The direct-to-consumer (DTC) model isn’t entirely new, but in recent years we’ve seen an increasing number of companies like Glossier, Away and The Honest Company that skip the intermediate step of retail to land their products on customers’ doorsteps. These brands are still small (most making under $1 billion in annual sales), yet their power is undeniable, toppling industries such as mattresses, shoes and men’s grooming. In 2017, DTC sales increased by 34% and represented 13% of all e-commerce sales.
The secret sauce? Successful DTC brands make data-driven customer experiences their core offering.
In traditional retail, wholesale manufacturers sell through retail distributors with little control over how the product is sold – where exactly it’s placed in the store, what sales associates say about it and whether the overall shopping experience is satisfying. The brand experience gets conflated with the retail experience. If the latter is overwhelming or confusing, the customer’s frustrated friction feeling gets projected on the brand itself and may even prevent a sale.
In contrast, the DTC model allows the brand to control every moment of engagement and learn about customer motivation and behavior at each step of the journey. Those touch points live in a vacuum, and the brand can accurately gather customer experience data to guide changes that create a frictionless experience.
An often-heralded brand in the DTC space, Casper, has made a name for itself in the saturated mattress industry by offering only one mattress that they claim will satisfy every customer. That one mattress is a direct response to massive amounts of research data that examine people’s actual sleep patterns and experiences shopping for new mattresses. They studied – instead of guessed – what kind of mattress experience was best, from ordering to shipping to sleeping, and then branded that data-driven simplicity as innovative luxury.
Data-first priorities help brands rethink the possibilities of industry practices. Disruptors like Warby Parker build excitement around their authentic responses to customer voices rather than desperately trying to muscle an untraditional idea into a traditional space.
From the customer perspective, DTC products are risky. Unlike in-store retail, they can’t touch – or even know, in the case of subscription services like Birchbox – the products in advance. Trust can only come from transparent research and data that show customers that a brand knows their preferences, enforces quality and offers the best price with the highest convenience. And when a company delivers on that expectation, customers reward them with brand loyalty, word-of-mouth evangelism and incredible retention rates.
How can retail emulate the direct-to-consumer model?
To stay competitive in the current e-commerce-heavy shopping market, retail will need to emphasize being data-driven and customer-first. In a study by Salesforce and Publicis.Sapient, 64% of shoppers felt that retailers don’t truly know them. It’s time for retailers to adapt to the nimbly innovative, convenient and personalized approach that DTC brands have taken.
One example: easy replenishment of frequently ordered and reliably consumed products. The uptick of subscription services and IoT technology like Amazon Dash Buttons reveals that consumers increasingly turn to e-commerce for convenience. Retail can capitalize on a wide selection of brands to provide recurring shipments of favored consumable products. Similarly, grocery delivery could offer add-on meal kits that are personalized by previous order data and customer preferences.
As retailers begin to use customer data to offer the same level of convenience as DTC, they also must consider how to leverage that data to build long-term relationships with customers. DTC brands impact every interaction directly to develop a distinct customer experience that reflects their message; retail minimizes individual brands to product images and specs that encourage comparison shopping. Since the retail model puts more focus on varied brand inventory than specific retailer branding, retailers can miss out on opportunities to build loyalty.
Brand satisfaction (and dissatisfaction) is driven by emotions like urgency, exclusivity and respect that build relationships with customers. Retailers are already known for urgency and exclusivity tactics, like flash sales around holiday weekends and store credit cards, but these loyalty methods can feel tired or disingenuous without the respect element that DTC brands emphasize. Respect is all about valuing the customer’s time and preferences over everything – prioritizing ease and simplicity in the brand relationship, anticipating customer needs at the right intervals and delivering personalized brand messaging.
To compete with DTC, retailers need to create touch points that are deeply engaging, show attentiveness to customer needs and preferences, and reward loyalty with increasingly compelling brand experiences. And to do that, retailers need to invest in data. Respect can’t begin without first analyzing customer journeys, discovering pain points, and optimizing and integrating experiences across channels – including in real time – to better understand and serve customers.
As previously e-commerce-only DTC brands like Allbirds and Casper start entering the brick-and-mortar space, retailers will need to leverage data to distinguish their own individual brands – rather than just being a one-stop shop for others – by delivering an exceptional customer experience that stands out. DTC brands have set the standard, and now retail can mimic their most successful tactics to exceed that mark.