What is DTC? How Selling Direct-to-Consumer Can Benefit Your Brand

what-is-dtc

Editor’s Note: This article was originally published on May 15, 2020.

DTC (direct-to-consumer) is a relatively new business model that many companies have adopted in the last 10-15 years. 

Previously, your best bet for selling a consumer good was often going through third-party brick-and-mortar retailers, wholesalers, or online marketplaces like Amazon. While these avenues are convenient to consumers, they come at a cost: these channels take a cut of a fixed dollar amount or percentage of every sale.

Today, DTC has changed the way merchants sell. Why give up a percentage of your gross revenue when you can market directly to your customers and better nurture those relationships? 

Not only do DTC brands retain more of their revenue from each sale, but it also gives you complete control over the entire customer experience, from customer acquisition efforts like display ads, all the way through to the checkout process and post-purchase emails.

Building a DTC brand has never quicker to start or set up. With $100 or less, you can buy a domain, purchase a subscription to an ecommerce platform to handle your website and order management, buy an automation tool to handle your email and SMS marketing, and acquire many more of the other foundational tools you’ll need to be successful.

But should you consider a DTC business model for your brand? Find out what it means to be a DTC business, what the benefits are, and which brands have been successful following this model.

 

What is DTC?

Direct-to-consumer is when a manufacturer, consumer packaged goods (CPG) brand, or any individual with a product on the market sells their product directly to their end customer (the consumer) while bypassing all middlemen, including retailers and wholesalers. Most of the time, DTC brands will facilitate these sales transactions through their website or app due to the low cost involved.

 

DTC benefits

Selling direct-to-consumer includes numerous benefits, including the ability to learn about your customers buying interests, behaviors, and preferences, as well as the ability to communicate with them directly. It also helps to keep costs low for the end consumer because it cuts out the middlemen who will usually take a cut of the sale or add a markup to the product.

In this way, a DTC business model allows you to sell your products at a much higher quality and lower price. This can make it easier for the consumer to understand exactly what their dollar is going to and better justify the value of the product. 

For example, DTC apparel brand Everlane has a great cost breakdown on its site that provides transparency into the costs at each stage of its production process. 

Everlane-cost-breakdown-example-what-is-dtc

In addition, many third-party retailers don’t provide merchants with much information on the people who are purchasing your products.

For example, Amazon provides limited customer data to brands, which would make it difficult for you to ever try to re-market to these customers or engineer a second purchase. Amazon also prohibits any type of branding or promotional material in their packaging.

These limitations make it virtually impossible for you to create unique, branded experiences or build a real relationship with your customers. It’s likely that the customer would return to Amazon and potentially buy from any number of competitors when they’re ready to buy again since you’re not effectively building any brand loyalty with each purchase.

 

DTC disadvantages

Setting up a direct-to-consumer store does come with some disadvantages. It can be costly to acquire your first customers and you don’t have the advantage of piggybacking on a third-party retailer’s existing traffic. Because of this, your customer acquisition costs (CAC) will likely often be higher since you’re tasked with growing awareness of your brand, which often requires significant investment in paid advertising channels

In addition, you’re solely responsible for all order management, fulfillment, shipping, customer service, and returns or exchanges. Online ecommerce platforms have taken much of the difficulty out of managing these, but it’s still an important part of running a successful DTC business.

Because you’re solely responsible for the traffic coming to your site, your sales may also be inconsistent. You may have spikes where you’re really busy and then lulls in sales, whereas with third-party retailers, the traffic and sales can be a bit more steady and consistent as you come to learn how much you can expect to sell in a given time period.

Retail vs DTC

Selling through third-party retail channels (whether brick-and-mortar or online) typically means selling through channels that you don’t own and have no control over. 

If a customer walks into Macy’s and buys one of your products, they’re a Macy’s customer, not your customer. Nothing prevents Macy’s from dropping your product line whenever they want and there aren’t any retention tactics you can use to prevent the customer from going back into Macy’s and buying from one of your competitors the next time they shop there.

With DTC, on the other hand, you control the entire customer experience. From your website messaging and branding to your purchase confirmation emails and customer support experience, the entire experience can be customized to be what’s best for your brand, and more importantly, what’s best for your customers. 

This idea of owned marketing in which you control your marketing channels such as your website, email list, and SMS list instead of “renting” them allows you to create unique experiences for your customers and communicate with them as much or as little as you want.

It’s important to remember that not all DTC businesses operate solely online. Some DTC brands that started online, such as luggage brand Away, have opened brick-and-mortar stores. DTC isn’t simply limited to web experiences; many that have opened physical locations offer seamless shopping experiences and customer support both online and offline. 

