutely committed to every part of the customer experience, and with careful expansion planning, they can avoid the supposed scalability limitations sometimes said to limit digitally native vertical brands.
They can reallocate their marketing budgets to emphasize unique aspects of location and service, and away from conventional advertising. They can take advantage of the increased first-party data access that DTC provides to understand and solidify relationships with their customers based on deeper analytics and evolving trends.
The same is true for older brands, as witness the story of Stanfield’s remaking of itself in order to move into e-commerce DTC. Not bad at all for a company founded in 1856.
In particular, brands choosing to move to DTC have some unique opportunities to grow revenue and promote great customer relations by increasing product drop frequency and manipulating their cyclic timelines.
Drops, Order Frequency, Revenues, and Happy Shoppers
DTC offers recognized benefits for those who embrace it. Google’s own research, as reported to NetElixir and noted just a few months ago, reveals that more than half of consumers are willing to expend extra effort to buy directly from the brands they like. Over 60% claim specific brand loyalty – an obvious advantage to established brands that elect to move into DTC.
The research also suggests that almost near 70% of online buyers think brands provide better quality than they can expect from third-party retailers, and more than 60% believe the brands themselves provide better personalization and authenticity in the customer experience.
DTC Brand Health: “Don’t Forget to Take Your Drops”
From our perspective, one of the biggest benefits your brand gets from successful DTC implementation relates to frequency of product drops. The research reported by NetElixir suggests that a growing number of willing consumers are ready to become more frequent purchasers if DTC retailers enable them by offering more of what they love, more often.
The greater vertical integration DTC requires means that brands, as they make their move, gain greater control over timelines and processes for research and design, production, and distribution. As a result, it also means that they no longer need to wait for design, manufacturing, distribution and retail to align at a drop frequency that works for all.
These factors enable DTC retailers to increase the frequency of their drops.
Okay – but so what?
More Drops, More Sales, Increased CLV
It’s like this.
DTC brands want to maximize their opportunities to entice both new and repeat customers as often as possible, and to make the customer journey as personal, intriguing, and satisfying as they can for shoppers.
They can’t do any of that consistently if they’re struggling with the constraints of seasonal product design, competitive discounting, manufacturing schedules, and other factors impacting brands that rely heavily on distribution and retail. However, if they develop sufficient vertical integration to free themselves from some or all of these constraints, they can follow in Zara’s footsteps.
The more frequently they can drop new products or orchestrate special promotions for in-demand items, the closer they can get to increasingly regularized income streams that don’t depend on calendar events or conventional design cycles.
As part of the process, the more frequent purchases from the increased drop rate will ultimately become stable revenue from repeat customers whose loyalty will continue to grow. Analytics of the data from increased drop frequency and resulting sales let DTC brands generate much more accurate cash-flow and buy size estimates going forward.
Increased drop frequency that leads to more frequent purchases also means that Customer Lifetime Value (CLV) can increase rapidly. That’s critically important to brand longevity and long-term success.
Loyalty grows and the brand-consumer relationship becomes more meaningful and rewarding for both parties.
Drop-Stoppers: Some Challenges for DTC Retailers
DTC retail isn’t without its challenges for brands wanting to move from more conventional models.
Since the transition isn’t magical and doesn’t occur overnight, DTC brands sometimes find themselves struggling with “legacy issues.” These usually have to do with increasing order volumes from their DTC e-commerce channel and scaling, shipping costs, fulfillment data, warehousing, and inventory management.
Let’s face it – global events in the last couple of years particularly have created huge issues for retail and fueled the migration to digital retail. In the process, they’ve created ongoing and severe problems with everything from retail waste, dead inventory, unfulfilled orders, shipping costs and international logistics, to the shuttering of a ridiculous amount of physical retail space.
It’s all a little daunting, especially when so much is still in a state of flux and nobody can say with certainty what’s coming next.
For some would-be DTC retailers, even the prospect of creating their own digital channel or leveraging social media effectively is too much to contemplate. Obviously, it shouldn’t be, and it doesn’t matter whether a brand is looking to operate exclusively in the realm of e-commerce or wants to create a site that will interlock smoothly with its brick-and-mortar operations.
It can be done, and done beautifully, as witness the case of Tecovas, a custom boot maker whose success in both online DTC and brick-and-mortar has attracted considerable attention.
Parting Shots & Interesting Thoughts
We don’t believe the real growth of e-commerce, and in particular, DTC online retail, is going to slow anytime soon.
The sad reality, at least for the time being, is that the industry must find the means to account for the disruptive pressures we’re all facing, including new “waves,” social unrest over lock-downs and travel restrictions, and supply chains in flux.
The newer or smaller brands moving to DTC without all the infrastructure they’ll need for a greater measure of vertical integration will struggle. While we think the struggle will be worth the results, it won’t be easy in the current circumstances.
For those in doubt, it’s important to remember that retail generally is moving to more humanizing customer experiences as a means of building the kind of brand loyalty that leads to more stable revenue streams and greater value in individual customer relationships.
We think the opportunities for more frequent product drops and the prospects for stable revenue streams from the repeat business of loyal shoppers are too attractive for e-commerce brands to ignore, regardless of their size or current infrastructure limitations.
So, even if your brand is relatively new to DTC or your DTC channel is established but most of your sales come through wholesale or conventional retail , it’s an excellent time to position yourself and increase your investment in DTC.
In fact, it’s time to focus on how you can move more strongly to DTC to reap the benefits of greater vertical integration, greater independence, increased product drop frequency, and ongoing repeat business.
The answers are out there. Stay tuned...