Direct to Consumer: Capturing the Million Dollar Market
There has been a dramatic sea change in how some brands are reaching their customers. Instead of using wholesalers or retailers, direct-to-consumer brands sell directly to the end customer. The resulting shift in power has been devastating for traditional retailers, and yet simultaneously, some of the most innovative and successful companies of the last decade have been born from this movement. It’s important you understand why companies are going direct-to-consumer so that your business can build a successful brand.
What does direct to consumer (D2C) mean?
The traditional supply chain includes a supplier, manufacturer, wholesaler, distributor, and retailer. The sales model often involves lengthy negotiations at each stage of production or delivery, and it typically results in a long lead time for product launches and an even longer wait for the customer feedback loop to kick in.
Direct to consumer ignored that traditional standard. Companies decided to cut out the middleman, the wholesalers, and the distributors and instead harnessed the power of the cloud and the rise of e-commerce to sell their products directly to end consumers.
If you could dream up a new product, produce it, build a website, and get people to buy it, you could, in a matter of months, imagine a new consumer brand, launch a product, control a brand's story, and build a million-dollar D2C brand from scratch.
Direct-to-consumer companies commonly have several (if not all) of these eight characteristics:
They are entrants to a low-barrier-to-entry industry.
They are capital flexible and/or can lease and rent part of operations.
They are extremely passionate about their customers.
They have experience harnessing first-party data and analytics.
They cut out the middlemen so they can ship directly to consumers.
They understand the importance of communicating directly with consumers (utilizing CRM software).
They have more pricing flexibility than legacy retailers.
They illustrate an increased use of digital marketing (especially email and social media).
Is direct-to-consumer worth it?
You might be wondering if it's worth it to go through the hassle of switching your business to a new model. And it’s a good question, because you certainly can’t make the change on a whim or decide to do it without having all of your stakeholders on board. It’s a significant shift in strategy for any business, one that entails a different set of skills that will necessitate input from tech, sales and marketing, data, and operations. That said, the majority of our economy is now internet-based, and the lifeblood of that economic engine is data. So if you want to keep up and reach more customers in more parts of the world in a more relevant way, you’re going to have to make the change.
According to a recent IAB study, over two-thirds of consumers have come to expect direct access to a brand, and about 67% of customers have used a company’s social media for customer support.
Why Millennials Are So Into D2C?
For millennials, the highly scrutinized generation born between 1981 and 1996, direct to consumer marketing holds substantially more appeal over traditional B2C marketing models. Millennials have no problem opting for alternatives to large traditional retailers in favor of brands that speak to their priorities: convenience, low cost, authenticity, and a seamless shopping experience. Companies that focus on direct to consumer marketing happen to do just that.
The fact that most D2C brands are e-commerce focused holds extra appeal for the generation that makes over half of their purchases online. As online-first companies, D2C brands offer the most streamlined, convenient, and straightforward shopping solution, an attractive alternative to going into a physical retailer.
Nearly 70% of millennials take into account company values before making a purchase, compared to 52% of all US adults. This helps to explain millennials’ warm embrace of Casper, the mattress brand which currently stands valued at $1.1 billion.Beyond profitability, Casper prioritizes radical customer satisfaction and social responsibility by offering a risk-free 100 night trial of their mattresses, and then recycling or donating unwanted products. Casper also champions convenience with its straight-to-your-door delivery that takes the stress out of in-store mattress shopping.
Why Direct- to -Consumer?
Millennials shoppers spent $600 Billion in each year
81% Consumers will buy from a D2C Brand in five years
87% Companies relate their D2Cchannel to their consumers
What Does a D2C Campaign Look Like?
Away is a luxury suitcase brand founded by Jen Rubio and Steph Korey. The company officially launched in February 2016 and generated more than $12 million in sales within its first year and in less than three years, generated $125 million in revenue! What’s their secret?
Direct-to-consumer sales played a huge part in their success. They started by looking into how they could tackle the price/quality conundrum that is so prevalent in the luggage industry. They determined that the reason luxury brand suitcases had such a high price tag was due to distribution and markup retailer costs. Their solution was to create superior luggage inspired by the customer experience, cut out the middleman and sell directly to the consumer. Their D2C strategy allowed them to offer their products at prices their target customers were willing to pay without sacrificing quality to make a profit. They now had a direct line of communication with their customers, which allowed them to continue making improvements to their products based on customer opinions.
Successful Direct-to-Consumer examples
Eyewear was once completely dominated by $58 billion French luxury brand Luxottica. Buying quality eyeglasses was expensive, and there were only a handful of retailers. Insurance was outlet-specific, and Luxottica owned the supply chain. As such, it often charged 10 to 20 times the cost of goods sold (COGS) with an average pair of glasses costing upwards of $300.
Warby Parker, an online eyeglass retailer that was founded in 2010, has completely disrupted the industry. It went direct to consumer, offering $95 glasses, a home try-on program, and seamless delivery. Through smart pricing, viral marketing, and a simple value proposition, Warby Parker gained momentum and market share, and it’s now a $1.2 billion company.
I remember well the mattress-buying process. It was a nightmare. Incandescent lights, crowded malls, confusing descriptions, and overly aggressive sales reps. Not to mention, it was near impossible to get an actual mattress you liked — or walk away without a hole in your pocket. Enter Casper in 2014, a direct-to-consumer mattress company that today does over $400 million in sales. The company cut out the retail overhead and middlemen (which allowed them to lower costs but maintain decent margins) and clarified the value prop, which meant it soon gobbled up market share in the multibillion-dollar industry.
The men’s razor industry was a $3.5 billion market. Controlled by P&G’s Gillette brand (“The Best a Man Can Get”), the market was essentially a duopoly alongside Schick. Similar to some of the other stories, dominant players owned the supply chain, controlled vast swaths of advertising dollars, and consequently, owned the consumer mindshare. Then Harry’s launched in 2013, reportedly raised more than $450 million, according to Crunchbase, and then purchased a factory overseas so it could control product and process. It’s quickly become the No. 3 online razor company and leads digital rival Dollar Shave Club in growth. According to Rakuten, it’s enjoying more than 6 times the growth of the industry average.
Even before all the D2C excitement, the consumer products market was already complicated. Some of the challenges include managing in-store experience, optimizing logistic networks, balancing supply, demand, and production capacity, and adapting to shorter product development cycles.