In the past few years, an increasing number of brands have begun to use direct-to-consumer (DTC) marketing methods. These are companies that do not sell through retail channels and instead market their products directly to consumers via television advertising and online ads, for example. The benefit of this model is that the company has more control over the price of its products and can also use marketing methods that are proven to be effective. Some examples of DTC brands include Dollar Shave Club, Everlane, and Harry’s.
The downside is that there is no guarantee a consumer will actually end up buying your product. While DTC companies often have an impressive number of subscribers, the conversion rate of those who subscribe to purchasing is much lower. Additionally, these brands spend a lot of money on marketing and advertising; they charge more for their products in order to cover this cost. For example, Harry’s offers its “starter set” of razors and shaving cream for $15. This is actually a pretty good deal, considering the razor blades alone cost around $2 each. However, when compared to Gillette’s Fusion ProGlide Razor Starter Kit at Target (which retails for just under $29), one can see how Harry’s is selling a much less expensive product.
While it might seem as if DTC brands are here to stay, they tend not to last very long and usually do not have the staying power of their retail counterparts. Companies such as Journelle and ModCloth were able to make a name for themselves in the fashion industry but were eventually bought out by retail giant Nordstrom. The same was true of Dollar Shave Club; the company was acquired by Unilever last year and is now a part of their men’s grooming arm, Bluebeards Revenge.
It seems that while the concept of DTC brands is appealing, they do not typically have the staying power of their retail counterparts. If you are looking to make your dream a reality, it might be better to create an e-commerce site and sell through multiple channels, rather than just focusing on one.
The consumer packaged goods industry has seen a rapid growth of direct-to-consumer (DTC) brands over the past five years. These brands, which sell directly to consumers through their websites and social media platforms rather than via brick-and-mortar stores or traditional retail outlets have been growing at double digit rates.
These brands are often marketed and sold as a direct alternative to established consumer packaged goods (CPG) brands, which continue to dominate the market. One of the most popular categories for DTC products is beauty and personal care where young “millennial” consumers have been gravitating towards niche subscription services where they can save money by purchasing in bulk.
In 2018, Amazon bought the beauty subscription service Luxury Beauty Club, allowing it to gain entry into a market that is dominated by Sephora and Ulta. As these brands grow their DTC presence, traditional CPG companies are looking for alternatives to protect their market share.
The direct-to-consumer movement is still in its early days and the next two to three years will be crucial as we see whether these brands can continue to grow or if they are just a flash in the pan. The key for DTC brands moving forward will be delivering high-quality products at prices that are competitive to traditional CPG brands.
The advantages and disadvantages of direct-to-consumer brands are the same as for offline direct-to-consumer brands, with the additional factor of being able to test and refine your marketing message without having to worry about a retailer getting involved.
The obvious catch is that because you don’t have a retailer acting as an intermediary in the value chain, you have to bear the costs of producing and shipping your products.
For direct-to-consumer brands, these costs are higher than for brands that sell through traditional retailers. That’s because you not only have to pay the cost of shipping your product to your customers; you also have to bear the cost of returning money back upstream if any customer returns a defective or damaged product.
If you’re able to deliver your product at a lower cost than competitors, then this disadvantage is less of an issue for direct-to-consumer brands. But if the costs of shipping and return are higher than what shoppers are willing to pay, it can be a major challenge. That’s because shoppers will buy from brands that offer the best combination of price, quality and convenience.
If your shipping costs are higher than competitors’, then you need to be able to deliver the highest possible value at a lower cost than competitors in order for consumers to choose your brand over theirs. That’s why it’s so important for direct-to-consumer e-commerce brands to invest in product design and development, brand marketing, and customer service.
“The concept behind direct-to-consumer is not new,” says brand consultant David Haigh. “It’s been going on since the beginning of time.” But it has never been more powerful than today. “The internet has made it a viable and profitable business model.” The challenge for retailers is to accept that they are no longer in control of the supply chain, says Haigh.
“There’s room for both,” he says. “But ultimately if you’re not relevant to your consumers, they will go elsewhere.”
What happens next? “I can see that the evolution of direct-to-consumer brands will be a tidal wave,” says Haigh. But he warns: “They’re not going to be on every high street in the same way as supermarkets are. It’s not quite like that, but it will have a huge impact.”
The next step is for brands to work with third-party retailers. “You’ll see the emergence of small groups or even single traders who specialise in certain products and take them online,” says Haigh. And while this will initially be about making a decent margin, it could become more complicated.
“The next step could be a move towards localised procurement,” he says. “So these brands might find they have a surplus of their products, and so the retailers who sell them will start to get involved in buying them directly from the manufacturer.” In this way, there is scope for the retailers to start buying products directly from the brand and then selling them on to consumers.
“That’s a different level of collaboration,” Haigh says. “But it could be that direct-to-consumer brands are so good at what they do, they’re able to look after their customers in ways that retailers can’t.”