These are also known as digitally native vertical brands (DNVB). These are brands that began on the internet and have expanded to physical locations. As you can imagine, starting an internet-only brand is much less expensive than opening a physical location and provides significantly more reach. 

If the online store is successful, you’ll ideally also have valuable data that can inform your decision on where to open your first store, such as where a high volume of your orders is coming from.

Consumer expectations are changing and they’re higher than ever before. Your customers expect a seamless experience between offline and online, fast and free shipping, personalized communication, and much more. The only way to truly ensure customer satisfaction at each of these touchpoints is by owning them.

Why some brands sell through third-party retailers

While DTC has many benefits, selling through third-party retailers also has its advantages, particularly if you’re a new brand, or launching a new product with a mass-market appeal: 

  • It can be a great way for your brand to gain broad exposure. 
  • You can leverage the advertising and marketing the retailer uses to drive traffic to their online or physical store. 
  • It’s a great way to build trust; consumers can feel confident that if they purchase your product and don’t like it or need to exchange or return it, they are backed by the third-party retailers’ return and exchange policy.
  • It’s often free to list your products on these marketplaces; the third-party retailer doesn’t get paid unless they make a sale, which makes it a quick way to get up and running with your businesses.
  • The third-party retailer can offer shipping, fulfillment, and order management services. These are all incredibly costly and time-consuming aspects of running a store!

 

Because of this, many brands do decide to operate DTC through their own website or app while also partnering with a third-party retailer to expand their reach.

 

DTC brand examples

There are thousands of examples of direct-to-consumer brands. Below are a few examples of notable DTC brands (some of which, like Warby Parker, that have opened physical locations as well): 

Warby Parker takes out the frustration of trying to find the perfect pair of glasses by sending their customers multiple pairs and letting them return the ones they don’t like. Warby Parker believes that people shouldn’t have a trade-off between style, quality, convenience, and affordability. They’re one of the original DTC brands because they created a more personalized and unique experience compared to traditional prescription glasses retailers at a fraction of the cost. In addition, they’re a great example of a brand that has made the transition from online-only to also opening brick-and-mortar locations as well.

Casper has been at the forefront of DTC, redefining the way people buy mattresses online. Previously, consumers bought mattresses from a big-box store and had to pay extra fees to get it delivered to their homes (and many stores would only deliver within a certain radius of their location). Now, consumers can order from Casper, which started the mattress-in-a-box trend, and get their mattress delivered for free. Casper guarantees a 10-year warranty and offers a 100-night risk-free trial to help their customers feel secure with their purchase decision. If they don’t like the mattress, simply return it for a full refund. They also have a relatively simple product line, only offering three types of mattresses in different sizes. Nothing is more overwhelming than walking into a mattress store and seeing dozens of different types of mattresses in varying sizes, comfort levels, and brands. Casper makes the process simple and straightforward.

Away was founded by two industry veterans who formerly worked for Warby Parker. One important thing they did when building their company is they didn’t position their brand as a “luggage” company; they positioned themselves as a travel company. They also focused heavily on creating a narrative for their brand and engaging influencers on social media networks like Instagram to build a community experience. By cutting out the middleman, they were able to offer an extremely high-quality product at a lower cost than traditional luggage companies were able to offer, making them a go-to option for the modern traveler who prioritizes value.

Beardbrand is a great example of a DTC brand that decided to focus solely on owned channels when they stopped selling on Amazon. What’s more, they entirely bootstrapped their business with just a $30 investment in Shopify. According to founder Eric Bandholz, “Why bother managing two different channels when we could just focus on one and make it really good?”

Learn why one haircare brand attributes operating DTC to their success
 

Each of these brands has one thing in common: they’re all extremely customer-focused. They have much more flexibility in how they operate their businesses and communicate with their customers. Additionally, they can personalize their marketing and communications using data such as their purchase frequency and history, location, and much, much more.

Final thoughts

Direct-to-consumer continues to growmany brands are taking back control of their marketing and sales approach by utilizing owned channels. And people are clearly responding positively to this business model considering 81 percent of consumers are planning to make at least one DTC purchase in the next four years

This tells us that not only is a DTC business model a smart move for brands, but consumers also prefer the personalized and premium shopping experiences they encounter with these businesses.

Now instead of spending time and energy trying to make it into retailers and giving up a percentage of each sale or increasing the prices for your customers, DTC brands can focus on building a great product that consumers love and building real relationships with their customers.

Interested in learning more about DTC brands? Find out how the founders of Beardbrand pivoted their marketing strategy after leaving Amazon.

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