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Going D2C: The Challenges and Benefits

Direct-to-consumer (D2C, DTC) companies are increasingly entering the consumer products market, attempting to reach the potential success that other D2C brands have gained. Taking advantage of the eCommerce web infrastructure already established by tech giants, D2C brands influence the way consumers perceive online shopping by providing enhanced customer experiences. However, DTC company Harry’s recently faced antitrust concerns from the FTC which resulted in a failed acquisition deal, Cocodune crashed after a hit to financing due to Brexit, and Raden could not overcome policy changes banning lithium-ion batteries in smart luggage. With many DTC companies once viewed as high-potential disruptors beginning to demonstrate some challenges to securing a long-term advantageous position in a DTC strategy, it is important to reflect on some of the barriers causing these problems.

D2C Challenges to Growth

Venture capital investors used to see the direct-to-consumer trend as the next wave of successful eCommerce. Now, they are starting to acknowledge its weaknesses. It has become increasingly easier to start a DTC company, meaning that segmented niche brands could begin to face a highly competitive market in just a short period of time. For these reasons, SoftBank recently backed out of a funding round for DTC company Brandless, resulting in the company’s exit. Even though Casper has seemed to change the landscape for mattress sales, the company has found it hard to gain profits, even with the major cost savings that made DTC selling so attractive to venture capitalists. Advertising strategy and product differentiation are two roadblocks that brands need to be aware of and consider in their marketing strategies.

Advertising Challenges

Social media advertising is becoming more expensive to sustain for many DTC companies. ROI can often be difficult to justify, since common KPIs for social media ads include reach, engagement, and conversion, which can be hard to track. And, the cost of advertising through Facebook has risen continuously since a sharp 43% increase in 2017, significantly growing marketing costs for DTC brands. This has challenged them to look for other ways to reach consumers and expand marketing efforts for brand building and sales, even resulting in some DTC companies utilizing traditional marketing through TV or catalogs. Smart-home device technology could become valuable for DTC companies in connecting with customers, but this would only be beneficial if the tech giants like Google, Amazon, and Apple that produce those technologies do not have their own conflicting DTC stake. Additionally, large amounts of money are spent on advertising for DTC’s, but they will also need to increase their focus on customer loyalty by placing more emphasis on sustained relationship management. 

Differentiation Challenges

Differentiating a DTC product is increasingly difficult. DTC brands have been critiqued as providing not a particularly unique value proposition, but rather a different way of strategizing customer communication. The inherent value of this strategy is that it is designed to ease consumer purchases for high-consideration products, but since these items are bought infrequently, customer acquisition costs can limit the company’s profit. Gaining brand recognition is the main focus of DTC companies, which is made more difficult with similarities in many DTC brands’ packaging and company voice. Therefore, without wholesale partnerships, DTCs need to consider ways they can effectively reach customers and stand out among competitors.

Overall, scalability and growth potential achievable through successful advertising and differentiation are the two main factors DTC brands need to consider in positioning. Keeping costs low should be the most important focus of a company’s strategy. Though these are certainly challenges affecting growth of DTC companies, there are also many benefits to selling DTC, such as better consumer relationships, accessible feedback, control in the sales chain, and overall cost savings.

Overcoming Challenges in D2C

Nearly half of consumers have bought products from a disruptor D2C brand. D2C companies are uniquely positioned to effectively establish a close relationship with their consumers, which is perhaps one of the most significant benefits of this strategy. They can leverage their customer relationships to gain increased brand recognition from user buzz, and they can also easily receive and incorporate product feedback. Customers feel a deeper connection and loyalty to DTC brands, and 55% of shoppers prefer to buy from manufacturers rather than middlemen. Buyers appreciate the accurate and thorough product information that DTC’s can provide, and they gain a personalized experience with high quality customer service. Designing limited, perfected product lines is another common strategy for D2C companies. This enables them to invest more in advertising than manufacturing and R&D. Controlled manufacturing and distribution, with few or no middlemen, provides cost savings and draws in sales with the ability to price competitively. Though some companies have struggled, many DTC brands are still highly successful thanks to strategic marketing and positioning.

Brick and Mortar

With higher costs of social media marketing, D2C companies are considering non-digital methods of communication. Brand confidence can be displayed through tangible or physical marketing such as brick and mortar stores. DTC brands can enhance experiential shopping with a pop-up location or flagship store, where consumers can get a physical experience with the brand and test the tangible aspects of the product. Messaging needs to be consistent between a company’s online platforms and brick and mortar locations to keep the brand coherent, but this strategy can be effective in generating online buzz. Enhancing a consumer’s brand perception with an exciting physical experience can sometimes be even more beneficial to customer loyalty than investing in a store location with the purpose of generating sales.

Partnerships and Giveaways

One of the main advantages for DTC brands is their ability to control products end-to-end, from design and launch to customer experience and virality. As an organic form of marketing, partnerships between DTC brands can help benefit each other through these processes. DTC companies that find other non-competitor DTC companies with a similar type of customer can most effectively partner in giveaways and in-store experiences. If the partnership is based on store location proximity, special events can dramatically increase foot traffic and therefore brand awareness. Burrow House is one example of this type of partnership- they provide a store location with their furniture and partner with co-working spaces, retailers, and coffee shops to create an opportunity for consumers to interact with the companies. Partnerships with DTC brands who have the same investors or allied executives can go further to create co-branded products or giveaways. Bark and Glossier recently created special edition dog toys that each brand could promote. Giveaways can also increase short-term sales through discounts and limited time offers promoted on partner companies’ digital or physical platforms. Overall, partnerships can be highly valuable in generating unique, personalized organic marketing experiences for customers.

Considerations Moving Forward

In overcoming challenges through strategic marketing with brick and mortar locations and positioning through partnerships, D2C companies should attempt to create a dramatic entry when pursuing new markets. Other successful marketing techniques can include the use of influencers, encouragement of user generated content with coupon codes, referral programs, industry podcasts or educational blogs, and tech for a unique and interactive digital shopping experience. In total, continuing to focus on cost reduction, building customer relationships, and guiding unique experiences will be the key to achieving DTC brand growth and sustainability.

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Contributions by Courtney Loughran.

Tags: Consumer Products Trends, eCommerce, Direct-to-Consumer