Understanding the Direct-To-Consumer Market

By Jamie Sperling

From Quip toothbrushes to Dollar Shave Club razors at Target – what’s a DTC brand doing in a big-box retailer?

The explosion of Direct-to-Consumer (DTC) brands over the past five years marks a profound shift in how products are sold and experienced. Early on, DTC brands were considered disruptors, with a business model that challenged industry norms and fundamentally changed the way legacy brands related to their consumers.

The appeal of the DTC movement is universal: By cutting out the middle man, brands avoid inflated retail markups and enable better design, quality, service, and price points. DTC brands also own the customer relationship, which has advantages on the backend (capturing cohesive customer data to build connected, compelling experiences) and frontend (consistent messaging and user experience throughout the customer journey).

Today, there are over 400 DTC brands. In 2018 alone, over 27 DTC brands launched, more than double, the number that entered the market the year before. As DTC becomes more and more saturated, differentiation becomes invaluable.*

The consistent origin story communicated by the founders of DTC brands, is that they recognized there had to be a better way to purchase [fill in the blank] than what currently existed. However, as DTC becomes progressively crowded across verticals, brand plays an increasingly important role in creating differentiation and emotional connection that goes beyond product and price point.

DTC brands who develop an authentic brand—one that stands for something more than selling features and function—continue to gain market share. They’re also better positioned to remain competitive amid industry changes because their relationship with consumers is grounded in emotional connection and higher perceived value.

In the early years, cutting out the middleman was a novel claim. Warby Parker, Dollar Shave Club, and Casper were among the first-movers to push this story, packaged as a friendlier, cooler alternative to the status quo. By infiltrating digital channels, early DTC brands generated awareness by being everywhere, all the time. Soon, though, DTC brands were competing for the same audiences, within limited channels, and the cost of customer acquisition moved closer and closer to that of traditional retailers. This reality led many DTC brands to try a hybrid model: brick-and-mortar locations with a digital-first approach.

DTC is no longer defined by a specific business model, but by a new mindset around the exchange of goods and services.

DTC brands have shown the entire retail space how to evolve with consumers–particularly when it comes to the purpose, design, and experience of a brick-and-mortar location. The DTC powerhouse brands have all made the transition from an online-only experience to physical pop-ups and permanent retail locations. While this may seem like an industry in reverse, these brands reimagined physical retail, in a manner that was more forward-looking than legacy retailers’ agenda.

Case #1: Reformation

Reformation founder Yael Aflalo saw the appeal of fast fashion retailers like Forever21 and H&M but knew the crowded racks, piles of clothing, slow-moving lines, and unflattering dressing rooms could only sustain certain shoppers’ loyalty.

In stark contrast, enter Reformation, where a few best-selling outfits are displayed in a minimalist and uncluttered space. Throughout the store, customers can use touchscreen monitors to find outfits (a la Cher from Clueless), select their size and enter a dressing room where their selection appears. As they try on clothes, customers can charge their phones, play their favorite music, and choose from a set of mood-lighting options. Initial items not working out? Not to worry, there’s another touchscreen in the dressing room through which you can easily request different sizes or other styles, all brought to you automatically through what feels like a magic closet door. Ever had that experience at a Nordstrom?

Case #2: Glossier

Anti-beauty brand, Glossier, is a best-in-class example towards which all DTC brands aspire. With humble roots as beauty blog, “Into the Gloss,” Glossier created a community of advocates before they created their first curated product collection. Glossier (virtually) listened as readers shared their thoughts around what was working, and what was missing, from beauty products and brands—eventually, their founder, Emily Weiss, was inspired to create a product line that directly addressed the needs shared by this online community. Glossier’s original products (cleanser, priming moisturizer, lip gloss, and misting spray) were natural extensions of the brand, 100% informed by the online conversation among their readers turned customers. Glossier recognized the importance of brand early on by claiming the position that they make “beauty products for real life,” with real customer input. The authenticity of this claim coupled with the relationships already formed between customers and “Into the Gloss,” successfully extended the brand and ignited its cult following, where customer-first wasn’t just something thrown around, but a proven guiding principle of the brand years later.

While traditional retailers struggle to remain relevant, Glossier’s shift from online to brick-and-mortar exemplified the marriage of physical retail and ecommerce– by viewing the physical location as a brand experience and awareness generator, more so than a revenue generator. The Glossier storefront is immersive– from the thoughtfully crafted décor to the pink jumpsuit-wearing employees who, as they walk you through the product line, feel more like beauty educators than sales associates. The store experience is not only unique, but uniquely Glossier.

What this all amounts to is a shift in the way DTC brands consider themselves and therefore present themselves to the market. When brands first connect with customers online, they must strategically design the user experience so that it doesn’t just feel transactional. Instead, the customer should have an experience that is valuable, engaging, and even unexpected—an experience that makes this online channel stand out among numerous other options.

When DTC brands transition from URL to IRL, the in-store experience must be the ultimate expression of the online-first brand with which their customers fell in love. The in-person experience should only deepen the customer connection, by enabling them to interact with, touch, talk, try-on the brand…the possibilities are endless, but the most important point is that a storefront is as much a marketing spend as the website.

Will this trend continue? DTC brands are nothing new (think HSN or QVC as the precursor to what we know today as DTC brands). But once we accept that the DTC channel for communication and consumption is no longer a novelty, we see these organizations have the same motivators as traditional brands: consumers who crave story, intention, and human connection.

 


* Foster, T. (2018, April 19). How Wharton Launched Warby Parker–and Dozens of Other Companies Just Like It. Retrieved April 2, 2019, from https://www.inc.com/magazine/201805/tom-foster/direct-consumer-brands-middleman-warby-parker.html