From ‘Convenience’ to ‘Relevance’, how has DTC (Direct-to-Consumer) evolved?
Companies have now started working actively towards launching new DTC programs during the pandemic. For example, PepsiCo launched two new direct-to-consumer websites — PantryShop.com and Snacks.com — in response to increasing demand from the COVID-19 health crisis. Kraft Heinz launched a direct-to-consumer (DTC) service in the UK to cater to shoppers reluctant to go into stores or unable to secure delivery slots with the country’s major supermarkets.
We all know that e-commerce was already growing fast in pre-COVID days, but the pandemic has fuelled the growth even further. In this article, we shall discuss what is DTC, how it has evolved over the years, and how can companies use the right levers to grow in this space.
As John Donahoe, a Silicon Valley veteran who became Nike president and CEO in January 2020, says, “The accelerated consumer shift toward digital is here to stay. We know that digital is the new normal. The consumer today is digitally grounded and simply will not revert back.”
So, what is DTC again?
Before DTC, let’s brush up on some basics of e-commerce, its types, channels, and business models, and then we can hop into DTC. As the name suggests, a “commercial” give and take that happens through an “electronic” medium is e-commerce. When a manufacturer (say P&G) is selling its products via Amazon.com, Walmart.com, or Flipkart.com it is Business-to-Business (B2B), however when it is selling directly to its consumers through a privately owned website or mobile apps then it is termed as Business-to-Consumer (B2C) which in other terms is also called as DTC or Direct-to-Consumer. So why would a manufacturer want to sell directly to its consumers? It’s really simple. It helps companies build a direct relationship with their end consumers, monitor their behavioral patterns closely, and get transparent feedback. This helps them to target the right consumer with the right assortment of products in turn growing their own sales. Of course, there are significant financial gains associated with it as well, as companies substantially can cut down on distribution costs, retailer margins, and promotions, thus facilitating them to sell products at a very low cost to the consumers. It is a win-win for both, companies and shoppers!
To highlight the impact and growth of DTC, you should know that a report from e-Marketer says that a DTC shakeout is underway in Western Europe. According to an e-marketer study, the US is predicted to have a whopping 20 billion dollar sales just through DTC channels in 2021. Similarly, quoting from this article by Josh Howarth the Food and Beverage which is the fastest growing eCommerce category on the planet is set to grow by 21% by the end of 2021 in DTC space alone. Now that is huge, isn't it?
Where were we ten years back and where are we now?
1. Age of Convenience
In the early days, when DTC had just started sowing its seeds in the retail landscape, the sole priority was to make the shopping experience “comfortable” and “less time-consuming” for everyone. We could order all our favorite items with the click of a button. All it took was a great UI to browse products, easy payment options, on-the-door delivery while competing with big giants such as Amazon. Nike could let you order your favorite shoes, P&G could deliver all your groceries at subsidized rates and Mondelez’s Oreo designed a beautiful website to let consumers order festive gift tins of White Fudge Covered Oreo cookies for the holidays. The websites focussed on educating the user about their different products or services, how to use them, how they can purchase them, and so on. It was highly unlikely that someone would go to buy regular day-to-day essentials through individual websites, so DTC was certainly the game for “niche” products such as branded shoes or apparel.
2. Age of Experience
Post the exponential growth of eCommerce, many companies realized that providing “comfort” and “low cost” alone would not be enough. In this highly competitive space, it became supremely important to offer customers a “personal” and “rich” experience which will, in turn, be the company’s USP. Thus came the era of digital personalised assistants, planners, and care-takers! I am sure you must have guessed few products already. Yes, Google’s Echo Dot or Amazon’s Alexa are few examples that did not just provide you high-quality music but they personified your assistants while setting up meetings, reminders, read news, tell you the weather and traffic conditions, play your favorite tracks with just so much as a voice command from you. This was indeed a very “personal and ethereal” experience that many companies were aiming to provide to their end-consumers. Bank of America (BoA) came up with “Erica” as their financial digital assistant to fulfill all banking needs right from accessing balance information, transfer money between accounts, and schedule meetings at financial centers. Similarly, PillPack (now acquired by Amazon) was not “just delivering” medicines across from pharmacies but was also going to the extent of sending reminders so people will remember to take them, sending automatic refills, and arranged for 24/7 customer support.
3. Age of Relevance
This is just the beginning of this new era where numerous manufacturing companies and retail giants are becoming cognizant of the fact that the future is all about providing “relevant” products and services to “relevant” shoppers at “relevant” time. One size will not fit all and customization and providing astounding services will grow your shopper base. With robust data engineering, magnificent designing capabilities, and state-of-the-art AI models this can be a game-changing trend in the e-commerce world. A very recent example is the noted CPG giant P&G, buying a natural deodorant brand Native which will solely thrive on a DTC business model. P&G learned this the hard way when its own brand Gillette has been consecutively losing a significant market share to DTC brands such as Dollar Shave Club and Harry’s. In nomadic times, brand DTC websites would only offer descriptions of products, some coupons to give consumers discounts, information about ingredients, usage style, and so on. But just look at Olay’s Skin Advisor website and you will be awed! It uses AI to tell consumers their age, skin type and recommends products suited individually for them, and all this with the help of just one selfie. Now that is called meeting the consumers where they are!
So how to stay “relevant” in this DTC era?
- Understanding Consumer DNA: Using your marketing campaign responses, business objectives and social demographics on advanced modeling algorithms, you should target the right audience with the right suggestions on which most probably they (your audience) will act upon.
- Monitor your marketing activities: Real-time tracking of marketing through business KPI dashboards that track live data and performance of your campaigns and offers. Use A/B testing to see which marketing activities garner higher responses and tweak your campaigns accordingly without losing time
- Re-targeting: Use near-term targeting and behavioral traits to orchestrate re-targeting, especially after a failed attempt.
- Social listening: It is important to find the current themes, emotions, social trends, needs, and motivation currently ruling among the masses. Along with digital data accumulation, start using natural techniques of elicitation to make better marketing decisions.
- Create a sociable value: These days consumers are becoming very smart and looking for options that promote societal and environmental well-being. Companies should tap into these consumers into becoming their fans which later go on to become “social media influencers”.
I shall wrap up here but will certainly want to write another blog dedicated to this hot topic. We can study some niche and successful DTC brands, and why large conglomerates are interested now more than ever in acquiring small but growing DTC brands. Till then, Ciao!!