Managing Director at TERRITORY Influence, responsible for international marketing, business development and client service across Europe...
Eight out of 10 consumers plan to shop direct-to-consumer (D2C or DTC) brands within the next five years, according to the “2018 Direct-to-Consumer Purchase Intent Index” by Diffusion. This is an amazing success for an industry that hardly existed a couple of years ago. So, what is driving its marketing success, and what are the learnings for legacy brands and retailers?
1. Digital By Design
D2C businesses not only rely heavily on the digital ecosystem, but they were also born as digital natives, with social media and e-commerce coded into their DNA. Without any established relationships with traditional brick-and-mortar retailers, D2C startups have been free to define their route to market without any of the real or imagined constraints of their legacy counterparts.
As digital natives, D2C social accounts, e-commerce systems and websites are usually developed according to the newest and best user experience (UX) guidelines. With each platform reflecting their brand values and complementing each other, they have created digital ecosystems that appeal to many modern consumers.
Two brands that I think are great examples of this holistic approach are Red Dot Award-winning Activé and luxury cosmetics D2C brand Beauty Pie, each of which created a great ecosystem based on design and technology.
2. Community And Advocacy
Humans are naturally social creatures. We need to belong to a social group, and D2C brands have put great emphasis on building and nurturing their own social communities and online fan base. As a result, D2C shoppers are more likely to tell others about the brands they love, according to research by IAB U.K. These consumers often advise people they know on what to buy — a hugely important factor in generating awareness and sales quickly at launch for cash-strapped D2C entrepreneurs without any notable advertising budget.
Successful D2C brands know exactly how to tap into the power of consumer advocacy by strengthening social and community aspects in their marketing strategy and heavily leveraging their initial customers’ recommendations. According to fast-moving consumer goods (FMCG) expert Frederic Fernandez, “the consumer relationship will become the ultimate barrier to entry and marketing will shift focus from demand generated activities to consumer relationship-building activities.”
Other brands can learn from these examples by actively encouraging their loyal consumers to generate reviews and social content that they can easily amplify or showcase on their social media accounts and websites.
3. Mass Personalization
I find that personalization is key for younger generations. For them, it’s important to own something that is special or to use a product that absolutely attends to their needs. In the area of infinite personalization, D2C brands can obtain huge competitive advantages over legacy retail brands, which are otherwise limited by the amount of shelf space available or affordability in traditional retail.
One good example of mass personalization is haircare brand eSalon. The company offers a personalized hair coloration formula, delivered to the consumer’s door, accompanied by a step-by-step guide that’s also personalized. Its products are available as a one-time purchase or as a subscription.
Traditional brands should regularly ask themselves what product elements or features they could easily personalize, or if they could set up special physical outlets (such as the new Adidas flagship store) where their most enthusiastic fans can personalize the brand.
4. Meaningful Mission And Values
Consumers today often consider buying to be a political act. And according to 2018 research by Edelman, 53% believe that companies can do more than governments when it comes to creating a better future.
Many successful D2C brands were built around higher values or social/political agendas, such as Warby Parker with its “buy a pair, give a pair” program to support low-income families in emerging markets. Conscious consumers are often attracted to these types of goals and inclined to buy from the brand — a key factor that legacy brands must consider, too.
5. Exploitation Of Legacy Brand Weakness
Many successful D2C startups have clearly identified a significant consumer issue that existing legacy brands either willingly created for their own gain (e.g., higher-margin profitability) or left unsolved due to their organizational or financial constraints.
A good example of this is the razor market. By identifying a price-value gap as an opportunity for this category, in 2013, Harry’s was built on a D2C model, based on sufficient product quality, customer trust and a pure digital ecosystem. The company later sold for almost $1.4 billion.
For legacy brands to stay competitive, they should frequently test the sustainability of their business model and launch their own competitive models before someone else does.
6. Financial Business Model
Setting up a purely digital direct-to-consumer business model avoids the sometimes exorbitant margins in the brick-and-mortar trade; however, D2C brands do need to invest more in acquisition (given the lack of physical availability) and product delivery (individual personalized shipment). This is why the successful financial performance of a D2C startup is by no means an easy task.
I believe the very reasons D2C is succeeding over legacy consumer brands in the first place — the absence of entry barriers, cheap digital media, personalization instead of mass production — might haunt them in the future since these assets may not be future-proof.
To summarize, D2C brands offer a lot to learn when it comes to the strategic implementation of digital assets, consumer advocacy, product/service benefits and personalization into an extensive digital ecosystem that is scalable and profitable in the long run. They create an atmosphere of trust, trendiness and belonging, and consumers love them for that. This is why I expect legacy FMCG companies and retailers to increasingly launch their own DTC brands to capture and/or protect their revenue pools.