The number of manufacturers selling directly to consumers is expected to grow 71% this year to more than 40% of all manufacturers. (Forbes)
The direct-to-consumer (DTC) train is leaving the station—will your company be on board? Established brands like Disney, Nike and Apple have successfully incorporated DTC into their business models. Startups like JustFab, Harry’s, Glossier and Baublebar have established themselves as DTC-only. Dollar Shave Club performed so well as a DTC brand that in July 2016 Unilever acquired them for a whopping $1B.
If you could improve your customers’ shopping experiences by offering them the option to buy direct, why wouldn’t you? Businesses may hesitate to take on the responsibility of selling direct to consumer because they don’t have the budget, resources or infrastructure or they don’t think they can compete with established brands online. They may be afraid to fiddle with their established business model.
What businesses may not yet realize is what they have to gain from direct-to-consumer retail, as well as the ways that DTC can boost their current business model and keep them in the black. In many cases, the bottom line is the old model just isn’t good enough anymore.
Here are 3 ways DTC is blowing up your business model:
1. Customers shopping habits are changing. Over a third of consumers report they bought directly from a brand manufacturer’s web site last year.
How consumers are buying products is evolving. Part of the reason is demographic shifts in the marketplace. There are about 74.5 million Millennials, those between the ages of 18-34, in the U.S., surpassing both Generation X and the Baby Boomers in number. When Millennials shop, they are more likely to pick up their smart phones or search on their laptops for products than they are to get in their cars and drive to the local mall. According to Forbes, “younger consumers, accustomed to round-the-clock digital stimulation, are more likely to find the standard mall, with its cavernous walkways and recurring terrain of familiar shop windows, boring.”
Even those consumers who are showing up to brick-and-mortar stores likely spent time researching products online before they arrived. Another challenge for businesses that sell their products through traditional retail channels is they may find that some of their products are getting dropped from stores because of closings or shrinking shelf space.
Book publishers understand this problem all too well—when online behemoths like Amazon disrupted the traditional brick and mortar bookstore model, offering discounts and fast shipping, most book lovers couldn’t resist. Walk into your neighborhood bookstore today (if one even exists) and you’ll find half the shelf space has been given over to cards and gifts or even a coffee bar. That’s because in order to compete, traditional bookstores had to find new ways to draw customers in. Even then, some customers wandering the aisles are likely typing the names of the books they find into their phone’s web browser to purchase online later.
Department stores are the latest casualties of the digital shopping explosion. Once the mainstay of the retail mall, seemingly infallible companies like Sears, Macy’s and J.C. Penney are in a “death spiral” along with their stock prices. Without the department stores, brands are competing for less and less shelf space in the stores that are left, and new brands may have a harder time even getting through the door.
The bottom line? If your business model is relying exclusively on traditional sales channels such as selling through physical retail locations, your sales (and profits) are likely feeling the pinch.
2. The shift to online is changing logistics The shift in sales channels offers significant opportunities for DTC retailers and wholesale brands to better control their supply chain operations.
So what should a business do when confronted with the new realities of retail? Brands who already sell direct-to-consumer are reaping the benefits, including a clearer understanding of what their customer wants, which leads to better sales and more brand loyalty. Businesses offering a direct-to-consumer option own the relationship with those customers and have access to more customer data. They know when their customers are shopping, what they search for and how often they hit “buy now” versus abandon their cart. This kind of control over valuable customer information makes it easier to determine how many of an item to have on hand, how to price merchandise, and which products to highlight and which to discount. Armed with this data, businesses can plan more effective marketing campaigns. They can build their brand in ways that they couldn’t when working strictly within a traditional sales/distribution model.
Even the Girl Scouts of the United States of America (GSUSA) are gradually moving away from the old model and getting in on the e-commerce game. It used to be that cookie lovers had to hope that a friend or neighbor’s kid would knock on their door to take their order of Thin Mints® and Trefoils® once a year. Now, in an effort to increase safety and expand reach beyond traditional door-to-door or parents’ workplace sales, girl scouts have taken their cookie sales online. Girls are personalizing web pages and using smart phone apps to win their coveted cookie sales badges. The scouts are more easily connecting with interested customers, many of whom are coming directly to the scouts with orders, and the results are skyrocketing sales.
Going direct-to-consumer is not without some complications. In addition to understanding their customers, DTC businesses need to act as their own distributors online, making sure they keep track of their inventory numbers, handle their own returns accurately and with expedience, and more. Their closer relationship with customers means being held more accountable for customer satisfaction. But the alternative—restricting your business to the confines of the traditional retail model—means a potential hit to your sales and profits.
3. Your customers are happier when they deal directly with your business
Improving the customer experience is a big part of what makes DTC businesses successful. There are many advantages to the consumer, including:
- A one-stop shopping experience for everything they want. Third-party retailers may not stock all the items your company sells, leaving consumers on an expedition to several retailers to get what they need.
- More knowledgeable customer service. Some consumers feel more comfortable talking directly to the company about product information because they know they’ll receive accurate, up-to-the-minute information.
- A closer relationship with the brand. Social media has transformed the customer’s relationship to brands. Being able to access and positively interact directly with a company builds brand loyalty—sometimes for a lifetime.
Additionally, selling direct to consumer gives you the flexibility to choose how you want to market your products, what product attributes to highlight, how many new products to introduce at one time, etc.
Blowing up your current business model by adding DTC just might be the ticket to tremendous growth this year.
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